In What Circumstances Should an IT Company Choose between Internal Promotion and External Recruitment as an Optimal Scheme for Changing an Executive? Rchelle Song 09/2012 CONTENTS 1 Introduction1 3 Comparisons between IP and ER3 3. 1 Internal Promotion3 3. 1. 1 Merits3 3. 1. 2 Demerit4 3. 2 External Recruitment4 3. 2. 1 Merits4 3. 2. 2 Demerits5 4 Cases Study6 4. 1 Yahoo! 6 4. 2 Google7 5 Conclusions11 Bibliography13 1 Introduction As a team which is completely able to enforce a company’s strategy and to be the decision maker, the group of executive leaders is of massive significance to a corporation.
Specifically, there are two ways to find someone to take the helm, normally regarded as internal promotion (IP) and external recruitment (ER).
For those developed vocations, it is no longer a problem with regard to the choice between internal promotion and external recruitment. The reason for this is because in a highly developed industry, in-house training has become a necessity of the daily operational duty for every company, whose consequence is that management training can work not only for keeping talent within the company, but also for promising a trend of continuous advancement for the whole industry (Arslan and Kus, 2008).
That is to say, any company which loses an experienced sales manager today could probably soon find a similar suitable trained candidate to fill this gap tomorrow from either inside or outside the company. Nonetheless, things can be more complicated when it comes to the IT industry. Research has shown that the turnover rate for IT professionals (IT turnover) is one of the most persistent challenges faced by organizations (Joseph et al. , 2007). In terms of this high rate, [email protected] ( 2005: online) estimated that: … CEOs who come from the outside are gaining ground.
In the United States in the 1970s, Conyon noted, the number of external candidates to make it to the CEO’s office was 15%, a figure that increased to 26% in the 1990s. Similar trends can be seen internationally. In the United Kingdom, the number of outside CEOs appointed in 1989 was 25%; by 1999, the number had risen to 35%. Accordingly, this project will concentrate on an analysis of the personnel selection methods in the IT industry and will try to identify an optimal scheme in this area. 2 The Specifity of IT Industry Recently, Symantec, Yahoo! RIM, HP and some other IT companies changed their CEO one after another, as their first steps towards a transformation for the whole organization which could better deal with the challenges such as the acceleration of the product cycle and the changing market. Based on the statistics in the first half of 2012 from Challenger, Gray & Christmas, Inc. ( 2012), a human resources consulting firm from America, 61 computer and software companies’ CEOs faced replacements by their board of directors, in contrast with figures of 55 in 2011 and 45 in 2010 respectively.
What these increasingly frequent personnel changes reveal is a trend of radical shift in the IT industry: the product cycle is shrinking to only a few months, the traditional desktop computing is moving forward to the mobile computing (Jones, 2012). Given that, impatience against the disappointing performance of firms is gradually gaining among those IT giants’ board members, as well as experts from this profession. Thus, they began to seek solutions. Robert McCormick, chief strategy officer from an independent advisory proxy firm Glass Lewis, said that the technology industry’s product cycle is faster than the other industries (Jones, 2012).
He said a compressed product cycle means that, if the product schedule delayed, or the revenue declined, the board of directors would tend to replace its CEO rather than waiting for an improvement which could cause the company to fall further behind its competitors. John Challenger, the CEO of Challenger, Gray & Christmas, Inc (2012). , stated that: We’re in a watershed era for change in board power and accountability. Many boards will no longer “rubber stamp” a CEO’s decisions and are more comfortable challenging executives, he said.
To sum up, it is of great significance for the IT industry to analyze the differences between IP an ER, which are the major methods of choosing a new CEO. 3 Comparisons between IP and ER 3. 1 Internal Promotion 3. 1. 1 Merits Avoiding introduction of new blood does have its advantages. Internal promotion for all management positions (including CEO) can basically help guarantee the purity of a corporate culture. Furthermore, a well-developed internal promotion system allows employees to gain a common language and behavior patterns.
It can also improve the loyalty of the staff in the enterprise, reduce staff turnover, make it easy to inherit the corporate culture, and minimize the internal transaction costs on a day to day basis. Specifically, internal promotion will positively impact a company from the following aspects. * Encouragement policy of other employees Experts from the Wharton School of the University of Pennsylvania agreed that internal promotion brings out certain positive effect to a large extent. It is believed that internal promotion could pass a signal on to staff that there are spaces for promotion in the company.
As long as you work hard, you may move up from the second-in-command to the “big boss” [email protected] (2005: online). * Familiarity with co-workers Generally, the reason for the leave of an employee is discordance with the line manager. However, under a system of internal promotion, regardless of which line manager is changed, such uncoordinated relationships appear relatively less frequently with the replacement because most of the direct managers are trained with the same culture and values. 3. 1. 2 Demerit
In terms of the negative side of internal promotion, it is defined as the lack of strength in depth generally. Strength in depth refers to the ability of potential candidates an organization could own. If a team has strength in depth, it has a lot of able extra players whom it could use when necessary. Although a familiar new superior makes many other employees more comfortable, adverse impacts in the senior management team may still be generated. It is obvious that the promotion of a specific individual equals the loss of opportunity for other candidates in the same administrative level.
