The Five Mistakes Companies Make When Hiring
September 1, 2010
Though ‘Mr. Big’ was intrigued by the start-up, landing him was an altogether more challenging matter. First, his current compensation, consisting of base salary, short and long term incentives and the rich benefits of a large company, was well beyond what the small firm had budgeted for the role. To make matters worse, Mr. Big’s almost twenty years of loyal service to his current employer had earned him two years severance in the unlikely event he was ever released without cause. Mr. Big expected a similar parachute from the start-up company. And finally, having been warned about the impulsiveness of start-ups, Mr. Big asked for a two-year contract, a commitment that the start-up was serious and that he would be given the runway to grow the business. Though the total compensation unsettled the founder/CEO and the board, they reasoned that if they wanted to play in the major leagues, they would have to step up to the plate. They swallowed hard and agreed to Mr. Big’s terms.
The honeymoon was surprisingly short. The founder/CEO expected Mr. Big, whose compensation exceeded his own, to immediately ‘get out there and make things happen.’ Mr. Big however was a firm believer in putting together a proper plan, and this would take some time. The hands-on founder/CEO also expected to speak frequently with the remotely-based executive. Mr. Big, on the other hand, was accustomed to reporting monthly to his supervisor, and while he was willing to be accommodating, he was not about to be micro-managed at this stage of his career. The founder/CEO expected the sales executive to target specific ‘low-lying’ opportunities most likely to buy quickly and to placate his anxious board of directors. Mr. Big reached out more systematically to a range of larger clients who he knew best and who could truly propel the firm’s longer term growth. The founder/CEO made it clear that golfing and expensive dinners were not his idea of ‘selling’. Mr. Big responded that nurturing relationships was an important part of business development and to his success over the years. The founder/CEO expected his new executive to ‘make do with what you have and if you don’t have it, improvise.’ The executive was shocked by the abject lack of resources and the founder’s ‘nickel and dime’ attitude. A frustrated Mr. Big began developing ‘basic’ processes to enhance the overall management of the business. The founder/CEO stewed at the ‘useless’ paperwork he saw crossing his desk…….. It was all over in less than six months as both parties agreed that the ‘fit’ was less than expected. Untangling the marriage, including the large settlement of eighteen months salary and another twenty-four months severance crippled the firm. It never recovered.
There are few blows more traumatic to a small company than hiring the wrong senior executive. It can exact a massive opportunity cost in the form of lost revenues, momentum and diminished customer goodwill that far outweighs the hard costs of hiring a new employee. Sometimes, as in the instance above, it can even be fatal. And while the impact of poor hires may be most acute in small companies it is by no means inconsequential to larger firms as the public record overflows with tales of world-class corporations crippled by poor senior level hiring decisions. And these firms, unlike their smaller brethren, boast blue-chip advisory boards and human resources departments equipped with the finest selection tools money can buy.
So why are companies prone to such horrific, albeit well-intentioned, hiring mistakes and what can they do to avoid them? In no particular order, this article describes five of the more common mistakes and the lessons they teach.
1. Ignore the Context
Context is a critical, yet consistently overlooked factor when making executive hiring decisions. Companies at one stage of development blithely hire executives from other stages of development. Organizations in one geographical area generalize about potential employees from starkly different geographies and cultures, and organizations from one industry regularly hire executives from other industries without concern for the characteristics of either.
But context does matter, and it matters in all walks of life. The neighborhood informs the best means by which to deliver educational or policing services. The context of a war determines how it is best fought. Context frames and gives meaning to the news and political discourse. Many psychological and medical conditions fail to exist outside their cultural context. And in the realm of hiring, context is a killer.
Context refers to the conditions or circumstances surrounding a specific company which give it individual ‘meaning’. It includes such variables as location, structure, culture, political environment, competition, employee demographics, ownership, financial resources, markets and strategy. Context affects the characteristics of a business, its prevailing attitudes and behaviors. Early stage companies differ from mature companies; cash-starved companies differ from those rich in resources; Israeli companies differ from Korean companies; a branch office differs from a head office environment; and a family business differs from a professionally managed enterprise.
The organizational contexts in which an executive has been schooled and exposed informs their assumptions about how companies work and how to behave inside them. Thus, the career large-company executive will be inclined to approach a new job with attention to planning, organizing, process and reporting. This is irrespective of whether the firm employs five of five thousand employees or whether it is lead by a professional manager or very young founder. The same can be said for an individual who has tended to work in small, embryonic companies. They will also carry with them assumptions and preferences that will inform how they approach any new role.
Context provides powerful data from which the likelihood of hiring success or failure can be inferred. And while such inferences can never be taken as guarantees of future success or failure, they make a strong case that firms hire with contextual compatibility and prior experience in mind.
2. The Flight to the Other Side
Your hand has wandered too close to the fire and you are in pain. Immediately you seek relief from something cool or cold.
