They may seem like urban myths but there really are cases of employees that began on the lowest echelons of their company and rose to become its chief executive, such as Alfonso Escámez, the Spaniard who [began as a bank cashier] and is now the CEO of Banco Central. However, this is not commonplace, and companies usually use a mixture of internal promotions and hiring from outside the company. Hiring procedures that promote from within have a strong motivational component, and they have a positive impact on earnings. However, the great advantage of using headhunters is that they are able to find people who have very specific qualifications. Moreover, headhunters can adapt perfectly to the needs of any company in any sector.
Nevertheless, there are some cases in which there is a shortage of professionally trained people in the market, such as when Coca-Cola set up operations in Russia, at that time the USSR. In those kinds of cases, it is absolutely essential to develop an effective system for identifying talent and training it to take on senior managerial posts.
Headhunters are in style. Headhunters not only know the market, but also understand the way companies function internally. Nevertheless, in the battle to find the best executives in their sector, some companies have discovered that internal promotion is the perfect formula for filling senior management positions. “The advantage of internal development is that it creates a lot of cohesion and loyalty within the organization,” explains Juan Rivera, director of the Spanish consulting firm known as Leadership Institute. Rivera adds that internal promotion processes are less costly than those that involve outside personnel.
For his part, Francisco Loscos, professor of human resources at the Esade business school, says that the big advantage of these programs is that they are “tremendously effective from the emotional point of view” because employees value the recognition they can attain as a result of their own efforts. The fact that their company is ready to stake its future on its own people contributes to an improved organizational climate, notes Loscos. Pilar Rojo, director of the human resources at the Benchmarking Club of the Institute of Empresa [a business school in Spain], agrees. Rojo points out that the motivation of a company’s employees increases whenever they are offered the opportunity of internal promotion. She adds that this leads to other benefits, including lower rates of absenteeism and lower employee turnover rates.
Although it is very hard to measure the economic impact of programs that foster internal career development, Rojo says there is clear impact on productivity indicators. Her research shows that those companies that invest more in internal promotion have higher EBITDA (earnings before Interest, taxes, depreciation and amortization) when it comes to accounting results. In addition, those companies that are more oriented towards developing their own personnel manage to improve the ratio between productivity and revenue. When companies carry out these programs it improves their overall corporate output, because profit per employee is higher.
None of the experts in this area found any disadvantages in using internal promotion as long as the processes for doing so are well managed and do not supply one hundred percent of a company’s hiring needs. Loscos notes, “It is a utopia because new learning is always something appealing.” The most logical thing, however, is to combine internal development programs with those that involve professional headhunters.
Advantages of Headhunters
Hiring from outside the corporation has its own advantages, such as the improved speed of the selection and hiring processes. Going outside the company also provides access to a greater number of job candidates who are highly skilled. Loscos spells out the three major qualities of headhunters: First, they know the market, which means it is easier for them to find the kinds of people that the organization is looking for. Second, they are experts in the personnel recruitment market, which makes it simpler for them to access the sorts of people who are interested [in a specific job]. Finally, they have more skill when it comes to convincing executives to abandon their company and sign on with a new one. That’s because they know how to tailor their employment offers to individual conditions and situations.
In addition, Loscos emphasizes that headhunters “are professionals and, as a result, they are trained to figure out whether a person has what it takes to meet the needs of the company.” Any company knows what competitiveness means from the corporation’s point of view. But companies don’t always understand what competitiveness means when it comes to finding the right people for the company. In addition, when a company sets out to hire an executive without using any intermediaries, it set off “an absurd war that has ethical complications” because a manager has been stolen away, says Loscos.
For her part, Rojo believes that headhunters “are indispensable.” Although she believes that there are disadvantages in promoting from within, she argues in favor of a mixed approach to hiring. “Some niche positions are very hard to fill with people who are already inside the company,” and there are specific jobs where it would be better to hire a person who works for the competition or for another company in the sector, says Rojo.
Nevertheless, some companies cannot find the right person for their organization by going outside their company. This happened, for example, when Coca-Cola set up operations in the USSR during the 1980s. At the time, explains Rojo, “It was practically impossible to find local managerial personnel who could meet the needs of any multinational enterprises looking for such people. Hiring from within and retaining that talent was a strategic key to the company’s operational success in that country.”
