Leadership Succession and Pipeline Planning
Leadership Succession and Pipeline Planning – Hiring External Leaders vs. Growing from Within
Recently, I participated in a LinkedIn discussion about an iconic global organization facing apparent cracks in its leadership succession at the highest levels. The debate revolved around the company's recent top leadership hire coming from outside the organization rather than an internal successor.
This raises several important questions, which I attempt to address below.
How Important Is Leadership Succession to Company Ethos, Culture, and Ultimately, Business Success?
The answer to this is straightforward, and most would agree on its significant advantages. Over the last few decades, some of the most successful organizations have prided themselves on having robust succession and pipeline management systems, incorporating best practices in talent planning and leadership development.
Such companies, often referred to as "leadership factories," not only develop enough leaders for their own needs but also produce executives who go on to take leadership roles as CXOs and CEOs in other organizations. This approach ensures a seamless leadership transition and business continuity, fostering a deep understanding of the company’s complexities, customers, people, culture, and values. Consequently, this has a positive impact on growth and overall success. Effective succession planning typically includes identifying two to three potential successors for each key leadership role and investing in their development and readiness.
How Sacrosanct Is It to Achieve Leadership Succession from Within?
According to Spencer Stuart, 44% of new CEOs appointed in 2024 at S&P 1500 companies came from outside—a 12% increase over 2023. The figure is lower at 24% among Fortune 500 companies, yet it still reflects a growing openness (or perhaps necessity) to hire externally.
Top leadership appointments are often carefully considered, leveraging the expertise of search firms, board members, owners, and other key stakeholders.
When Should an Organization Consider an External Hire for the Top Role? What Are the Key Considerations in Deciding Between Internal vs. External Candidates?
Based on my experience and observations, here are some key circumstances that may lead an organization to look externally for leadership talent:
1. Change and Transformation
Change is difficult. As leaders grow within an organization, they build relationships, reputations, and ingrained ways of working, often developing unconscious biases. An external leader may be better positioned to drive decisive, objective changes, unburdened by any legacy.
If an organization seeks to emulate the success of another company, hiring a leader with proven experience in that transformation can be a strategic advantage. Many organizations bring in external leaders as change agents to inject new energy and mission focus, free from any emotional entanglements.
As the famous quote goes, “Culture eats strategy for breakfast.” Many change initiatives require revisiting an organization’s values and evolving its culture to maintain a competitive edge. Established companies often seek to emulate the agility, innovation, and nimbleness of disruptive startups.
2. Seeking Diverse and External Perspectives
Inbred leadership can sometimes create an echo chamber, limiting perspectives to internal experiences and lessons. External hires can bring diverse viewpoints, fresh approaches, and insights that may unravel new possibilities that internal leadership may overlook.
3. Shifts in Business Performance, Industry Growth, or Economic Environment
If a company is experiencing declining performance relative to its peers or is in an industry undergoing rapid growth, hiring from a broader talent pool may be necessary.
For example, another one of my favourite companies, known as a "leadership factory", promoted two joint CEOs from its internal pipeline. However, with growth stagnating relative to competitors, what it truly needed was a fresh, external perspective rather than a continuation of existing leadership strategies. Consequently, the company continued to lag behind its peers, with many attributing its struggles to these leadership choices.
4. Technology Disruption
A rapidly changing technological landscape can make internal succession challenging.
For example, a company once valued traditional sales skills as that had led to their success over years. However, as new technology disrupted and customer expectations evolved, the most successful sales leaders were those who deeply understood clients' industries and could design tailored, client’s business outcome-driven solutions. The company eventually acquired external talent to fill the gap.
According to the previously cited report, external hires are more common in tech, healthcare, and consumer durables—industries with high volatility and rapid change driven by sustainability, shifting consumer behavior, and technology disruption.
5. Geo-Political Turbulence and Black Swan Events
Certain industries are particularly affected by geopolitical factors, protectionist policies, or unforeseen global events such as the COVID-19 pandemic. The recent tariff wars is a case in point. These factors can dramatically alter business environments, creating urgent needs for external leadership with specific expertise or new perspectives.
6. Shift from a Distributed Power Structure to a Centralized Model
Returning to the LinkedIn debate that sparked this discussion, the company in question had a strong internal leadership pipeline, yet still opted for external hires. One contributing factor was the centralization of decision-making at the global headquarters, reducing the authority of country-level leadership. This, in turn, led to talent pipeline leaking.
I have observed similar cases in other large multinational companies. One organization, despite branding itself as a "globally integrated company" with a decentralized talent strategy, ultimately concentrated most key leadership roles at its headquarters. The result? Reduced local empowerment, stagnating growth, declining innovation, and an exodus of top leadership talent.
How can large global organisations hire and build leadership talent that’s fit for purpose? What’s the right balance between global versus local leadership?
What other factors, in your experience, drive organizations to hire external leaders? How are companies reimagining leadership succession planning in the context of today's global business challenges? I welcome your thoughts and insights.
In Conclusion…
The debate is not about choosing a single approach. Internal leadership development remains a preferred and logical strategy for most organizations. However, it would be naive to overlook the value and necessity of considering a broader external talent pool when needed.
Many leading organizations, including GE, incorporate external benchmarking into their leadership succession planning (famously known as "Session C"). Another notable example is IBM, which brought in an external leader, Lou Gerstner, in the 1990s. Despite coming from an unrelated industry, Gerstner successfully navigated IBM through a near-collapse and transformed it into a thriving enterprise.
Ultimately, the right leadership strategy depends on a company's unique circumstances, goals, and the evolving business landscape.
