Long Tenure Can Hurt Performance

A March 2013 Harvard Business Review article, Long CEO Tenure Can Hurt Performance, highlighted research on CEO tenure on impact with employees and customers.

It’s a familiar cycle: A CEO takes office, begins gaining knowledge and experience, and is soon launching initiatives that boost the bottom line. Fast-forward a decade, and the same executive is risk-averse and slow to adapt to change—and the company’s performance is on the decline. Optimal tenure length: 4.8 years.

The underlying reasons for the pattern have to do with how CEOs learn. Early on, when new executives are getting up to speed, they seek information in diverse ways, turning to both external and internal company sources. This deepens their relationships with customers and employees alike.

But as CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions. And, because they have more invested in the firm, they favor avoiding losses over pursuing gains. Their attachment to the status quo makes them less responsive to vacillating consumer preferences.

In part 3 of my Inventing a Digital Pentagon post, I had a similar point on tenure of managers and key headquarters staff.

While the DoD frets about the frequent turnover of political appointees and program managers, it should remain vigilant of people who are entrenched into key headquarters staff positions. Maintaining a steady pipeline of fresh talent and ideas in organizations fosters an environment for thought leaders to emerge.  Innovation rarely occurs from someone who has been in the same job for a decade. The DoD should review those who have been in a key position for over five years and develop transition strategies to maintain a vibrant enterprise.

Beyond tenure, they reinforced the importance of being attuned to the enterprise (internal and external) information networks.  I couldn’t agree more.

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