IT industry's dilemma: Hiring a CEO or grooming one?
Where internally groomed talent is more apt and skilled at maintaining the status quo of the organization, the outsiders are geared towards galvanizing transformations and changes
It is not surprising and certainly not wrong for an IT organization to hire a person with IT background as its CEO, who has been groomed internally to perfection. In fact, it would make all the more sense considering the CEO will have all the knowledge of the workings of the organization, domain expertise and required skillsets.
But of late, the situation with the current Indian IT set up is vacillating when choosing for the top roles from within. And the new trend in the IT industry is of hiring outsiders for the top job.
It is about ‘outsider’ CEO succession. According to Economic Times, three of India's top five IT giants - Infosys, Wipro and Tech Mahindra - have opted for outside leaders. And according to a few experts, this is a potential sign that organizations are starting to realize that some of their big internal leadership bets are faltering. And this has generated the need for organizations to look outside of their comfort zone and reach out to talent from outside.To name a few, Abidali Neemuchwala joined Wipro from TCS, Sanjay Jalona joined L&T Infotech from Infosys, and Vishal Sikka joined Infosys from SAP and the list is long. But the question pertains to why is there a need for organization to hire from outside?
With constant industry changes and rapid disruptions, hiring from outside yields better results. According to a study, Once an Outsider, Always an Outsider? CEO Origin, Strategic Change and Firm Performance, “When it comes to strategic change, outsiders typically are good at doing the rapid cost cutting and divestment”, which is a good for organizations, but at a superficial level. However, the study also states that “As tenure increases, obvious opportunities for cost-cutting and divestment dry up. Inside CEOs, because of their deep knowledge and root in the firm, are more likely to initiate and implement strategic changes that can build the firm’s long-term competitive advantage.” And on similar lines, a study by HBR states that 40 percent of leaders who are hired from outside each year, nearly half fail within the first 18 months.
Although many feel that hiring of an internal candidate indicates that a company is stable and is likely to continue an already successful business approach, the move to hire a CEO from outside does conspicuously suggests that the firm is not doing well on some level. According to another study, ‘Six Decades of CEO Successions: The Importance of Being an Insider’ by Ferris, “internal CEOs have been the consistent choice for corporations over time, a trend that persisted even through major political and economic changes. However, instances like a forced turnover drastically increases the likelihood of external selections, and that external CEOs tend to make different business decisions than do internal candidates. Change clearly is needed in those situations, so it makes sense to look outside the company for someone to rejuvenate the firm.”
One of the most significant things that have come into light is the fact that in the war for talent (for that matter at any level) and as organizations become more global in their reach, the need to reflect and prove extensive capabilities has increased significantly. So where the internal talent is more apt and skilled at maintaining the status quo of the organization in times of clam, the outsiders are more geared towards galvanizing transformations and changes.
But is hiring from the outside a deliberate strategic move by organizations to adapt to the new industrial disruptions? Maybe Yes. In circumstances like poor performance or high business growth, hiring an outsider CEOs can actually enable the organization to outperform. So in a nutshell, for companies which require a turnaround or transformation, an outsider CEO might do the trick.
But on the contrary, many feel that hiring CEOs from the outside to a certain level signals the challenges of grooming internal talent. According to Ram Charan, “the window in which to spot CEO talent is narrow. And true development happens on the job, not in a classroom. And only a few companies know how to get their best people the experiences that would prepare them for the CEO role or to rigorously evaluate them in the jobs they do perform.”
There are many factors that contribute to such a scenario. And only time can tell who succeeds and who derails.