How To Guard Against CEO Experience Trap

"A lot of CEO seem to be" meritorious, "at some point, at a certain home. company Remarkable achievements have been made. It's genius. However, what is the level of these CEO? We can put them in a completely different position to see if they can succeed again. In order to succeed in a new position, they must listen, understand and understand the different culture of a new position. Their experience accumulated in their previous work will no longer work. " Archie Norman, the former British supermarket chain CEO, answered this question when asked what advice he would give to other CEO.

Unreliable successor

More and more companies are willing to hire CEO with excellent performance. A study of the CEO succession of the world's largest listed companies found that about 20% of the CEO appointed and departed by the companies in 2008 had been CEO in other companies. In the 11 years of the study, the average proportion of CEO with working experience was only 10%, which was 1/2 in 2008. The reason why more and more companies tend to employ CEO with job experience is that they are becoming less willing to take risks and let an inexperienced person steer the company. Secondly, they believe that the experience of CEO means reliable work performance and a deep understanding of CEO position.

But is that correct? A study gives negative answers.

The study tracked the career of CEO in 2005, and observed their performance in three years since 2005. The industry covered agriculture, mining, construction, manufacturing, transportation, utilities, financial services, retail and wholesale industries, and other services industries. The 500 industries were followed by a survey. Of the 501 CEO involved in the above studies, 19.6% had at least one CEO professional experience before.

The results show that CEO with working experience is worse than those with no experience: CEO with professional experience and average return on assets in three years is relatively lower.

Why is there CEO experience trap?

There are two possible reasons for this phenomenon:

Hypothesis 1: experienced CEO is often at risk and needs to face more severe objective challenges. For example, they must lead a serious financial problem out of trouble.

However, compared with the data on the financial position (return on assets, sales profit margin) and debt to equity ratio of all the former CEO companies, the assumption that the CEO performance before the company itself is different is not true. Therefore, experienced CEO performance is generally inferior to CEO with no relevant working experience, not due to the different circumstances of taking over the company.

Hypothesis 2: experienced CEO faces performance problems because they are outsiders to the company and do not control the specific human resources of the company. capital It can not integrate well into the new company's interpersonal network.

In fact, the study points out whether CEO has any professional experience before taking office. No one can avoid these problems at first to the new company. The identity of the outsider alone does not explain why the experienced CEO is inferior.

What is the reason for this? The study points out that, compared with colleagues with zero experience, CEO with specific work experience has accumulated a lot of experience in their previous work, and some knowledge and skills often need to be forgotten before they can be "re learned" in the new environment. These acquired knowledge will slow down the learning speed of CEO in new jobs. In addition, CEO, who has relevant working experience, will bear in mind the lessons of the past and make it easier to follow the shortcut of decision making, which leads to the same way as before when facing a completely different problem. For those who once held CEO, the norms, culture and daily routines of the original company may have been deeply embedded in their blood. Once they enter a new company, they will follow the established assumptions to complete various tasks and tasks, and eventually perform poorly. This phenomenon is "CEO experience trap".

In addition, there are some differences in the details that lead to different results.

First of all, if CEO shifts directly from one company's CEO position to another company's CEO, the situation will be even worse. On the contrary, if you can take part in other aspects of work for the two time as a CEO post, then you will behave as if you had never had CEO experience before. Maybe this is because during that time, you can complete the action of "forget".

Secondly, if the two CEO companies are almost the same size, or the two companies belong to the same industry, their performance will be worse than their inexperienced counterparts. Conversely, if CEO is employed in two companies in different scales or different industries, its performance is generally equivalent to that of an inexperienced colleague.

The above results may be surprising, but in fact, this coincides with the conclusions of many other researchers. In other areas, similar "experience pitfalls" have also emerged. For example, entrepreneurs who succeed in the specific stages of the product life cycle often have excellent skills adapted to the stage, but if they invest in other stages of product life cycle or industrial evolution, they often fail. Alternatively, the job performance of stock analysts and insurance (trust insurance) industry customer service center operators will decline after changing employers.

First entry board transition

When recruiting CEO, companies should consider more carefully whether they really want to hire an experienced CEO. If this is not the case, you may wish to arrange the preparation for CEO to temporarily transfer to other positions in the company for at least one year before allowing it to take office. This will give them enough time to integrate into the company, acquire the specific human capital and social capital of the company, and more importantly, forget the old knowledge and abandon all the established assumptions against the original CEO work.

If it is not feasible to provide temporary jobs, another solution is to allow future CEO to take part in the company's operations before taking office. Though this way can not help experienced CEO forget the past acquired knowledge and form the assumption of mindset, it can help them achieve acculturation. In fact, many outstanding foreign CEO have served as board members of the company before taking office.

A typical example is general motors CEO Ai Kesen (Dan Akerson). Before becoming general motors CEO in September 2010, he served as CEO in two telecommunications companies, Nextel and XO. Since Exxon served as a member of the board of directors in general motors since July 2009, he was very familiar with the company when he took office. 4 months after CEO, the news media warmly praised the efforts of the Exxon restructuring company. Then, in 2010, the General Motors report showed a net income of US $4 billion 700 million; in stark contrast, General Motors reported a net loss in 2005 when the auto industry flourished.

Another successful case of CEO, a former board of directors, was John Riston Rishton, who served three years in the Holland Royal retailer NV Ahold (Royal Ahold NV) in April 2011 before being the Rolls-Royce Holdings PLC CEO of the British aeroengine giant in April 2011. Wriston has been a non-executive director of Rawls Royce since 2007 and served as chairman of the board of auditors. During his tenure, he was trusted by other board members, and eventually the board voted unanimously through his CEO appointment. Wriston's succession in Rawls Royce lasted for a whole year, and the related work was meticulously arranged and implemented. In 2011, the company's profits increased by more than 20%.

In short, the company employs experienced employees. CEO Sufficient support is needed to help new CEO switch jobs and integrate into new companies. For example, if the departing former CEO stays as chairman, new CEO can be allowed to cooperate with him. As long as the new CEO is better integrated into the culture of the new company, it is not easy for the company to fall into the trap of CEO experience.