Give new CEOs a chance to "diagnose" before "doing"

02 March 2010 8:36am

Internally promoted CEOs face a transition period that is "incredibly fraught with risk and peril", says leadership expert Stephen Miles.

Miles, who is the vice chairman of Heidrick & Struggles' leadership consulting practice, says the difficult aspects of internal transitions are often overlooked.

When a CEO is promoted from within, they are usually expected to start making things happen on day two, he explains. Because they know the company and are known by management, expectations have already formed, and "they miss the obligatory diagnostic period that you get when you come from the outside."

"What we find is people start to derail and outright fail in a very short period of time because they try and do all of the things that are on everybody's agenda - they boil the ocean, and as a result, their overall impact is completely diluted," Miles says.

Even if a CEO is not new to an organisation, they should insist on time to reflect before taking action, he says. "The only way you can get that diagnostic period as an executive is to build it in yourself, because everybody else has an expectation that you're going start doing."

New CEOs should set expectations, not inherit them

During this "diagnostic period", CEOs should consider the structure of their company, with particular focus on their team, he says. Most have been promoted through their peer group and will need to establish themselves as a new leader.

New CEOs should also proactively set expectations early on, Miles says. "It's the only time, the only time that you can set the bar. Everybody around you has their own bar set, everybody above you has their bar set, and you need to set the bar so you can exceed expectations."

Miles says it is not about "sandbagging" but about setting realistic expectations against what the business requires.

Inside versus outside when implementing strategic change

A recent US study has found that the advantages of having an "inside" CEO are most apparent after the first three years.

Conducted by academics from the University of Southern California and Rice University (Texas), the study examined how the relationship between strategic change and firm performance differed between "outside" and "inside" CEOs by comparing the tenure histories of 193 CEOs with company performance.

The relationship was similar in the early years of tenure, but over time higher levels of strategic change proved less effective in companies led by outside CEOs.

While outside CEOs are "prized" for their non-company-specific but "relatively novel" knowledge and skills, the company-specific knowledge and skills that inside CEOs had gained through prior experience were of significant long-term value, the researchers said.

Because inside CEOs had "a deeper understanding" of their company's internal resource conditions, and were "constrained by their past experience", they were more likely to implement strategic changes incrementally and continuously, the researchers found. Their approach proved less disruptive and more effective than their outside counterparts, who were more adept at implementing lower level change.

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