A company’s ability to build and thrive in the future rests on many factors. One key factor is the ability to have the right leadership in place, at all levels, to be the guiding hands of success. The corollary to this is the ability to anticipate the need for new leadership roles and have a source of future leaders, i.e. companies either have to develop and promote leaders internally (build) or hire leaders externally (buy).
Companies often favor one strategy (“build” or “buy”) over the other. Each has its advantages and disadvantages. There are also reasons why one strategy may be a better choice at any given time, depending upon the business circumstances. To fill leadership roles the most forward-thinking companies employ both strategies in the unique balance that their business necessitates. This permits them to capitalize on the most positive aspects each strategy affords. Understanding the reasons and situations where each strategy provides its advantages can help companies deploy them successfully.
“Build” – “Building” internal leadership for the future requires the development of a detailed plan for identifying future leaders, building and providing training programs, and tracking open positions for placement of rising leaders. It’s a longer term proposition that will not yield immediate results. However, I don’t believe you can ever go wrong developing employee capabilities, and the benefits accrue not only to the employee but to the company as well. Developing employees to eventually be placed in future leader roles is most effective when companies:
- - Take a long-term view of corporate planning
- - Are in an industry where external leadership resources are limited (e.g. aerospace)
- - Are in an industry that is growing rapidly and available resources with industry experience have been outstripped by demand (think health care)
- - Promote the development programs available to their employees and encourage participation.
Developing leadership internally benefits companies by reducing recruitment costs to fill leadership roles and providing continuity of corporate knowledge enabling the new leadership placement to become productive sooner. Building internal leadership, however, takes time and it may require two or more years to develop employees to the point where they can be promoted to a leadership role. A long-term resource planning view needs to be taken with external hiring until internal capability exists. A company’s commitment to training and promoting internal candidates through leadership development programs can enhance its ability to attract potential employees as these candidates see the possibilities of career advancement. This is a great reputation for any company to cultivate.
“Buy” – “Buying” leadership, through external recruiting of people to fill leadership roles, is an effective method of adding leadership quickly or bringing on leadership with specialty skills not found within your company. Companies tend to utilize the “buy” method of leadership acquisition if they:
- - Are growing fast (again, think health care)
- - Have not yet established leadership development programs
- - Recognize that the need for new leaders outstrips available internal candidates
- - Are moving in a new strategic direction and are seeking a new top executive to drive the change
- - Have made a strategic decision to not provide leadership development programs or promote leadership from within.
Recruiting external leadership can be an expensive proposition with costs increasing appreciably as the level of leadership sought rises (Director and Executive levels). Externally recruited leadership will also require some period of indoctrination to the company, perhaps up to six months, before they reach full productivity even if they have industry experience. Not having an internal leadership development program may also harm the company’s ability to attract candidates, both leaders and non-leaders. Companies that become known for not providing advancement opportunities or developing employees for leadership roles may find their pool of candidates for open job postings becomes shallow – word gets out.
Companies should not expect that their leadership requirements will be satisfied by a single leadership acquisition strategy. Each strategy – build and buy – has a role to play in filling leadership needs at all levels. The real skill is in defining the balance between the two and determining which roles and under what circumstances each strategy will be utilized as the method of filling the leadership ranks.
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