Knowledge Center: Publication
Chief Executive Officer & Board of Directors
Solving the tensions of reshaping the organization to develop CEO successors7/14/2014 Jeffrey S. Sanders and Samantha Smith
As the date of a planned CEO succession nears, organization redesign can help make sure that a top internal candidate will be as well prepared as possible to make the demanding leap to the top job. However, reconfiguring the organization to give the candidate more responsibility is fraught with tensions between what is best for the business, best for succession, and best for the potential successor. Resolving those tensions isn’t easy. But by systematically thinking them through, boards and the incumbent CEO can determine what redesign – if any – is right for the company’s situation.
Forward-looking companies use a variety of tools to prepare executives for broader roles and greater responsibilities: stretch assignments, rotations through a range of businesses and functions, coaching, highpotential programs, and individual development plans. Deployed well and managed actively over time, these techniques can produce a deep bench of highly competent leaders and potential CEO successors.
As the date of succession approaches, conscientious boards and CEOs benchmark and assess internal and external talent. Ideally, by the time the decision needs to be made, they have done everything possible to prepare the likely internal successors. One tool that becomes more critical as time grows short is job redesign – which at the most senior levels of the organization translates into overall organizational redesign.
For example, if a successor candidate lacks P&L experience, a new operational role may be created that will provide it. Or, if the candidate is deficient in a discipline or function that is expected to become increasingly important for the company’s long term strategy, the organization chart may be redrawn to bring that area under the candidate’s purview. However, the overriding purpose of organizational structure is to facilitate the execution of strategy – not succession planning or individual development. If not done conscientiously and with clear business objectives, an organization redesign could potentially harm the business and introduce unnecessary risk.
For example, a smaller or medium sized company might be organized functionally because it is a cost-efficient and simple way to manage. However, developing functional leaders into CEO successors is challenging because the set of functional responsibilities is significantly narrower than that of a CEO. By re-organizing the company into a business unit structure, the CEO might better prepare the internal candidates to become CEOs, but might also harm the business by unnaturally driving costs up and interrupting effective processes that drive innovation and customer connection.