Organizations also react to pain by reflexively looking to the other end of the temperature spectrum for relief. They replace the overly cold and rigid CFO known internally as ‘Dr. No’ with a warm, amiable financial leader who boarders equally dangerously on the side of ‘Dr. Yes’. They replace the hard-driving, yet administratively challenged head of sales with a great administrator who lacks drive and cannot sell. And they replace the visionary entrepreneur whose organizational skills can never keep pace, with the manager who cannot see beyond his spreadsheets. While such flights to the other side of the competency spectrum may be understandable reflexes, companies are consistently punished for the oversimplification they represent.
The decision to pursue leaders of the diametrically opposite variety is almost always accompanied by the assumption that as the damaged parts of organization are being repaired or enhanced, the healthy parts will remain robust. Unfortunately, such assumptions take for granted the positive attributes and role played by the prior executive in fostering that health. They also mistakenly assume that the replacement executive will boast these qualities as well. Also, by reducing the ‘problem’ to a small set of missing attributes it is but a short step to conclude that the best candidates will be found in firms known for those few attributes. And thus the brilliant entrepreneur is replaced by a professional manager from General Electric who fails, not because he isn’t a good manager, but because that is all he is.
It must be acknowledged that the opposite reflex does occasionally prove to be a great success though in such instances the new executive invariably proves to be more than the sum of attributes for which he was hired. For example, when the now-tarnished Mark Hurd replaced the acquisitive Carly Fiorini at Hewlett Packard, he was described as the “anti-Carly – a finance hawk who has perfected his operational prowess, an execution master who will take her strategy and finally get it done”. And while Mr. Hurd did put those skills to good use, those alone could not propel the firm to longer-term success. Instead, as one observer recently noted, “Mark proved to have an incredible ability to see value and markets where others did not. He grew and diversified the business not just stabilized it. And he managed to the people firmly behind him”. In other words, the operational man of numbers proved to be also a man of vision, growth and inspirational leadership. These were not the dominant qualities for which the ‘anti-Carly’ was hired.
Fleeing in the opposite direction is a natural response to something gone wrong. Unfortunately, when it comes to hiring, it is an urge that is best resisted. Organizational complexity does not yield easily to reflexive oversimplification. Companies that compensate for a weakness in one area by hiring executives skewed heavily in the other direction can be expected to pay an offsetting price. The better approach when replacing a senior executive is to regress to the management mean, a measured balance of experience, skills, and attributes that can deal with more than the immediate pain.
3. Focus on the Destination
While some organizations put balm on today’s pain, others run blindly towards tomorrow’s gain. They hire for their destination, the firm they plan to become while overlooking the demands of the road to get from here to there.
Though the two-year old startup has current revenues of only $1,000,000, it has its eyes firmly set on the $50,000,000 in annual revenues it expects to generate in the not-too-distant future. So certain is the company of its trajectory and fate that when the time comes to hire a VP Sales they ignore candidates appropriate for a $1mm business and focus on candidates currently toiling for $50mm or larger enterprises. They evaluate candidates on the sophistication by which they understand sales processes, systems and people management for when the start-up becomes hugely successful. Unfortunately, the road from start-up to a $50mm per year company is neither straight nor flat. Instead, it undulates with the occasional steep hills, sharp turns and plateaus. The VP of Sales/Business Development appropriate for the early-stage venture is its best sales person. He is an improvisational ‘wheeler-dealer’ who succeeds through sheer force of will and creativity. Closed front doors send him scurrying to the back and if that door is locked there is always a basement or second floor window opened just a crack. He thrives in the resource-strapped, chaotic founder-led environment and while he is able to implement basic sales processes, and perhaps manage a small team, he is much more defined by bobbing and weaving, creating and just doing. Because of this, many of these individuals, so vital in the early stages of growth, do not scale beyond a small team and at some point give way to a different type of sales leader. These second stage managers still lead from the front, but more formally and with less improvising. Their tool kit of skills is larger with specialized instruments that enhance the repeatability and predictability of the sales and perhaps even marketing functions. Much later, the VP Sales of a $50mm dollar company is yet a different creature, much more sophisticated in layering infrastructure, working with multi-tiered international channels, product management and in navigating the executive level relationships that characterize firms of that size. In most instances the $50mm per year professional sales executive is ill-suited for the $1mm firm. He lacks the intuitive, street-fighting personality to build a brand from scratch. He is uncomfortable with the lack of process, the idiosyncratic founding teams and the whiff of uncertainty in the air. In the end, it is not a citizen of the destination that firms should hire but rather an experienced guide for the journey ahead. It is an individual who can thrive in today’s stage through to the next, who has made the transition the past and who enjoys and excels in that journey.
While some organizations overlook the journey to their destination, others make dangerous assumptions about the road to be traveled. As the young firm’s promising new technology prepares to leave the laboratory, the board replaces the technical founder with a sales and marketing-oriented CEO. Unfortunately, something goes amiss in the execution plan. The product has ‘issues’, the market has moved, or a new competitor has emerged. But now the one dimensional sales-oriented CEO is faced with the unfamiliar, improvisational task of re-vectoring the company. To make matters worse, the scrappy founder has often been discarded in the transition and is no longer around to help. The cavalier assumptions about the road have handicapped rather than helped the firm.
