How insider CEOs can gain the outsider’s edge

As some may remember, back in the late 1980s Intel faced a watershed moment: Should it continue to manufacture memory chips, a legacy business that competitors were rapidly eroding, or switch its focus to microprocessors? The company’s co-founders, Andy Grove and Gordon Moore, were paralyzed by indecision until Grove had an epiphany. He asked Moore, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Without hesitation, Moore replied, “He would get us out of memories.” “Why shouldn’t you and I walk out the door, come back in, and do it ourselves?” Grove in turn suggested.

I like to use this story, which Grove related in his 1996 book Only the Paranoid Survive, when talking with new CEOs about the importance of adopting an outsider’s perspective – that is, envisioning what someone not locked into the status quo would see and conclude about your business. Today, outsiders continue to make inroads and land leadership positions, with companies ranging from Adidas to Air France recently selecting outsider leaders.

While I certainly agree with the value that an external perspective can bring, I’m with Andy Grove in thinking that insiders can cultivate that perspective. I’d argue, in fact, that the best bets for many—although of course not all—companies are candidates who embody the best of both worlds: the deep organizational knowledge of a seasoned insider with the fresh perspective of a dispassionate outsider

As I wrote on LinkedIn a few weeks ago, when my colleagues and I took an in-depth look into the key factors that determine the success of new CEOs, we found that effective new leaders tend to make big, decisive moves soon after taking office. The data showed that externally appointed CEOs have a greater tendency to take those bold actions: They were more likely to make six out of the nine strategic moves we examined.
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While, on average, external appointees outperformed internal ones, the majority of all new CEOs are internal promotions. Moreover, two-thirds of new CEOs among the top 20 percent of performers are actually internal. So how do these insiders break away from the pack? Many fit the model of what retired Harvard professor Joseph Bower calls “inside outsiders: that is, internal candidates who have outside perspective.”

In my work with CEOs and other executives transitioning into new roles, I’ve observed a few useful tactics for cultivating this external perspective.
  1. Take a hard analytics view.
  2. If a private equity firm bought your company or an activist investor took a major stake in it, what would its due diligence show about your business? Looking at the organization through this lens will provide you with the insight to answer the question Andy Grove posed: What would we do if we were unencumbered by our own history?

  3. Conduct thought experiments.
  4. What if a company famous for strengths in a particular facet of business—such as Toyota or Procter & Gamble or Google—bought you? Would it view various aspects of your business differently, or see weaknesses you miss? This is a more qualitative approach to gaining that external-owner perspective mentioned above. Would a consumer-goods powerhouse find ways to market your assets better? Would a high-efficiency manufacturer see opportunities to make your operations leaner? Perhaps most importantly, what do you do today that they would simply not tolerate?

  5. Invest in cross-industry learning.
  6. Many managers know their own industries well but little about what other sectors are doing, and this is especially true for insiders who have been in a business a long time. Seeing how other industries approach supply chains, marketing and other functional areas can be eye-opening. One client of mine, the new chief executive of a business facing the need for a major transformation, gathered his top team for a three-day session devoted exclusively to hearing senior executives from other sectors share their experiences driving transformational change. The participants told me afterwards that this was a revelatory experience, like going to business school—and it helped them see substantially new possibilities for their business.

You can read more about our research on how new CEOs can make the biggest impact here.

Michael Birshan is a partner in McKinsey’s London office.

Originally published on LinkedIn.

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