3. The Massive Costs of Failed Executive Onboarding

When was the last time you witnessed a new organisation strategy fail?

Strategy Execution is one of the most crucial elements of successful organisations. And yet too many organisations fail to get it right. Harvard Business Review (HBR)[1] finds that the majority of strategies fail due to poor execution.?

Harvard Business Review: 67% of well-formulated strategies fail due to poor execution.        

This exceptionally high failure rate is quite shocking. According to executives interviewed confidentially, the main reason for this high failure rate (61%) was them not being properly prepared for strategic challenges they had to face at the time of their appointment, so a classic case of executive overwhelm.

The research suggests 4 main reasons for failed strategy execution:

1.????Executives lacking depth and neglecting their competitive context

2.????Executives being dishonest or naive about trade-offs to invest, compete and win

3.????Executives leaving old organisational designs in place & not taking a systemic look at capabilities, processes, governance, culture, competencies and technologies

4.????Executives are unable to handle the emotional toll and not being supported by an executive coach

Arguably the work required to craft and execute company strategy is exceptionally difficult. As a result executives may be tempted to oversimplify, dilute or match this to their own competency level accordingly. One effective way to avoid the high cost of failed strategy execution is to prepare the executives for the real requirements of their roles. It would bring the failure rate down and give the organisation a chance to adapt to the external circumstances, and ultimately thrive.

Former Heidrick & Struggles CEO: 40% of executives hired at senior level 
are pushed out, fail or quit within 18 months.        

A Financial Times (FT) article quotes[2] Kevin Kelly, ex CEO of the Executive Search company Heidrick & Struggles “We’ve found that 40% of executives hired at the senior level are pushed out, fail or quit within 18 months. It’s expensive in terms of lost revenue. It’s expensive in terms of the individual’s hiring. It’s damaging to morale. The Institute of Executive Development (IED) in Palo Alto, California, USA and the Alexcel Group have similar findings in their “Executive Transitions” Study[3] :

·?????30% of external executive hires fail within 2 years

·?????23% of internal executive transfers fail within 2 years

·?????Ramp up time for new external hires ranges from 6-9 months

·?????Ramp up for internal transfers ranges between 3-9 months

McKinsey & Co.: 27%-46% of executive transitions are failures or disappointments        

McKinsey[4] cites several research papers suggesting that several studies show that two years after executive transitions, between 27%-46% of them are regarded as “failures or disappointments”. Leaders rank organisational politics as the main challenge and 67% of leaders with they had moved faster to change the culture. Hence Dr. Marshall Goldsmith’s advice[5] : “What got you here, won’t get you there” seems fully applicable to executive transitions. Bearing in mind all of the above studies, nearly half of executive transitions fail.

A study by Manchester, Inc. - often attributed to The Center for Creative Leadership - found that 40% of leaders going into new roles fail. Brad Smart has cited a failure rate of 50% in his book Topgrading[6] . Leadership IQ published a study[7] suggesting that the failure rate is 46% within 18 months. And Harvard Business Review cites “35% to 40% of senior hires wash out within their first 18 months.”

Source: Mark Murphy, Leadership IQ: Why New Hires Fail (Emotional Intelligence Vs. Skills)

Many organisations work hard to identify and hire new executives…. But very few have established a systematic onboarding process for their executives, supported by an external Executive Coach in order to make this significant investment successful and capture value quickly[8] .

The seminal work of Michael Watkins “The First 90 Days”[9] suggests that the “Adoption of a standard framework for accelerating executive transition can yield big returns for organizations. Given the stakes, it is surprising how little good guidance is available to new leaders about how to transition more effectively and efficiently into new roles.”

The Corporate Executive Board (CEB) research[10] suggests that unsuccessful transitions result in 15% lower performance and lower employee engagement with team members 20% more likely to be disengaged or to leave the organisation. The flip side of this: 90% of leadership teams whose executive leader had a successful transition go on to achieve their 3 year performance goals. And in those teams the attrition risk is 13% lower than the rest:

Source: CEB Blogs, “Corporate finance: The cost of poor leadership transitions,” blog entry by Kruti Bharucha and Nikita Dial, 29 October 2013, cebglobal.com

The massive cost of failed executive transitions is several-fold:

Forbes & HBR: The cost of replacing an executive can be anywhere
between 2.5[11] to 10[12] times their salary.        

But even if the executive choses to stay, there are indirect costs such as performance of the business unit, opportunity cost of inaction, the cost of higher turnover on the teams.

In my next article I will focus on Successful Strategies for Executive Transitions.

-> If you enjoyed reading this article, you will definitely benefit from reading #MasteringExecutiveTransitions: The Definitive Guide, the #1 New Release on Amazon: https://www.amazon.com/dp/B09NSPW473

[1] Carucci, Ron, ”Executives Fail to Execute Strategy Because They’re Too Internally Focussed“, HBR, 13 November 2017

[2] Maters, Brooke, ”Rise of a Headhunter“, Financial Times, 30 March 2009

[3] “Executive Transitions Rise, Challenges Continue”, IED and Alexcel Research, June 2013

[4] Keller, Scott & Meaney, Mary, “Successfully transitioning to new leadership roles”, 23 May 2018, McKinysey, based on a number of landmark studies, including Brad Smart and Geoff Smart, “Topgrading: How to Hire, Coach and Keep A Players”, New York, NY: Penguin, 1999; Mark Murphy

[5] Goldsmith, Marshall Dr., ”What Got You Here Won’t Get You There“, International Edition, Profile Books Ltd, 2008

[6] Smart, Brad, ”Topgrading: How To Hire, Coach and Keep A Players“?Pritchett, 1 January 2005

[7] Murphy, Mark, “Leadership IQ Study: Why New Hires Fail”, Washington D.C., September 2005

[8] Nazemian, Navid, “The Massive Costs of Failed Executive Onboarding“, LinkedIn July 2020

[9] Watkins, Michael D., ”The First 90 Days: Critical Success Strategies for New Leaders at All Levels“, Harvard Business Press, 2003

[10] Bharucha, Kruti and Dial, Nikita, ”Corporate Finance: The cost of poor leadership transitions“, Blog entry, CEB Blogs, cebglobal.com, 29 October 2013

[11] Fatemi, Falon, ”Forbes: The True Cost Of A Bad Hire - - It’s More Than You Think“, 28 September 2016

[12] Nawaz, Sabina, ”Harvard Business Review: The Biggest Mistakes New Executives Make“, 15 May 2017