CEOs and corporate boards should prioritize coaching programs to build a stable bench of senior managers who are ready to move up.
About 15 months after IBM said it would acquire Red Hat, the company announced a leadership change. IBM announced the acquisition in October 2018 and the deal closed in July 2019. The IBM board elected Arvind Krishna as the new CEO at the end of January.
J. Craig Lowery, Ph.D., a VP analyst at Gartner, said succession planning often starts soon after a major milestone event. With the recent leadership news from IBM, this event was likely the Red Hat acquisition closing.
"I suspect IBM looked at Microsoft's success with Satya Nadella (coming from the cloud business to CEO) and began to plan a similar move concurrent with the closing of the Red Hat deal," he said.
Krishna succeeds Ginni Rometty, who is stepping down in April, IBM said. Jim Whitehurst, the CEO of Red Hat, was named IBM president.
Lowery said the appointments were a good surprise.
"By installing new leaders that were at the center of that acquisition, IBM is reinforcing a consistent cloud strategy and putting cloud-aligned decision makers in the driver's seat," he said.
Other companies can engineer a similarly smooth leadership transition, if people on the senior management team are ready to move up. That seems to be the big stumbling block in succession planning, according to research from Gartner.
A recent Gartner survey showed that 81% of HR leaders cite lack of readiness as a top reason that a high-potential candidate was unable to fill leadership positions. This means the leadership bench is almost empty at companies taking on digital transformation projects.
SEE: Recruiting and hiring top talent: A guide for business leaders (free PDF) (TechRepublic)
Sari Wilde, managing vice president in the Gartner human resource practice, said organizations need to address five fundamental succession risks to solve this problem. These risks are:
- Vacancies cause time-critical leadership responsibilities to be neglected.
- Successors are often underdeveloped.
- Succession planning based on existing roles misses the mark on future business needs.
- A homogeneous pipeline can damage company culture and performance.
- Failure to provide transparency around succession management disengages employees.
Wilde explained how companies can use complementary leadership and portfolio management strategies to make sure senior management and directors get the professional development and training they need to build a strong leadership bench.
Techniques for developing new leaders
Wilde shared an example of complementary leadership from an aviation company. The company needed to quickly fill critical skill gaps among senior leaders who were being asked to lead in new areas. They also had some junior leaders who had the skills the executives needed.
The company paired up people from each group to create leader partnerships with specific responsibilities for co-leading the new business areas.
"These leader partnerships can be created formally by HR, or informally, where the leader pulls in the skills partners that she or he needs," Wilde said.
Wilde said the portfolio management strategy borrows from traditional financial portfolio management. This technique allows companies to adapt to changing leadership and skill needs.
"They include broad sourcing of talent across the enterprise, more deliberate diversification of skill development, and more frequent rebalancing of the leadership team against strategic goals," she said.
For example, one organization conducts periodic assessments of their leadership bench against their abilities to execute on new strategic objectives from the business.
How boards and CEOs can build the bench
Stanford researchers surveyed more than 150 corporate directors of public companies in North America to understand how well directors knew senior managers. The idea was to see if directors knew enough about a corporate team to be able to spot people who could move up to the next level. The researchers found that board members didn't know much about senior leadership.
"This can be a serious liability when the time comes to identify a successor to the CEO, and can unnecessarily extend the CEO search process," said study co-author and Stanford Graduate School of Business faculty member David Larcker in post about the study.
Researchers found that this lack of familiarity meant that board members didn't know much about the strengths and weaknesses of the team either.
To fix this, board members and CEOs should have a formal talent development program that includes board members and is connected to succession. The authors recommend that CEOs create and implement a development program for direct reports, and for the board to make sure that this work gets done.
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