A Resource for You

Executive brief chapter 1

Claudio Fernández-Aráoz begins his book with an intriguing and provocative question: what makes a person successful? Although luck undeniably plays an important role, it is by no means the only factor defining an individual’s professional advancement. Based on over 20 years of experience in recruiting for high-level positions and analysing great leaders, the author identifies the formula for career success, which has four elements. The single most powerful contributor to career success, however, is the ability to make great people decisions. Are strong people choices basically down to gut instincts, as common wisdom would have us believe? Not according to Claudio Fernández-Aráoz.

Making people decisions is a craft and a discipline that can be learned and should be learned for your success, argues the author. And a little learning goes a long way. You don’t need deep expert knowledge of competencies to become much better at people decisions, as this chapter illustrates. In fact, making people decisions is a disciplined process that involves identifying, checking key indicators and assessing their importance. Yet most of us receive very little formal training to help us make such judgements. This book is primarily a tool to help readers improve their people decisions, enabling them to recognise and recruit high-performers. Great people decisions not only foster individual success. They also provide the key to sustained organizational performance, as shown in the second chapter of the book.

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A Resource for Your Organization

Executive brief chapter 2

What drives organizational performance? In the second chapter of Great People Decisions, Claudio Fernández-Aráoz provides a detailed review of top academic research into this question, including the work of best-selling author Jim Collins and Harvard’s Nitin Nohria. Their work clearly demonstrates that strong people choices are the foundation of almost all great organizational performance. It is great people decisions that make the difference. This research perspective is also fully supported by the best practitioners on the front lines of business, including Jack Welch, the former General Electric leader, in interviews with the author.

So just how valuable are great people decisions and how can we quantify a return on investment in them? Studies show that the leader effect can account for up to 40 percent of the variance in corporate performance or value. In many cases it is also the largest actionable source of company value. Looking ahead, the author clearly shows why the importance of making great people decisions is set to grow. In summary, great people decisions not only determine individual career success, as shown in chapter 1, but are also the key to outstanding organizational performance. Yet such decisions require active management to achieve their full potential. In chapter 3 the author goes on to discuss why great people decisions are so hard.

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Why Great People Decisions Are So Hard

Executive brief chapter 3

Why is it so tough to pick winners? This chapter begins by describing four major barriers to making people decisions and offers general principles for avoiding these traps. According to Claudio Fernández-Aráoz, the statistical odds are against any company looking for a leader because top talent is rare. Moreover, senior managers are often distinguished by their soft skills, which are very difficult to assess objectively. On top of these factors, the author identifies over ten psychological biases and emotional traps that sabotage people decisions. These pitfalls include overrating capability and making snap judgements.

It is not easy to combat such biases, but building awareness and getting the right advisors to support people decision-making can help, argues the author. According to best-selling author Jim Collins, great leaders make a series of good decisions that are supremely well-executed over a long period of time. Building true greatness into a company calls for managers with the discipline to analyze and implement every important decision, including people decisions. Avoiding the traps described in this chapter is just the first step towards that goal. To pick winners consistently you need to master all stages of the people-decision process described in the following six chapters of the book.

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Knowing When a Change Is Needed

Executive brief chapter 4

Figuring out when a change at the top should happen is a major challenge, warns Claudio Fernández-Aráoz. Executive turnover is often precipitated by poor performance, but this should not be the only driver of change, he adds. Unfortunately, many companies tend to postpone making key people decisions until it is too late and need to adopt a more proactive attitude to upgrading their senior talent. This chapter focuses on identifying the kind of situations that call for change. These situations can be driven by macro and industry-level forces, as well as discontinuities. Discontinuities include: launching new businesses, M&As, developing and implementing new strategies, dealing with performance problems and coping with growth and success.

Closer examination of these scenarios reveals that strategy changes often catalyse people changes. The bottom line: in a rapidly changing world, organizations must periodically look to the future and decide whether they have the right people in place to tackle the challenges ahead. But even when people changes are justified, they can be tough to implement, warns the author. Rigour without ruthlessness and honesty without brutality are excellent watchwords when making such changes, he adds. Once the difficult decision to replace a manager has been made, chapter 5 explores the next stage - defining what exactly you are looking for in a new leader.

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What to Look For

Executive brief chapter 5

The realisation that a "people change" is needed opens up a new path in front of you. The first step along that path is figuring out what to look for, explains Claudio Fernández-Aráoz. Although this first step is rich with potential, it also involves many pitfalls, warns the author. The first challenge involves prioritising the best predictors of successful performance in a job. In other words, you need to know exactly which competencies you are looking for. The ideal candidate for the job probably doesn't exist, meaning that trade-offs will be required. To make such trade-offs successfully, it is crucial to identify both critically important strengths and weaknesses that aren't fatal.

Based on his extensive experience of global executive search, the author identifies a key skill set for top leaders. These characteristics - a high IQ, relevant experience, emotional intelligence, potential and values - and their impact on successful recruitment are discussed in detail. Above all, a highly disciplined search process must be followed, stresses the author. This involves confirming managerial priorities, identifying the key competencies required, clearly defining them in behavioural terms and agreeing on the relative weight of each key competence. After establishing a clear consensus about what you are looking for, the next step is deciding where to look for suitable candidates. This question lies at the heart of chapter 6.

