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(originally published by Booz & Company)


Why Your Next CEO Should Come from Inside

S+B: Who are the “Inside Outsiders” of your book’s subtitle?
Inside Outsiders are managers who have “grown up,” professionally, at the company, who have developed an intimate understanding of its strengths and weaknesses, and who respect its culture. Yet they have also managed to remain objective about the company and skeptical of any self-serving ideology. That means they are willing and able to question the received wisdom. They are clear about the need for real change.

Jack Welch is an excellent example of an Inside Outsider. He had spent his career at GE and had earned a reputation as a strong and effective manager, and yet because of his education (he earned a Ph.D. in chemical engineering), his background building GE’s plastics business (not in GE’s core), and his assertive manner, he perceived himself — and was generally perceived by others — as a maverick. But his unique perspective enabled Welch, within the first few years of his new role, to take apart much of the staff and systems that his predecessor had put in place. Welch is perceived as very aggressive, and his efforts were transforming, but he did it in a way that worked for General Electric. He is famous for demanding that every GE business be number one or number two in market share. If not, the company would “fix it, sell it, or shut it down.” In a metric-driven company like GE, that simple directive provided clear guidance for business leaders. And they responded. During his 20-year tenure as CEO, GE’s market cap grew by 6,000 percent.

When Edwin Artzt, in the early 1990s, tried to change Procter & Gamble in the way that Welch did at GE (Artzt’s efforts included a restructuring that closed one-fifth of P&G’s factories and dropped 13,000 people), it didn’t work. I’ve been told that his methods just didn’t fit P&G’s way of doing things. One manager told me, “He knew what had to be done, but [despite a career at the company] he came at it as an outsider.” This is the counter case: an insider who knew what needed to be changed, like Welch, but who failed because he couldn’t do it in a way that exploited the strengths of the culture.

S+B: How can a company identify and develop potential Inside Outsiders?
I think a central dilemma in managing succession is that the insiders tend to buy into the underlying premises of the existing strategy in the deepest way. They may not even be conscious of it, but it’s part of their DNA. This can be crippling, because it prevents them from seeing the need for change. And yet if you have a disciplined process of talent development the potential is there for some of the insiders to be groomed into truly outstanding CEO candidates.

It’s not that hard to identify these potential Inside Outsiders. But it is hard to develop them into great leaders and to retain them in the organization. The first thing you look for is intellectual integrity. You need someone who is willing to confront all situations, even the disagreeable ones. That’s pretty rare. You don’t necessarily want a maverick, but you want someone tough enough to face facts and speak out about them effectively. For example, [former American Express CEO] Harvey Golub says that the first time he recognized Ken Chenault’s potential to become his successor was during a discussion that Golub was having with senior executives about problems the company was facing. Chenault was the only one to stand up and lay out the issues — despite his immediate bosses’ wishes. He demonstrated integrity and courage, and Golub took notice.

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  1. Joseph L. Bower, The CEO Within: How Inside Outsiders Are the Key to Succession Planning (Harvard Business School Press, 2007): New research on the challenge of finding the next chief executive. Click here.
  2. Chuck Lucier, Steven Wheeler, and Rolf Habbel, “The Era of the Inclusive Leader,” s+b, Summer 2007: Annual CEO succession study reveals the average time frame a leader has for change: seven years. Click here.
  3. Steven Wheeler, Walter McFarland, Art Kleiner, “A Blueprint for Strategic Leadership,” s+b, Winter 2007: How to build an organization in which executives will flourish. Click here.
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