Under such circumstances, depression may grow, and consequently there may be resignations. If a young candidate received the promotion, then the self-esteem of the other young candidates may be damaged, which could lead to the departure of the latter. In this way, an intangible weakening of the organizational strength-in-depth occurs. ” 3. 2 External Recruitment 3. 2. 1 Merits * Flexible strategy with personnel change Flexibility can be described as the capacity an organization possesses to adjust in an adequate and effective manner to external and internal changing demands and needs.
Nowadays flexibility in many cases is interpreted as “adjustment by innovation”, especially focused on organizational work behavior and organizational “capacities” (human, technological and financial resources) (Kanter, 1983). Human resource management has become an integrated part of general strategic management. Practically, this means that human resources are objects of management interventions, i. e. adjustments at the strategic, tactical and operational level (Devanna et al. , 1984).
Therefore, in many bosses’ eyes, external recruitment can not only gain economic returns in the short term, but also complete a “metabolism” for the company. * Introduction of new ideology It is assumed that hiring a CEO from outside the company can bring fresh ideas, new style, and force for reformation, by stating that a lot of companies, especially those which are undergoing an industrial restructuring, aspire to a CEO who completely differs from the former one concerning personal ability and career experience ([email protected], 2005: online).
That is to say, they do not want to follow the footprints of the past business model as a result of internal promotion. ” 3. 2. 2 Demerits * High time cost For a complex diversified organization, it is difficult to find a candidate for its position of senior manager from outside who is suitable in all aspects. In addition, Wharton experts also agreed with this point of view by stressing that a CEO hired from outside is really in need of a long time to learn and to be a part of the whole([email protected], 2005: online).
Imagine if you are a freshman, you may even be unfamiliar with which department to consult when you need to inquire about some details. By contrast, if you are a CEO promoted from the inside, at least you are aware of these basic operational processes. * Discordance with staff Giving a promotion to the vice executive generally could sustain his or her loyalty and contributions to the organization; while on the contrary, if a newly hired external chief executive officer arrives, in particular with his or her own management team, this would cause the resignation of the company’s current number two in many cases.
Besides, management professor Peter Cappelli of the Wharton school illustrated that when a company selects its CEO from staff who are able to get recognition from the board of directors and the shareholders as well, this man will maintain the organizational stability as his primary task ([email protected], 2005: online). Such action normally is easy to accept for the rest of the staff. However, an external executive tends to firstly choose a thorough reform, boldly and resolutely, which employees sometimes may not understand or may feel uncomfortable with. 4 Cases Study Two IT giants will be the objects of this study: Yahoo! nd Google. Both the companies were established for the same purposes in the late 1990s. But with the development for more than a decade, Google has been diversified. It is working on different segments including mobile OS, mobile devices, TV, Glass project and more, in contrast to Yahoo, which is tempting by a mistake of simplification. 4. 1 Yahoo! Yahoo! is representative of Web1. 0 era, identified by simply displaying edited news on the Internet, whereas the concept of Web 2. 0 has already interiorized because of the leading technology of Google. Compared with the boom of Google, the age of Yahoo! has flown away.
Hence, redeployment and integration consist of the only way of its evolution. To conduct its reformation, Yahoo! chose a flexible personnel strategy. During the last 17 years, Yahoo! has already changed its CEO for 8 times, including those interim ones. A timetable (table 1) has been displayed to provide clear information of its personnel change. Table 1. Timetable of all CEOs of Yahoo! Chief Executive Officers| Term of Office| Internal / External| Marissa Mayer| 2012–present| E| Ross Levinsohn (Interim)| 2012| I| Scott Thompson| 2012| E| Tim Morse (Interim)| 2011–2012| I| Carol Bartz| 2009–2011| E| Jerry Yang| 2007–2009| I|
Terry Semel| 2001–2007| E| Timothy Koogle| 1995–2001| E| Data source: http://en. wikipedia. org/wiki/Yahoo! The main responsibility of each of its new CEOs is to turnaround the company utilizing fresh professional knowledge and executive methods dealing with the challenge Yahoo has been confronted with. At present, the company needs to layoff some work-forces and to re-frame strategies for reconstructions around. Hiring a new manager (i. e. Mayer who was an engineer from Google previously) would bring a rapid transformation for Yahoo by focusing on web technology and products in order to complementing online contents. . 2 Google From the late 1990s to 2012, the diversified business has led Google on its way towards Web 3. 0. During this period, Google only changed its CEO twice. The information is illustrated in table 2. Table 2. Timetable of all CEOs of Google Chief Executive Officers| Term of Office| Internal / External| Larry Page| 2011— present| I| Eric Schmidt| 2001—2011| E| Larry Page| 1998—2001| I| Data source: http://en. wikipedia. org/wiki/Google The first personnel change in 2001 was in order to introduce a comprehensive ideology of management by a professional manager as both Page and Brin were engineers.