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Where to Look: Inside and Out

Executive brief chapter 6

Once a people change has been decided, companies need to figure out where to look for the best candidates and when to stop looking. An obvious first question is: should you look inside the organisation or search externally? Most organisations believe they are better off looking for internal candidates first and only going outside the company if their search fails, writes Claudio Fernández-Aráoz. This is often the wrong approach, he warns. Egon Zehnder International always argues strongly in favour of generating the broadest possible pool of qualified candidates - internal and external - as this adds value. Organisations that are entering new fields or implementing major change are particularly recommended to consider hiring an outsider, notes the author.

So where should companies look for candidates? This chapter offers a wealth of advice on this subject, including investing in succession planning, using direct contacts for sourcing and seeking professional help for senior positions. The key factors here are obtaining a benchmark of the best potential candidates and targeting the right population. According to the author, the most effective strategy for sourcing is not to think about candidates, but to focus on people who may know the best candidates. A group of 20 candidates generated in the right way should produce at least one highly qualified alternative, he adds. Once a pool of potential candidates has been generated, companies face the issue of appraising these people, which is explored in chapter 7.

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How to Appraise People

Executive brief chapter 7

Effective appraisals are the best way to boost the value of talent searches, notes Claudio Fernández-Aráoz. But such appraisals remain rare. This chapter discusses ways of improving the assessment processes and tools most commonly used to assess managers, namely interviews, resumes and references. According to the author, major barriers to assessing people accurately include lies, fraud and snap judgements. Yet these traps can be avoided by employing a combination of structured interviews and rigorous reference checks when appraising potential candidates, he explains.

On top of improved selection techniques, companies need to ensure that competent, high-calibre assessors are made responsible for conducting appraisals. These individuals should be offered training as experience alone is not enough to improve an interviewer’s skills, the author adds. All assessments should be reviewed before a hiring or promotion decision is confirmed and feedback should be gathered on the results of such decisions over time. Overall, appraisal needs to be a disciplined process, emphasizes the author. Following the principles discussed in this chapter should lead to reliable assessments and better people decisions. Yet recruitment is a mutual choice, he warns. Chapter 8 explains how companies can attract and motivate top candidates.

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How to Attract and Motivate the Best People

Executive brief chapter 8

After focusing on how to find and assess the best candidates, Great People Decisions explains how to persuade them to join your company. This is a critical step, warns Claudio Fernández-Aráoz. Motivational and money issues usually come into play here, creating risk and uncertainty. This chapter focuses on how to successfully close the recruitment process, which calls for the right mix of passion and rationality. You will only be able to attract a candidate if you become convinced that your offer is the best for that individual, stresses the author. The chapter offers a detailed discussion of the classic mistakes often made at this stage of the process, like giving up too fast when the candidate voices doubts, or offering inappropriate compensation.

The author then moves on to examine best practices for attracting and motivating the best people. The list includes understanding the candidate’s motivation, concerns and alternatives, dealing with any special risks properly, and several other strategies. Ultimately, however, getting the right candidate on board is often a matter of having the courage to depart from traditions and self-imposed constraints. Professional help can be useful at this stage to bridge the gap between employer and candidate. But even if the candidate accepts the position, your job is not finished! Planning and supporting the integration process can significantly enhance a new hire’s chances of success, as we find out in chapter 9.

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How to Integrate the Best People

Executive brief chapter 9

Integrating into a new job is always challenging and the stakes are particularly high with senior positions. Yet most companies tend to leave new hires to sink or swim, notes Claudio Fernández-Aráoz. The author identifies six deadly integration traps, including mismatches of management styles, as well as the challenge of simultaneous acting and learning. But this chapter focuses on the biggest pitfall – the lack of proper organisational support. Firms seeking to facilitate the integration process can adopt a number of strategies, all of which are discussed in detail. These measures include proactively managing internal communications, preparing

the ground within the company and monitoring the process at regular intervals.

Yet candidates can also take integration into their own hands, argues the author. Before accepting any challenging position, he advises candidates to find a right champion within the new company. Candidates should also ask for the support they require up front, focus on a few key areas initially, and properly manage expectations. Spending enough personal time with all relevant stakeholders is another key strategy for speedy, effective integration. Firms that minimize integration risks are often rewarded with both earlier and far stronger new hire performance, the author concludes.

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The Bigger Picture

Executive brief chapter 10

In the final chapter of his book Claudio Fernández-Aráoz takes a look at the personal impact of great people decisions, as well as their wider social and historical implications. As the author points out, mastering great people decisions not only helps to drive organizational performance, but can also enhance your chances of personal career success. The tools, processes and concepts covered in this book can be applied not only to sporadic hiring or promotion decisions, but also to key daily decisions about which tasks to delegate and to whom.

By helping you choose the right bosses within your team, the book should also enable you to create a virtuous circle of good working conditions and rich relationships in your company, leading to higher productivity. Conversely, bad people decisions are often the basis for corporate failure and scandal. Even mediocre recruitment choices can have huge opportunity costs, warns the author, who illustrates this point with examples from history and world scale politics. On the other hand, the author concludes, the road to success starts with educating yourself and your team to make great people decisions.

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