Modern business is complex in every way, from advances in technology to multiple workplace generations. More than ever, skilled and emotionally intelligent executives are necessary. Hiring and retaining key leadership talent is an imperfect (art and) science. Innovative organizations understand the positive benefits from investing in their new leaders, as well as the significant costs when they fail to invest in executive development from the beginning.
Multiple studies state that the replacement cost for a departed executive to be at least three times their initial annual compensation. Additionally, “[r]esearch shows that the average cost of a failed executive hire is $2.7 million USD.”
Why and how can these direct and indirect costs be so significant? Two main reasons to consider:
- Most employees are averse to change. True risk exists to organizations that are not deliberate and systemic in their executive onboarding methodology. “Employees who witness regular turnover of senior leadership frequently adopt a “wait and see” position when a new leader is hired and resist changing direction until they are sure the new executive will “stick” in the role.”
- As Millennials (Generation Y) continue to progress in today’s workforce, their desire to work for organizations with clear visions and values will propel them to depart companies when they fail to observe inspirational leaders. Executives must be in tune with “people and products.”
Executive onboarding can help mitigate these costs. These strategic development programs proactively address real-world typically faced during these transition periods. Ideally, these programs provide sufficient space and time to assess skills and gaps of new executives. According to Michael Watkins from Harvard Business Review (2009): “70% of senior HR professionals think success or failure during the transition is a strong predictor of overall success or failure in the job.” In other words, a successful onboarding experience will serve in most instances as a “leading indicator” of how new leaders will perform in the future.
The end state objective is to accelerate preparation and organizational intelligence for these new executives. Upfront investments in these programs have demonstrated their ability to positively impact the bottom line down the road, as organizations are able to capture the value-adding capabilities of executives sooner in the transition process.
Progressive firms should strongly consider investments in executive onboarding as a fuel source that will accelerate meaningful success. Potential benefits include: increased employee engagement, higher organizational learning and more frequent innovations, higher productivity, improved annual earnings and reductions in turnover costs (fewer external searches, relocation costs and retained institutional knowledge).
Partnering with senior leaders and executives in their onboarding process yields both tangible and intangible dividends for companies. Good luck in unlocking the inherent power of your existing talent – for today and tomorrow!