Outsider CEO


Try and think of a management academy where companies can recruit CEOs from. The first name you would probably think of is General Electric (GE). There is something about the rigor of leadership training and processes at GE that have it a popular breeding ground for managerial talent.

This issue of picking the right outsider CEO is becoming increasingly important because a lot of companies, in India as well as the US, have departed from the ‘Insider-as-CEO’ norm. There is a lot of mobility now, but does it always lead to the outcome that Companies desire?

That prompted an assistant professor at Harvard and a research associate to look for answers to the intriguing question: are leaders portable? They looked at GE alumni, because of its reputation as a CEO factory.

Picking the right CEO:

Most Companies tend to think that a good track record is a guarantee of future success. But it is not that simple cautions a member of the above mentioned research team from Harvard. One needs to look at leadership as a portfolio of skills. Leadership talent is a set of five capabilities: general management, strategic, industry, relationship, and company-specific.

Out of these, general management skills or how one manages resources and takes decisions are the most portable. These skills are applicable in almost any situation, but they are not easy to learn. Companies like GE and IBM in the US and HLL in India train people to do these things well. Strategic skills (cost-cutting, managing through cycles) and industry specific knowledge are moderately transferable. Relationship capabilities (how effective a manager is due to established relationships within the company) and company-specific capabilities (Knowledge of procedures, structures and the company’s culture) are least portable.

The professor of Harvard said that ‘think hard about the culture of your company. If it is very different from the culture where this person has been successful, you could hire him as an agent of culture change’. But he is quick to caution that this does not always happen.

In India, for example, hiring from HLL for telecom companies, that might work because the distribution channels are relatively similar and marketing is largely advertising-led. Apart from that it might make sense when the strategic challenges both the industries are facing are similar.

GE had such a strong set of processes, that in the absence of those systems, these CEOs could not take a lot of things for granted. If you come from a place that has a very strong set of systems and processes, you are used to relying on them for your effectiveness.

That’s why often new CEOs tend to install two-three of the basic systems in the new company. At Allied Signal CEO revamped the talent management process to make it look like GE. He made sure that he was involved in key hires, transfers and other things happening to the top 500 people.