Many current Coca-Cola managers in Russia were hired for the first time when they joined the company in the 1980s. Over the years, they have risen through the ranks of the Coca-Cola hierarchy. Now the challenge for Coca-Cola is to retain the talent it has trained over all these years in a market [Russia] where there is a scarcity of local managers who have experience working for multinationals.
For this reason, Coca-Cola has set up a program known as “Diagnostic of leadership potential,” within a training initiative known as GM University, coordinated by the Instituto de Liderazgo. Coca-Cola’s idea is to identify within its own managerial ranks, those people who have leadership skills and then convert them into senior executives. Twenty-six employees have participated in the program, including some from Moscow, St. Petersburg and Novosibirsk, and others from neighboring Ukraine and Belarus.
The goal of these initiatives, says Rivera, is to identify people “who have the skill to achieve results. Not at any cost, but through the fundamental principles of leadership, which guarantee that the organization survives in the medium and long run.” The qualities they are looking for in this type of executive are the following: An ability to create and develop teams; ability to lead people; flexibility when it comes to processes involving change; strong communication skills; and empathy within the corporate environment. The evaluation process involves personality questionnaires as well as tests and exercises for recognizing professional qualifications. “The priority is on changing those managerial behavior patterns that are not effective, so that people can become more effective in their work.” The company uses the results to identify which managers are better prepared for each sort of task. It creates an action plan for strengthening those areas where executives have not demonstrated their mastery.
From a managerial point of view, Rivera believes that there are several key elements when it comes to being effective:
Be the boss. Stop thinking about being individually effective and work, above all, as a team. Stop thinking exclusively about specific job functions (marketing, finance, logistics, quality, information). Instead, think and act as the boss/manager for whom effectiveness comes not from technical knowledge but from skill at achieving results from collaborative efforts.
Confront change in your business by using ingenuity, creativity, decisiveness, and by rapidly learning about new experiences.
Lead people. A manager must learn how to lead subordinates, confront difficult employees, manage in a participatory way, and manage the processes of change.
Respect others as well as yourself. It is indispensable for senior managers to establish and maintain relationships, and resolve relationship problems. They must show compassion and sensitivity; remain calm; be sincere; maintain a balance between their work and their private life; know themselves; make other people feel comfortable; manage their own professional careers; and learn how to gain from the differences that exist between people.
Manage relationships in an effective way, from supervisory levels up to senior management. An executive must train, work and develop teams; have an influence within the organization that works in multiple directions — from the bottom up, from the top down, laterally across departments, and outside the enterprise.
Cases of Success
Although a mixed approach that involves both external hiring and internal promotion is recommended, in reality many companies opt for only one of these alternatives. In addition, the way companies apply these development programs will depend on the specific characteristics of its business sector and the particular company. A multinational firm does not [ordinarily] adopt the same measures as a small or medium-sized company even if both companies belong to the same business sector. For example, Danone, the French yogurt company, favors geographical mobility [when it comes to recruiting senior managers] for the factories that it operates around the world.
Nevertheless, when an employee returns [to the Danone home office], he or she knows that it will be possible to scale the corporate hierarchy. A different sort of situation involves those consulting firms in which partners must first fill positions as ‘junior’ consultants [before rising higher], such as in Deloitte’s branch in Spain. That way, the organization is assured that it will have senior managers who know the company from the bottom up. Rojo says, “These policies have a positive impact on financial results,” and she considers this approach one of the most appealing ways to develop international staff.
Nevertheless, Rojo stresses that this process does not consist entirely in promoting those employees who have a combination of desirable qualities. In her view, you also have to carry out research about your personnel in order to identify those people who can meet the needs of the company so that you can train them adequately. The next step is to develop personalized training programs that vary by position, company, and business sector.
The annals of the history of human resources contain an infinite number of success stories. One of the most noteworthy involves Alfonso Escámez, a Spaniard who began work in 1928 as an assistant clerk and in 1973, became president of the Banco Central. Although no other story quite compares, there are other cases where an in-company recruitment program brought a manager to the highest ranks of the company. One case involved Amparo Moraleda, who entered IBM in the human resources department and is now the company’s president for Spain and Portugal. Other Spanish executives who have learned how to benefit from internal promotion programs include Juan Soto of HP; Eduardo Montes at Siemens, and José Ignacio Arraiz at Hay Group, which provides HR services.