392 Part 3: Strategic Actions: Strategy Implementation
who are trained to accept the next level of leadership responsibility when the time
comes. Managing talent on a global basis, P&G seeks to consistently provide leaders at
all levels in the firm with meaningful work and significant responsibilities as a means
of simultaneously challenging and developing them. The value created by GE’s leader-
ship training programs is suggested by the fact that many companies recruit leadership
talent from this firm.^63
In spite of the value high-quality leadership training programs can create, there are
many companies that have not established training and succession plans for their top-
level managers or for others holding key leadership positions (e.g., department heads,
sections heads). With respect to family-owned firms operating in the United States, a
recent survey found that only 41 percent of those surveyed have established leadership
contingency plans while 49 percent indicated that they “review succession plans (only)
when a change in management requires it.”^64 The results are similar for family firms on
a global basis as a broader survey of family firms in Asia, Europe, and Latin America
found that only the most successful companies have a clear understanding of the party
responsible for managing the CEO succession process. In 44 percent of the firms sur-
veyed, the board of directors had that responsibility.^65 On a global scale, recent evidence
suggests that “only 45 percent of executives from 34 countries around the world say their
companies have a process for conducting CEO succession planning.”^66 Unfortunately, the
need for continuity in the use of a firm’s strategic management process is difficult to attain
without an effective succession plan and process in place.
Organizations select managers and strategic leaders from two types of managerial
labor markets—internal and external.^67 An internal managerial labor market consists of
a firm’s opportunities for managerial positions and the qualified employees within that
firm. An external managerial labor market is the collection of managerial career
opportunities and the qualified people who are external to the organization in which the
opportunities exist.
Employees commonly prefer that the internal managerial labor market be used for
selection purposes, particularly when the firm is choosing members for its top manage-
ment team and a new CEO. Evidence suggests that these preferences are often fulfilled.
For example, about 66 percent of new CEOs selected in Fortune 500 companies were
promoted from within. And, the new CEOs chosen had worked at the firm and average of
12.8 years.^68 In the replacement for Steve Jobs at Apple, Tim Cook represents an internal
promotion, as discussed in the Opening Case.
With respect to the CEO position, several benefits are thought to accrue to a firm
using the internal labor market to select a new CEO, one of which is the continuing
commitment to the existing vision, mission, and strategies for the firm. Also, because
of their experience with the firm and the industry in which it competes, inside CEOs
are familiar with company products, markets, technologies, and operating procedures.
Another benefit is that choosing a new CEO from within usually results in lower
turnover among existing personnel, many of whom possess valuable firm-specific
knowledge and skills. In summary, CEOs selected from inside the firm tend to benefit
from their- clear understanding of the firm’s personnel and their capabilities
- appreciation of the company’s culture and its associated core values
- deep knowledge of the firm’s core competencies as well as abilities to develop new
ones as appropriate - “feel” for what will and will not “work” in the firm^69
In spite of the understandable and legitimate reasons to select CEOs from inside
the firm, boards of directors sometimes prefer to choose a new CEO from the external
An internal managerial
labor market consists of
a firm’s opportunities for
managerial positions and the
qualified employees within
that firm.
An external managerial
labor market is the
collection of managerial
career opportunities and the
qualified people who are
external to the organization in
which the opportunities exist.