Sunday, March 24, 2013

When companies get into trouble, CEOs do what they know best

Bryan Goldberg, the founder of the Bleacher Report, wrote a post for PandoDaily last week titled "You don't want experts. You want jacks-of-all-trades." His argument is that expertise in a single area is insufficient when companies increasingly depend on a confluence of skills for success. Further, expertise is much less transferable than it first appears. He points to AOL, JCPenney and Oracle as examples of companies that hired CEOs specifically for their expertise--with the results being far less than what each company's investors expected.

I'd like to propose a corollary to Goldberg's argument, which is that when a company gets into trouble, its CEO almost always falls back on their primary area of expertise. Outside of technology companies, CEOs tend to come disproportionately from two departments: Legal and Finance. (Why anyone thinks that being a lawyer is great preparation for running a company is beyond me--no insult intended to lawyers.) When a company gets into trouble, the CEO falls back on his or her experience. CEOs who started as lawyers look to litigation as their primary strategy for dealing with problems. That explains why so many record and movie companies turned to suing accused pirates as their primary strategy for dealing with digitization.

CEOs who have a financial background tend to turn to cost controls first as their way of dealing with problems. Every dollar that a company saves goes directly to its bottom line, while each dollar of increased sales may only add a few cents to the bottom line. Unfortunately, cost controls often have long-term negative impacts on companies. Layoffs, hiring freezes, capital investment freezes and divestment of underperforming businesses are all typical cost-cutting tactics that work well in the short run, but may leave the company unprepared to take advantage of future growth opportunities.

So, how do CEOs who come from other specialties respond to problems? CEOs with sales backgrounds generally pressure their organizations to sell more. Those with marketing backgrounds will focus on advertising campaigns, promotions, new product introductions and line extensions (for example, new flavors of corn chips) in order to generate revenues. CEOs with engineering backgrounds try to innovate their companies out of trouble with new technologies and products.

CEOs will, of course, use tactics that are the purview of other specialties if they have to. Cost controls are everyone's favorite (unless you're one of the people laid off,) because they get big results quickly. Steve Jobs wasn't a lawyer, nor is Tim Cook, but litigation was, and is, a key part of both men's attempts to slow down competitors. CEOs who've rotated through a variety of functions have a bigger quiver of arrows to choose from, but few companies give much more than lip service to developing their managers by rotation. So long as schools keep turning out specialists, and companies keep hiring them while giving short shrift to real management development, we'll continue to have companies led by people who see the world through the filter of their specialty.
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