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Joe Bower is the Baker Foundation Professor of Business Administration at Harvard Business School. He is an expert on corporate strategy, organization, and leadership, and has devoted much of his[…]

Why an “inside outsider” might be the next person most suited to take over a company.

Question: Why are "inside outsiders" the key to succession rnplanning?

Joe Bower: In academia, in the beginning ofrn the late ‘80’s and then into the ‘90’s, there was this idea being sold,rn particularly by organization economists that basically you could break rnup big firms and create more value because the corporate offices of rnthese things was only overhead.  And that seemed wrong because actually rnif you were – if you believed in markets, you looked around the world rnand you saw an awful lot of big multi-business firms and they were rnprospering.  So, I thought I would spend some time exploring what I rncalled corporate value added.  And I did that and all of a sudden it rnoccurred to me that one of the things that was most closely associated rnwith the creation of real value and sustained over long periods of time rnwas management of succession.  And as soon as you say it, it’s pretty rnobvious that if you can continue to have good leadership, that’s going rnto be very important to a company, or to a nation for that matter.  Whenrn we study history, we see the same thing.

So, I did begin to rnexplore and I studied CEO succession and that led to the book, because rnthat’s the way academics communicate once they’ve got a body of rnknowledge.

Question: What's in it for a current CEO to rnthink about his or her successor?

Joe Bower: Well, onern of the critical findings was that the way you manage succession is rnbasically the way you manage the company and companies that have rnproblems with succession usually also begin to have problems with their rnbusiness.  The two tend to go together.  Companies that are able to rnmanage succession well have been investing in the development of leadersrn of their people at the same time that they’re developing businesses.  rnIn any significant period of time, like several years—5, 10, it’s very, rnvery hard to have a successful business without having great people rnrunning it.  This is a tough world that we live in today, lots of rncompetition.  So, that emerged very clearly as one finding, and then rnthere are lots of elements, which we can talk about if you want as to rnwhat it means to manage a company.

Question: How can rnboards evaluate candidates to succeed a CEO?

Joe Bower:rn Management succession begins with who you’re recruiting, how you bring rnthem on board in the company, the career paths that are available for rnthem, the training they get, the mentoring they get, the way in which rnthey are developed.  So, a critical question that comes up all the time rnis: "We have a critical job that’s opening up that needs to be dealt rnwith.  Who do we put in?"  In the world you just described, the simplestrn thing is to find the person who can probably do the best job and put rnhim or her in at that point.  But that’s not what you really want to rndo.  You really also want to say, who has a good crack at doing that rnjob, but would really grow because they had done it?  And that’s the rnstory that is often used on this point is that of the career of Jeff rnImmelt.  He was brought in to turn around the home appliance business rnduring a period of a big recall, and it was a nightmare, but he often rnsays in discussing this that he’d never be the CEO of GE had he not had rnthat really tough particular experience.

Question: Whatrn is an "inside outsider?"

Joe Bower: An inside rnoutsider is someone who is growing up within the organization in just rnthe way I’ve been describing.  He was recruited well, was developed and rnis identified as having potential and given more responsibility, but rnsomehow has managed to also maintain a sense of where the world is goingrn and what is going to have to change in the company if it’s going to be rnsuccessful in the next period. Typically insiders are great, but by the rntime they get up to the very top, they’ve drunk the Kool-Aid and they rnreally believe in their organization to the extent that they don’t see rnthe need for radical change.  They know certain things have to change torn do this, do that, and they tend to see things in terms of what you rncould do step-by-step.  But the world is changing very, very, very fast rnand that’s not enough.  And it’s often critical to see that real change rnis needed.

That’s what you look for.  I mean, typically we know,rn we see them in any organization they’ve been with.  They tend to be rnsmart, they tend to be difficult, they don’t necessarily play well with rnothers.  So, they need some work.  But that’s what it’s all about.  Whenrn you find those people and you can give them the management skills they rnneed to budget well, to create teams, to lead teams, those are the rnthings you can really help people with.  It’s very hard to give them rnthat breadth of perspective, that maverick's willingness to see rnsomething and go after it even though no one else necessarily sees it.  rnAnd in organizations, you look for people like that and you try to rndevelop them.

Question: What if the new CEO comes fromrn the outside?

Joe Bower: Obviously a lot do and some rnsucceed.  Generally, if you’re going outside, it means that the rnorganization has failed.  It has failed. Either its performance is so rnbad that it’s clear that within the organization there isn’t someone whorn can see what needs to change.  Or they simply haven’t developed, it mayrn be successful but for reasons as you have described there is a strong rnleader that has never developed others, there’s no one to take over who rnhas the real strength.  A lot of school systems need change and they rncan’t get it from within because people from within don’t have the skillrn set.  One of the problems in universities is when you promote from rnwithin; very often you’re just promoting a good department chairman, or rnworse, just a good professor. Very few schools have a management rndevelopment program.  We at Harvard Business School work very hard to rnmake sure that those faculty who have the talent get a chance to rnadminister over a decade so that when the time comes to pick a Dean, rnthere are usually four or five people who have been running things and rnwe can get a sense of whether they would be a good dean.

Recorded April 1, 2010