4. The Wannabe Culture Fit
Organizations hire executives to either fit into their corporate culture or to help change it. Corporate culture is part of a constellation of ‘fit’ considerations. Tasks and responsibilities are ‘what’ organizations want undertaken and tie into requisite experience and skills. Performance measures are what organizations need delivered in order for an executive to be considered successful. Motivation is the degree and intensity with which employees ‘will’, or won’t, pursue those performance measures. Finally, corporate culture is ‘how’ all this will be carried out, how priorities will be established and how people will work together collectively. Unfortunately, for many organizations, articulating ‘how things work around here’ is a constant work-in-progress, a mishmash of how things are and how they should or could be. It is a particularly challenging issue for organizations whose leaders struggle to understand the impact of their own behaviors.
Many companies skirt the challenges of culture fit by hiring instead for the textbook culture to which they aspire. They assign themselves a plethora of positively-charged cultural attributes such as dynamic, participative, collegial, apolitical, action-biased, passionate, and team-based and then proceed to select candidates who are aligned. The ensuring selection process, generally friendly and ‘best-foot-forward’ in spirit, masks any underlying discrepancies between the talk and the actual walk.
Once the culturally-fitted new executives are hired however, they are often taken aback by the true corporate culture they encounter. The relaxed, charming CEO, so attentive during the interview process, proves to be a decidedly more volatile, directive micro-manager who rationalizes his outbursts by pointing to the inadequacies of those around him. As the new executives quickly learn, the only employees who survive this ‘dynamic’ environment are unlikely to ever assert their adequacy. While the company’s cultural aspirations may be genuine, the new executives are ill-equipped to thrive or to lead the charge of change.
While corporate culture is misunderstood by some firms, others subsume it to broader considerations. These firms become infatuated with prominent organizations whose success they seek to emulate, overlooking in the process how those results were achieved. They come to learn however that executives cultivated on a culture of honey bear little resemblance to those shaped by hammers and that such variation can matter more than the pedigree of the company from which they were recruited.
5. Overlook Key Attributes
Few companies invest in formal processes to analyze their jobs nor do they spend much time thinking through the actual attributes required for success in the jobs they have not analyzed. Instead, they reflexively abstract and aggregate attributes considered desirable in the executives they hire. They specify ‘stars’, individuals who twinkle with the magic pixie dust of brains, charisma, creativity, initiative, drive, work ethic, people skills, empathy, and on and on and on. And while each of these attributes may, to varying degrees, be assets in any executive, when piled onto the back of a straw-man they become the stuff of caricature rather than character. Such tendencies also distract firms from considering a host of enabling attributes that play an equally important role in the success or failure of most hires. We will provide a few illustrations.
Adaptability equips an executive with the critical thinking skills to decipher the workings of a new environment while adjusting their approach and working style to succeed in that specific environment. It is an important attribute for in most instances it is the new employee who must adapt to the employer, not vice-versa. And while this may appear self-evident, it is not for the countless new executives who arrive with plans to bless upon their new employers the wisdom of the ‘GE Way’ or other best practices they have learned from the firms in which they were recruited. Organizational immune systems are usually quite effective in rejecting such invasive organisms. Questions of adaptability underlie the risk in hiring any executive who has spent the bulk of his or her career in one company.
Self-awareness is another key attribute which is often overlooked. Individuals who are self-aware are attuned to their personalities, values, habits, emotions, leadership styles, motivations and development needs. This is not through happenstance but rather because they solicit feedback and mentoring, reflect on that feedback and take purposeful corrective and developmental action. Self-awareness, combined with another enabler, motivation, is among the best predictors of future growth. Though self-awareness is easily assessed, few organizations endeavor to do so when hiring.
Conclusion: The God’s Eye View
Companies and their jobs are often conceptualized as charts and boxes connected by solid and dotted lines. Companies hire ‘a’ President or ‘a’ Vice-President of this or that with responsibilities that are generalized lists of sanitized platitudes. But companies are much more than piles of boxes and generic job descriptions. They are complex, messy, unpredictable, dynamic organisms whose elements interact and evolve dependently and independently of one another and their environment. Pushing on one side of an organization tends to pop something out on the other, and treating symptoms rarely leads to cures.
Recruiting and selection excellence, especially at a senior level, is a system level endeavor. It starts with a ‘God’s eye view’ of the business, its dynamics and context, and the myriad of moving parts. From there it cascades down to the charts, the boxes, the specs and selection. Get the God’s eye view wrong and you will almost certainly hire the wrong executive for the wrong box.
In senior level hiring there is one key rule; respect the complexity of the system or pay the price.
About The Author
Robert Hebert, Ph.D., is the Managing Partner of Toronto-based StoneWood Group Inc, a leading executive search firm. He has spent the past 25 years assisting firms in the technology sector address their senior recruiting, assessment and leadership development requirements.
Dr. Hebert holds a Masters Degree in Industrial Relations as well as a Doctorate in Adult Education, both from the University of Toronto.