Around 25 years ago, I was a management intern at a major Australian insurance company. Not long after joining, all interns were invited to have morning tea with the CEO where he presented his views on how the business needed to improve. He singled out human resources, saying that the function needed to reinvent itself away from its historic personnel roots.
Reflecting on his words now, it seems theres a turning point and the need for rigour within HR has actually become a survival issue for companies. We recently surveyed 320 senior HR decision makers and 40 CEOs from UK companies with 250+ employees, and 80 per cent of these CEOs said that the strategic influence of HR has increased during the past five years.
The CEOs we spoke with indicated that perceptions and expectations of HR are changing significantly. A CEO from the retail sector said: These days HR plays an integral role in organisational success via their knowledge and advocacy of people.
Our survey asked CEOs “why now?”, and they told us that they are spending an increasing amount of time on people strategy, whether it be leadership development, succession management, talent acquisition and retention, workforce planning they are now cited amongst the top priorities for CEOs. They believe theres a need to invest in all of these areas, to ensure the company meets its business challenges.
Should CEOs appoint a dedicated people strategies professional to their leadership team
Lets begin our answer with an example. On 8 May 2013, following over 26 years as manager of Manchester United, Alex Ferguson announced he was retiring from his role later that month. Within 24 hours, his successor David Moyes was announced in a statement by Ferguson, which said: We unanimously agreed on Davidthere is no question he has all the qualities we expect of a manager at this club. The first comments from Moyes on the job included: I am delighted Sir Alex saw fit to recommend me for the job.
It is clear that after 26 years leading Manchester United, Ferguson had developed a lot of influence within the club and played the key role in the appointment of his successor. However, is this the most appropriate way to select the successor for a critical role within an organisation
Moyes was ultimately sacked within nine months. This decision cost a 5m pay-out to Moyes, 300m in new player recruitment, and a minimum 6.4m of lost revenue for failing to make the UEFA champions league in 2014/15. A significant amount given that the 2015 Deloittes Football Money League report lists Manchester Uniteds 2014 annual revenue at 433m. Ouch. In this instance, did an over-reliance on a single leaders evaluation of talent result in an unsuccessful appointment
Ferguson has recently described the Moyes appointment as we did the best under the circumstances we were in , clarifying this with “Jose Mourinho was going back to Chelsea, Carlo Ancelotti was going to Real Madrid, Jurgen Klopp had signed a contract with Dortmund and Louis van Gaal was staying with Holland for the World Cup.” With hindsight, it could be argued that Moyes was the best available rather than the right person for the role.
Well never know if Ferguson had doubts about the Moyes appointment. What we do know, however, is that it wouldnt be an exceptional circumstance if he did. A recent Leadership IQ study found that 82 per cent of managers reported that, in hindsight, their job interview process with candidates did elicit clues that their chosen candidate was headed for trouble, but they were too focused on other issues, too pressed for time, or lacked confidence in their interviewing abilities to heed the warning signs.
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My view is that the succession plan for Ferguson is an illustration of a broader principle in people strategy within organisations. Businesses need to align people strategies to overarching business challenges. This can be summarised by three actions that need to be taken to build this alignment.
- Appoint a specialist role on the executive team to constructively challenge the organisation on all matters of people risk
- Build the same rigour within your approach to people risk, as you do to managing financial, operational and reputational risk
- Ensure people risk is included as a formal item on the leadership team agenda to enable key matters to be debated openly by the whole group
Manchester Uniteds failure to meet the criteria presented above resulted in a financial loss representing 72 per cent of its annual revenue. The assertion is that any business failing to consider these three pieces of advice may risk facing similar losses.
David Southall is associate director at Hay Group.