A Look into 5 Case Studies that Illuminate Solutions to Leadership Transitions
Published by HRCap, Inc. on October 9, 2024
Establishing a strategy for transferring important positions to other individuals or groups of people is called succession planning. While a successor does not necessarily have to be an internal employee, it is important to have a defined process. Since succession planning has a significant impact on the continuity and adaptability of business, companies need to identify succession planning challenges and implement effective solutions for a smooth transition.
Challenges & Solutions from Succession Planning Cases
Challenge 1: Overvaluation of Past Performance
Past performance or past leadership positions do not guarantee someone’s success in another leadership role or subsequent success. Instead, companies should consider the candidate's overall strengths and weaknesses. Even if someone had outstanding accomplishments with the company before, if certain soft skills are lagging, it could cause a significant problem for the company when they get promoted to a higher position.
Case: In 1999, the CEO of Coca-Cola, Doug Ivester, had to resign only after two years of his tenure. The return on equity for Coca-Cola within two years decreased from 56% to 35%. While Doug Ivester was an extraordinary CFO for Coca-Cola and was mentored by the previous CEO, he failed to harness some leadership skills, such as social awareness and socio-political sensitivity. He demoted the highest-ranked African American executive who contributed significantly to the company regarding public relations and anti-discrimination. The employees and Atlanta citizens were outraged by the decision since it seemed discriminatory. Additionally, he failed to address the anti-Americanism of executives from a partner company and mishandled the public health scares related to Coca-Cola.
Solution: Success in one job does not indicate success in the next job. Therefore, taking a holistic approach and considering the personality and leadership style over obsession with past performance is highly important. Beyond the people in the position of executives, other employees should be considered if they can capitalize on their strengths and have managerial potential.
Challenge 2: Focus on Mirroring Previous Executive’s Qualities
The thinking process of trying to find a person identical to the current leader is not the best for succession planning. Fast-paced changes in the market do not guarantee the duplication of success of the company by choosing the same type of leader. Also, only looking at those with the perfect fit in the short-sighted standard can lead to missing out on other valuable qualities in other candidates.
Case: An anonymous retail and shopping giant needed a solid succession plan since the CEO privately intended to step down. It was a particularly challenging season because the pandemic resulted in low customer traffic to the mall. Regarding this change, the company's board of directors and an HR consulting firm determined that the incoming CEO should not be an exact copy of the current CEO. They developed a new ideal archetype of leadership to consider those who can lead the changes while upholding the company's legacy and values. Ultimately, they identified an internal candidate within 18 months who fit the desired archetype.
Solution: Creating an archetype that can allow the board and HR leadership to determine who should be the successor is a great way to set the standard. By creating an archetype, the company can identify the “must-have” skills and qualities while not turning down great leaders with different advantages and strengths.
Challenge 3: Navigation of Succession Secrecy Dilemma
Companies need to have succession planning in place, or it is almost like a death without a will. The succession planning for certain positions, especially executive roles, is sensitive because it requires careful management of who is under consideration and who is not. However, investors want evidence that the company is prepared for the future by ensuring a successful transition.
Case: In 2016, Disney’s COO, Thomas O. Staggs, announced his resignation abruptly. Staggs contributed to a 12% rise in year-over-year revenue growth. Due to his incredible performance, he was regarded as the heir of CEO Bob Iger. At the time, Bob Iger planned to step down in June 2018, which provided a surprise and uncertainty to the investors. Due to the abrupt announcement and the ambiguity of the successor, Disney's share fell 1.3% during the after-hours trading.
Solution: Companies should clearly communicate a succession plan. Providing transparency around the succession process is crucial to reassuring stakeholders, even if a specific successor has not yet been identified.
Challenge 4: Lack of Investment in Developing Future Leaders
Based on employees' capacity, it is important to train and mentor those who have the potential to step up as leaders and executives. This is because insiders have the context and sense of the company’s culture and objectives. Finding seasoned experts who also happen to understand and adapt fast to new company cultures outside of the organization can be challenging. Nurturing potential successors within the organization is an excellent way to evaluate multiple candidates and observe how they perform and apply their soft skills.
Case: In 2011, Tim Cook became an interim CEO while Steve Jobs was on medical leave. In August of the same year, the board announced him as an official CEO as Jobs had to step down due to a health issue. At first, people doubted Cook’s ability to lead Apple to success after Steve Jobs. Although Jobs’ vision and idea were one-of-a-kind, Tim Cook increased the market cap from $348 Billion to $2.5 Trillion in 10 years.
When Jobs was forced to step down by the board and then return to Apple years later, he tried to delegate more responsibility and give trust to the top managers, unlike the first time when he was confrontational and overly dogmatic. One of the top managers that Jobs trusted the most was Tim Cook whom he mentored. Before stepping down due to cancer, Job spent countless hours with Cook and other managers who have the potential to be a leader to coach and prepare them.
Solution: It is crucial to identify future leaders and train them. By updating the succession planning through nurturing potential successors, the company can decide which people are leader material and which position fits best for each candidate. This prepares the organization for abrupt leadership changes and unforeseen resignations while protecting the continuity of the business.
Challenge 5: Outdated Succession Plans in an Evolving Business Landscape
Companies often wait to revisit succession planning after it is established. However, it is crucial to revisit the plan, make changes as the situation evolves, and plan for different strategies and positions after or during the succession process since the leadership style would change.
Case: Although Microsoft has had two CEOs since 2000, Bill Gates had a considerable presence, and Steve Ballmer deferred most of the power and decision-making to Gates. In 2008, Gates decided to resign from his full-time role as CEO and continue to serve on the board of directors. Therefore, most of the responsibilities were delegated to Ballmer. Balmer restructured the company since he could no longer rely on Gates for technical guidance. For every product group, Ballmer appointed technical people in charge while product group leaders balanced between sales background and technical background instead of solely from sales background. Also, he encouraged cooperation rather than fierce competition among the product groups.
Solution: Positions and major strategies should be redefined as succession happens or leadership changes. This ensures a smoother transition and further growth of the organization.
Conclusion
When companies invest in succession plans, they must consider the business goals and the executives’ overall competencies, including their soft skills. Rather than finding leaders identical to the current executive, making a new archetype based on the latest market and situation is a great strategy. Also, excavating potential successors inside the organization is critical to prepare for a sudden change or as a part of the succession plan.
HRCap partners with client organizations in carefully developing and executing custom succession plans. As the number one Executive Search group in North America, HRCap has expertise in finding suitable and seasoned candidates for leadership positions, while also providing confidential succession plans, leadership assessment, and executive coaching.
Source: Forbes, Fox Business, Russel Reynolds, Sigma Assessment Systems, Investopedia
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