Is Ford or GM throwing good money after bad?

When bad decisions force business leaders to leave their jobs, organisations often rush to replace them with insiders, who are familiar with the original problem and the former leader. In times of turmoil, the choice seems natural and even obvious: Because insiders know the past, they should be less likely to repeat it. General Motors pointedly replaced Rick Wagoner as its chief executive officer with his protégé Fritz Henderson, a career GM employee.

However, recent research reveals that despite the natural inclination to opt for an insider with connections to the old boss, a failing leader is often better replaced with a completely unrelated outside party. The research implies that business organisations trying to shed failed legacies might want to follow Ford's example by appointing an outsider, Alan Mulally from Boeing, as the new ceo.

Organisations hoping to escape past failures need to balance their preference for the familiarity and knowledge that an insider affords against the entrapment an insider may suffer. Although outsiders undoubtedly take longer to understand a problem, the research suggests that once they do, their psychological independence can limit their tendency to throw good money after bad.

For more, see - http://www.forbes.com/2009/10/22/insider-succession-planning-leadership-ceonetwork-governance.html

Is Ford or GM throwing good money after bad?