FAILED MANAGEMENT transitions are costing Australian companies millions of dollars each year as 40 per cent of managers recruited to a company fail within the first 18 months, according to a global learning solutions firm
FAILED MANAGEMENT transitions are costing Australian companies millions of dollars each year as 40 per cent of managers recruited to a company fail within the first 18 months, according to a global learning solutions firm.
“While leadership transitions are often a positive aspect of corporate life, they can also be very costly,” said David Solomons, CEO of Forum Corporation. “Most companies put managers into new roles and then watch them sink or swim; and many sink.”
Solomons argued that organisations make considerable savings if they committed time and resources to successfully integrating managers into their new roles.
Companies employing managers on an annual salary of $120,000 can expect to incur an average cost of $780,000 per manager recruited to cover the expense of failed transitions, according to Forum.
When a senior manager leaves a company as a result of unsuccessful performance, the net costs to the company have been estimated at more than 24 times the salary of the manager.
These costs include recruiting and preparation, compensating the manager and maintaining them in the job, severance pay, mistakes, failures, missed opportunities and business disruption.
Costs could also be saved by reducing the time it takes to settle a manager into their new role. Harvard Business School’s Professor Michael Watkins estimated that it currently takes approximately 6.2 months before a manager in a new role adds value to a company, as they are expending time and resources to learn their new role.
Accelerating the transition process results in managers reaching the breakeven point more quickly and adding value to the company sooner, according to Forum.
By shortening the ‘ramp-up’ time for new leaders by one month, the firm estimates the value of productivity gains is equivalent to at least 20 to 30 per cent of the leaders’ annual compensation in the first year alone.
For example, if a company was able to transition 10 managers on an annual salary of $175,000 into their new roles one month earlier than the average 6.2 months, the company would save approximately $437,500 per year. If the transition period were shortened by even one week, the savings would be about $100,000 per annum.
“Scaling up the costs of unsuccessful recruitments and managerial internal transitions for a large Australian company shows the hidden cost of unsuccessful transitions is huge,” Solomons said.
