The Cost of Poor Leadership Transitions
Not setting up your leaders for success in new roles can lead to disastrous consequences. Despite that, most finance organizations provide only generic transition support focused on the first few days of the executive’s tenure. This is a recipe for failure.
CEB research, informed by data on nearly 30,000 leaders and hundreds of interviews with recently transitioned leaders at large companies, shows that while only 3 per cent of transitioning leaders fail outright in their new roles, as many as 46 per cent underperform during the course of their transitions. The performance of direct reports of a struggling transitioning leader is 15 per cent lower than those who report to a high-performing one. And those direct reports are 20 per cent more likely to be disengaged or leave the organization.
However, on the upside, successful leadership transition can generate substantial benefits for both the leader and the organization. Great transitioning leaders are able to create significant returns for the organization. At least 9 in 10 teams they lead meet their three-year performance goals. In addition, the attrition risk for their teams is 13 per cent lower than average, and their teams show discretionary effort levels that are 2 per cent higher than average, generating potential improvement in revenue of 3 per cent to 5 per cent and profit of 2 per cent to 5 per cent.
How to Improve Leadership Transitions
To support leaders during the transition period, the best organizations recognize that not all transitions are the same. They proactively tailor support for four key transition types (shown in chart 1):
Replacing an Icon: Nearly one in five new leaders step into the shoes of a very successful predecessor. A popular example of such a transition was Tim Cook’s replacement of Steve Jobs as CEO of Apple.
Cook faced a significant challenge – respecting the legacy of his predecessor while putting his own stamp on the organization without compromising its performance. Leaders replacing an icon should first clarify the role, and then forge relationships that will help legitimize and advance their agendas.
Following a Train Wreck: More than one quarter of all transitions follow a “train wreck”, a situation in which the previous leader has failed spectacularly.
One example is Matt Zames stepping into the chief investment officer role at JPMorgan Chase after a multibillion dollar trading loss under his predecessor. The two activities that are most critical to a leader transitioning into a train wreck are creating a clear vision for the organization, and forging new relationships and repairing those damaged by underperformance.
Jump Start: Almost one-fifth of leadership transitions fit the “jump start” mold, where the organization needs to quickly move in a different direction because of a change in strategy or the broader economic environment.
A recent example is this category is Patrick Eltridge’s move from Standard Chartered Bank into the chief information officer role at Telstra, responsible for integrating the information technology organizations and make Telstra more customer-centric. When faced with a jump start situation, leaders must focus on quickly developing organizational IQ by understanding the function and dynamics of their new team, while actively using existing networks and their teams to socialize and drive change.
Breaking Ground: Nearly 4 in 10 leadership transitions involve moving into a newly created position, underscoring the increasing presence of executive roles for managing new priorities related to social media, data, risk, sustainability, and shared services.
One example is the installation of John Bottega as the first chief data officer at Bank of America. To succeed in this type of transition, it is critical to clearly define the responsibilities and objectives of the role and gain a better understanding of the stakeholder universe. The initial level of uncertainty inherent in this type of transition affords the leader opportunities to shape the role and how success will be judged, both during the transition and in the long run.