When Eric Schmidt joined in, Google was still stayed at its preliminary stage. That is to say, the state of maturity of Google was fulfilled in the time of Schmidt, including its company culture and organizational structure. Therefore, Schmidt can be regarded as one of their staff in one sense. The second change in 2011 was premised on an expected simplification of the decision-making process accompanied with the management framework to deal with the increasingly fierce competition in the industry.
At this time, Google was seeking for an adjustment rather than a reconstruction, which gave rise to a preference of the board members to choose an internal person. 5 Conclusions If the development of an IT enterprise is in a linear tendency, which means the operative target in the near future still underlines the vertical development of the existing market, then choosing internal promotion as a personnel succession scheme would have a relatively sound impact, for this selection method may greatly reduce the cost and may drive the organizational situation into a benign direction.
However, when the development of an IT enterprise with no sound internal succession plan requires non-linear, unconventional innovation, then the adverse aspects of choosing from a narrow range of candidates will be very prominent if the company insists on internal promotion. For this reason, companies often turn to external recruitment. In summary, it is a good choice to hire an external manager when an IT enterprise launches its diversified operation. Bibliography ARSLAN, R and KUS, A. ( 2008) ‘A Model of Cooperative Education -“Group Leader Training Program” for Industry Employees’ The Turkish Online Journal of Educational Technology, Vol. ( 4), pp. 29-35 Bayo-Moriones, A and Ortin-Angel, P. ( 2006) ‘Internal Promotion versus External Recruitment in Industrial Plants in Spain. ’ Industrial and Labor Relations Review, Vol. 59, No. 3 ( Apr. , 2006), pp. 451-470 Devanna, M. , Fombrun, C. and Tichy, C. (1984) ‘A Framework for Strategic Human Resource Management’. In Fombrun, C. , Tichy, C. and Devanna, M. (eds) Strategic Human Resource Management. New York: Wiley, pp. 33–51. Gray & Christmas, Inc. ( 2012) PRESS RELEASE: CEO Turnover Holds Steady In June. The Wall Street Journal. Online] [ Accessed on 11th July 2012] http://online. wsj. com/article/BT-CO-20120711-706878. html Fan, J. , Buckley, M. R. , and Litchfield, R. C. ( 2012) ‘Orientation Programs that may Facilitate Newcomer Adjustment: A Literature Review and Future Research Agenda’, In Martocchio, J. J. , Joshi, A. , and Liao, H. ( eds. ) Research in Personnel and Human Resources Management ( Research in Personnel and Human Resources Management, Volume 31), Emerald Group Publishing Limited, pp. 87-143 Herriot, P. (1992) Assessment and Selection in Organizations: Methods and Practice for Recruitment and Appraisal.
Chichester: John Wiley & Sons. Hutchens, R. (2007) ‘Job Opportunities for Older Workers: When Are Jobs Filled with External Hires? ’, In Yamaguchi, M. ( ed. ) Population Change, Labor Markets and Sustainable Growth: Towards a New Economic Paradigm (Contributions to Economic Analysis, Volume 281), Emerald Group Publishing Limited, pp. 133-159 Joseph, D. , Kok-Yee, N. , Koh, C. , Ang, S. (2007) ‘Turnover of information technology professionals: a narrative review, meta-analytic structural equation modeling, and model development. ’ MIS Quarterly, Vol. 1 (3), pp. 547-577 Jones, S. D. (2012) Rapid Change in Technology Spurring Change in C-Suite. The Wall Street Journal. [ Online] [ Accessed on 26th July 2012] http://online. wsj. com/article/BT-CO-20120726-719308. html Kanter, R. M. (1983). The change masters: Innovation for productivity in the American corporation. New York: Simon & Schuster. [email protected] (2005) Wishing Upon a Star: Hiring a CEO from Inside the Company Vs. Going Outside. [ Online] [ Accessed on 6th April 2005] http://knowledge. wharton. upenn. edu/article. cfm? articleid=1175 ——————————————- [ 2 ]. Web 3. 0 is defined as a third generation web approximately between 2010 and 2020, based on “intelligent” web applications using natural language processing, machine-based learning and reasoning and intelligent applications, with the goal of tailoring online searching and requests specifically to users’ preferences and needs. [ 3 ]. Sergey Mikhaylovich Brin (Russian: Сергей Михайлович Брин; born August 21, 1973) is a Soviet-born American computer scientist and Internet entrepreneur who, with Larry Page, co-founded Google.
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