Knowledge Center: Great CEOs Are Born, Not Made

Saturday, July 23, 2011

Great CEOs Are Born, Not Made

Bob Lutz in his recent book Car Guys vs. Bean Counters makes the point that GM was doing fine until in the mid 1970s the MBA-trained finance guys took control of product development from the "car guys," who were engineers and designers. The result, he says, was inferior cars and a decline in the firm. He believes that CEOs and the top management should not be bean counters but rather should be a "product guys."

The poster child for his view was Roger Smith who was an MBA-trained accounting and finance specialist. During his ten year tenure as GE's CEO during the 80s, Smith made breathtaking strategic and operating blunders. He invested in robotics that did not work, created a disastrous reorganization that resulted in cars so similar they were a joke (remember the Cadillac Cimarron?), mismanaged some ill-conceived acquisitions, built up enormous debt, and on and on. GM's share went from 45% to 36% under his watch. A role model, on the other hand, was Steve Jobs, with no degree but deep computer expertise, who spawned a string of product successes brilliantly executed.

I think Bob is an impressive executive (ironically he does have an MBA although it was in the pre-quant MBA era; Berkeley-Haas is proud to claim him), but I disagree with his suggestion that background, product knowledge, or management style (he advocates an autocratic style) are predictors of CEO performance and behavior. Lou Gerstner did not know anything about computers when he brought IBM back from the near dead and Allan Mulally had no background in automobiles when he took over Ford. And I don't believe that having an MBA or being in finance necessarily means that you are short-term focused or insensitive to customer demands.

Instead, in my view, a gifted CEO needs two qualities, and I believe that these come with birth, and not training. They are executive talent and strategic judgment.

Executive talent. Executives need a broad range of talent; excelling on a few dimensions is rarely enough. A truly gifted CEO should have a good feel for selecting, motivating, and evaluating people; developing and selling a strategy; creating an inspiring culture; developing an organizational structure and management process that work for the strategy; fostering cooperation across silos; understanding and using financial measures; and an understanding of how marketing, branding, finance, production, distribution contribute to strategy. With the right talent and DNA, a CEO who is missing background in some of these areas will quickly pick it up.

Strategic judgment. Some people just have a flare for good judgment — whether it is an ability to identify issues, distill facts, or develop instincts to make sound strategic decisions — and others simply do not. This too, in my opinion, is something you are born with. In my field, I see many who have deep experience in branding but relatively few that have a strategic flare. It can be improved but it cannot be created.

There are many with the talent and judgment to be successful CEOs that never get the opportunity to learn, to have the right experience, or to prove themselves. But, in my view, those that lack those qualities will not be successful no matter what background, training, experience, or mentoring they might have.

Thanks to David Aaker / Blogs HBR / Harvard Business Publishing

http://blogs.hbr.org/cs/2011/07/what_makes_a_great_ceo.html

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