Mediocre people occupying senior leadership positions is one of the chief reasons for the fiasco and humiliation that organizations like Enron and WorldCom faced. The practice of recruiting average people at the top is omnipresent and often goes unnoticed until the results begin to surface, which is typically too late for any intervention.
Smart people decisions matter a lot in achieving profitability. Research indicates that a return on average human asset of 5% is typical in many industries. However, a senior executive selection of 2 standard deviations below the average yields -15% return on asset. An executive selection with 2 standard deviations above average causes +25% return, which is 5 times the average. Increased investment in finding and hiring the best senior executives fetches returns to the magnitude of 1000%.
Attracting and selecting the best people for senior leadership positions isn’t a small feat. The future of organizations depend on it. However, the Human Resource Management function at most organizations fail in getting the right people at the top. The decision to hire at the senior positions necessitates deliberate effort and commitment. Identification and onboarding of right people at these levels can create a substantial competitive advantage and profitability for the organizations. Leading companies invest a lot of time in these decisions and conduct careful assessment of a pool of candidates. They evaluate the opportunity costs associated with onboarding wrong people at critical senior positions and those associated with performance that could not get delivered due to selection of incompetent individual(s).
To prevent the disasters caused by psychological barriers and biases and to onboard competent executives, organizations need to religiously follow these 8 guiding principles:
- Outline requirements
- Prepare a large candidate pool
- Benchmark rationally
- Appraise systematically
- Overcome resistance in decision making
- Keep the evaluation team small
- Finalize the deal in time
- Support assimilation of new hires
Let’s discuss the 4 guiding principles in detail, for now.
Defining the job requirements clearly before initiating the executive search process is an imperative for finding and appointing the right persons at senior positions. The board should take out time to hold meetings to sift through the organizational strategic objectives and prioritized initiatives. The outcome of these sessions help the recruiters develop a list of critical skills and behavioral competencies.
Prepare a large candidate pool
Restricting executive search to specific geographies or industries limits the chances of finding the most suitable candidate(s). For instance, to hire the country head for a computer hardware firm in Asia, a company may identify all C-level executives at specific large hardware and software providers in the region; target former top executives of all relevant companies; consider senior executives outside the hardware sector; and shortlist about 10-12 top candidates to be interviewed.
Having a fair comparison of shortlisted candidates is possible by creating consistent benchmarks. This helps all the appraisers to follow a defined approach and rating criteria. External and internal candidates should be assessed without any biasness. Likewise, comparison of soft skills—which are obvious to internal candidates but unknown to outsiders—should be done on equal footing.
After shortlisting potential candidates, it’s time to evaluate their suitability on the required competencies through rigorous interviews using behavioral-based questions. The evaluation should constitute in-depth reference checking—through the nominees as well as those who have worked with the candidates in the past—internally or through executive search firms.
Interested in learning more about the other guiding principles critical for selection of competent senior executives? You can download an editable PowerPoint presentation on Executive Selection here on the Flevy documents marketplace.
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Mediocre people occupying senior Leadership positions is one of the chief reasons for the fiasco and humiliation that organizations like Enron and WorldCom faced. The practice of recruiting average people at the top is omnipresent and often goes unnoticed until the results begin to surface, which is typically too late for any intervention.
Smart people decisions matter a lot in achieving profitability. Research indicates that a return on average human asset of 5% is typical in many industries. However, a senior executive selection of 2 standard deviations below the average yields -15% return on asset. An executive selection with 2 standard deviations above average causes 25+% return, which is 5 times the average. Increased investment in finding and hiring the best senior executives fetches returns to the magnitude of 1000%.
Attracting and selecting the best people for senior leadership positions isn’t a small feat. The future of organizations depend on it. However, not too many organizations succeed in getting the right people at the top. The reason for this failure is attributed predominantly to 3 critical obstacles that hinder in making the right recruitment decisions at such a crucial level. Wrong Executive Selection decisions due to these 3 obstacles bring about losses and negative returns:
- Obstacle of Rarity
- Obstacle of the Unknown
- Obstacle of Psychological Traps
Let’s talk about these obstacles in a bit of detail.
Obstacle of Rarity
The first barrier to finding outstanding executives for senior positions is their scarcity, as excellent executives are a rare breed. Sophisticated skills that make an executive standout aren’t common. They are distributed in a given sample.
Outstanding people perform at a much higher level than that of their peers, particularly at the top positions. A blue-collar executive with 1 standard deviation above the mean translates to 20% more productive individual than an average executive. With increasing complexity of job, the difference between the top performer and an average performer increases considerably.
Appointments at the senior positions do not go without assessment errors, which can prove to be extremely costly. Even an accuracy level of 90% in executive assessment isn’t satisfactory. This results in a number of mistakenly categorized top performers and rejection of outstanding candidates.
Obstacle of the Unknown
Another barrier to the Executive Selection process is the predictive assessment of candidates on the skills and attributes required and the actual delivery capabilities of the individuals. It is difficult to assess the unknown.
Competencies at the junior levels are easier to define, but it gets difficult to pinpoint the skills required at the top level. The skills required at the top keeps on changing due to the evolving political, technological and economic landscape. The skills required today get obsolete over time. In case the exact requirements for a position are fully known, it isn’t certain whether a candidate meets the requirements in their entirety.
Accurate assessment of the candidates’ behavior and competencies is difficult but worth investing efforts and resources. “Soft” skills—e.g., leading people, coaching and developing teams, teamwork, and managing Business Transformation—are what differentiate the senior leaders, but gauging these skills necessitates thorough evaluation and considerable time, which is difficult at senior levels.
Obstacle of Psychological Traps
A number of psychological traps are associated with cognitive biases in humans that hinder the decision making abilities in people and incapacitate the hiring process. 8 types of psychological traps are most common in individuals:
- Assuming incorrectly
- Impulsive judgment based on first impressions
- Discounting the warning signs
- Covering mistakes
- Bonding with familiarity
- Emotional anchoring
- Tendency to follow the majority
Interested in learning more about the 3 critical obstacles that hinder right Executive Selection? You can download an editable PowerPoint presentation on Executive Selection here on the Flevy documents marketplace.