In the fast-paced world of business, it is curious that while so much has changed, the process of executive selection remains largely the same.
Recruitment of leaders continues to pose an enormous challenge to many different organisations as failure rates amongst newly hired leaders remain high. Indeed, failure and success rates haven’t changed since the 1970s, which is astounding given the huge consequences of poor leadership, especially in financial terms. Results from a recent study showed that almost 40% of new CEOs rarely last longer than 18 months and in many cases, tend to do more harm than good. The harm leaders can cause can be catastrophic – failure to make good decisions, miss deadlines, break promises, or allow quality to slide can have an immediate negative impact on the bottom line, not to mention the company’s reputation.
So what’s going wrong? Over the last couple of decades, companies have invested millions upon millions in their quest to find the best talent. Potential hires have been put through vigorous recruitment processes (interviews, psychometric and online testing to name just a few) designed to assess the extent of their capabilities and potential. Yet, for all their recruitment efforts, the statistics prove that organisations continually struggle to hire the right type of leader. It is apparent that the time has come for a new approach to executive selection.
Beta over Alpha?
Many of today’s businesses are using the investment measures of “Beta” and “Alpha” as an emerging approach to executive selection decisions. These are terms private equity firms use to distinguish between different types of gain in the financial worth of firms.
Beta gains represent growth or losses arising from exposure to general market movement. Many private equity firms specialise in Beta or low risk investment. In contrast, Alpha gains represent the ability of a private equity firm to add value to an investment and increase returns over and above these market trends.
Private equity firms’ interest in Beta leaders is perhaps due to the unprecedented growth of investment in small and medium-sized businesses. Where a private equity firm invests in a Beta company that has been reasonably well-run, and operates in an expanding market, it tends to look for such a Beta leader – someone who will nurture the business, ensure the talent doesn’t leave, embed any new changes, and create a positive work environment.
The typical Beta leader is armed with excellent market knowledge, displays loyalty to the business, and guides the company with a steady hand. While Beta leaders are expected to deliver some improvements and efficiencies, a large part of their role is to just keep the business ticking over. It may not sound very glamorous, but it takes skill and effort.
Alpha over Beta
The trap many companies fall into is that they tend to automatically go for the Alpha leader – the visionary who drives big change whether it is needed or not. This is in part due to the amount of press extolling the virtues of “transformational” or “visionary” leaders – almost superhuman beings who turn struggling businesses around with one hand and propel it forward into the future with the other. As there is so much written about these leaders, everyone feels they should have one of their own. Which sounds fine, except not every business needs a leader that’s going to reinvent the wheel. Sometimes, a leader just needs to be good enough.
Of course, there are some situations which require an Alpha leader. Take the example of a high-quality kitchen goods manufacturer. For several years it had struggled in the market through its reluctance to embrace change as well as its lack of production efficiencies. When a private equity firm bought into the company, it was clear that immediate change needed to happen – the emphasis on quality needed to be retained, but the company also needed innovative new production techniques. In this case, the business needed someone to force change – an Alpha leader.
In reality, very few organisations continually reinvent themselves; change usually goes in waves, moving from major transformation to a period of adjustment and embedding the changes. An Alpha leader can often be followed by a Beta leader (think Margaret Thatcher (Alpha) and her successor John Major (Beta)). Yet, despite the need for Beta leaders, they are often undervalued. We have been conditioned to think that an Alpha leader is highly desirable, but in reality, an Alpha leader is not always what is needed.
Selective Recruitment as a Strategic (rather than a Personnel) Issue
When it comes to find the right leaders, whether Alpha or Beta, more and more organisations are coming to view executive recruitment as a strategic issue rather than a personnel issue. This means that rather than frantically searching for the best possible talent, organisations are recruiting for the best possible fit. These organisations want leaders, not just for their capabilities and potential, but for the lasting impact they will leave behind – leaders who will create a positive environment that sets the tone for how people make decisions, how they collaborate, how they approach new challenges, how innovative they feel they can be, and how free they feel to speak up. In short, leaders are being hired on the basis of the culture they are going to create.
The Right Fit
So, when hiring leaders, think about the strategic fit. What impact do you want your leaders to have? What is the leadership environment you would like them to create? Do you need someone who keeps the business steady, or someone who implements major change and innovation? In other words, which type of leader is more suited to your business – an Alpha leader or a Beta leader? While the trend may be towards Alpha, your business may very well benefit from Beta –a good, solid leader who isn’t going to do any harm.
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