Tale of the Tape: Benchmarking Talent

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4. Building a Talent-Rich Organization

Given the shrinking tenure of CEOs, boards must not only think about the next CEO but also about the CEO after that. Benchmarking helps with understanding current CEO talent and can be used to assess internal and external high-potentials who could one day be CEOs. With an understanding of how the next tier of internal high-potentials stacks up against external talent, the board and the company can better develop or acquire outstanding talent at that all-important executive level, building a talent-rich organization and potentially preparing for the succession after next.

5. Corporate Strategy

Before considering any particular candidate to succeed the current CEO, the board should understand the strategic context in which the next CEO will have to operate: the key business drivers, industry trends, competitive landscape, markets, and financial goals that will help shape the company's future. Then it is possible to define the competencies that the next CEO will need. Obviously, for example, a company that is likely to be in turnaround mode needs different competencies in a CEO than does a growth company planning to expand aggressively in new markets. To alter a familiar saying: If a company doesn't know where it's going, any CEO can take it there.

Given the sophistication, complexity, and range of strategies that companies might adopt, the competencies required of a CEO candidate can be highly specific, numerous, and hard to find. Once those competencies have been clearly defined, external benchmarking can tell the board how widely distributed such competencies are, where they are likely to be found, and how likely it is that anyone anywhere possesses all of those competencies in the highest degree. The exercise can reveal gaps in the competencies of internal candidates, or it may confirm that no ideal candidate exists and that the internal talent compares relatively well against external talent.

The Human Element

Benchmarking has long been used as a tool for evaluating processes, products, functions, and other elements that can be compared through a variety of techniques and metrics. For example, companies benchmark their distribution practices against industry leaders through such metrics as percentage of on-time deliveries, customer satisfaction, costs, and the many other measures of distribution efficiency and effectiveness. Competing products can be reverse-engineered and compared to the company's offerings. In all of these cases, benchmarking is a reasonably precise, often highly quantitative procedure.

When the focus falls on human beings, however, many people think of "benchmarking" as a synonym for loosely comparing individuals in an impressionistic and often intuitive way. In fact, in the right hands, the benchmarking of executives is a highly structured, systematic procedure that requires both science and art. Best practices include:

• Using an experienced third party to assess external and internal candidates in order to bring the requisite objectivity and uniformity;
• Giving the third party extensive exposure to the organization, its structure, culture, and aspirations;
• Defining the job specifications for the CEO in terms of the company's future strategy and the competencies that will be required to achieve it;
• Ensuring that the third party evaluates all internal and external candidates using proven, quantitative and qualitative methods of assessment; and
• Using the results to guide development activities for internal candidates.

Such a systematic, proven approach to the benchmarking of CEO candidates provides board members with precise, actionable information that they can use to help ensure a successful succession-planning process.

Provided by Directorship—The Leading Publication for Boardroom Intelligence