Solve the succession crisis by growing inside-outside leaders.

In his analysis of 1800 successions, Harvard Business School professor Bower found that companies performed significantly better when they appointed insiders to the job of CEO. Other researchers, including Jim Collins in Good to Great, have come to similar conclusions working from different data sets. Yet Bower finds far too many companies have no succession plans; as a result, when the time comes to name a new chief executive, more firms turn to outsiders. Both insider and outsider CEOs have strengths and weaknesses at the start. Insiders know the company and its people but are often blind to the need for radical change. Outsiders see the need for a new approach but can't make the necessary changes because they don't know the organization or industry sector well enough. What companies must do, then, is find a way to nurture what Bower calls inside-outsiders--internal candidates who have outside perspective. Often such executives have spent much of their time away from the mainstream of the organization, and away from headquarters, living with new opportunities and threats. Before becoming CEO, Procter & Gamble's A.G. Lafley, for instance, worked for years building P&G's Chinese cosmetics operation rather than the core detergent business. IBM's Sam Palmisano was a champion of software and open systems at a time when Big Blue was essentially a closed-system, hardware-oriented company. Nascent inside-outsiders should enter the CEO-training process by the time they are 30 and be given the opportunity to manage a whole business, so that they become good insiders. But they also need to be mentored with an eye toward preserving their outsider perspective, so they learn how to turn their new ideas into great businesses and are protected from old-timers who might be inclined to teach them a lesson.