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Transcription of this question: 3.Recruiting a new CEOA company can spend a large amount Of money to recruit a well-known and successful ChiefExecutive Officer (CEO) from outside the organization. However, recently published researchsuggests that recruiting externally is not only costly, but it is also risky, disruptive and demotivating.Two long-term studies Of 36 large public limited American companies found the following:• The companies that promoted CEOs internally performed better than those that recruited externally.• “Outsider” CEOs (recruited externally) have a significantly higher failure rate than “insider” CEOs(recruited internally). 40% of “outsider” CEOs stayed for two years or less.• The average financial reward package for “outsider” CEOs, including salary, bonuses andprofit-related incentives, was 65 % higher than for those appointed internally• “Outsider” CEOs feel empowered to impose rapid change and to assert their authority on thecompany, even before they really understand the organizational culture. The arrival Of an”outsider” CEO is Often quickly followed by the departure Of senior managers.• “Outsider” CEOs are very good at rapid cost-cutting and eliminating unprofitable products/activities, a skill that is very valuable when a competitive advantage needs to be gained or restoredin a competitive environment.Apple, Dell TN, Mic.’vsoft@, Intel@, McDonalds@ and Nike@are successful American companies thatappointed CEOs internally between 1998 and 2007.A comparison Of average performance indicators between 1998 and 2007 is shown below:Return on capital employed (ROCE)Revenue wthEarnin s ershareNet profit marginCompanies led byan “insider” CEO20.3%11.9%13.9%7.9%Companies led byan “outsider” CEO15.8%Some critics Of the two American studies argue that companies promoting CEOs internally usuallyhave a strong corporate culture and are already efficient and profitable. These critics also argue thatthe performance indicators in the table do not measure the exact contribution Of individual CEOs.[Source: adapted from Alexandra Frean, ‘The value of hiring chief executives on the inside track” , The limes, 4 April 2011C The Times 04 2013](a)(b)(c)(d)Describe two possible influences on organizational culture.(i) Explain the importance Of earnings per share to a shareholder.(ii) Distinguish between two external methods Of recruitment that anorganization could use to recruit a new CEOExamine the usefulness to an organization ofrapid change management imposedby a new “outsider” CEO.Discuss whether organizations that promote CEOs internally are more likely tobe successful.[4 marks][2 marks/[4 marks][6 marks][9 marks]

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