The Making of an Exceptional CEO
What makes one CEO better than another? McKinsey Group studied 600 CEOs tenures across the Fortune 500 from 2004 to 2014. How was success defined? Performance. These CEOs lead organizations that exceeded their industry averages. Some took laggard companies and reinvented them, while others exercised operational disciplines or strategically levers to reinvent their companies. Exceptional CEOs are defined as those that achieve 500% or greater growth in stakeholders returns during their tenure.
There were three distinct strategies exceptional CEOs embrace are:
Strategy 1: Hire External Candidates
The high performing CEO is twice as likely to be an external hire and 1.5 times more likely than the top 25% of high performing CEOs. The external CEO brings ‘fresh blood’ into the company and is more likely to question the status quo and tap strategic levers. Today, 55%of CEOs are internal hires.
Strategy 2: Take Strategic Actions
Sixty percent of exceptional CEOs conducted strategic review of the organization within 24 months of taking the reins regardless of the performance of the company. These leaders are 19% more likely to use cost reductions, the exceptional CEOs were significantly more likely to launch initiatives than the average CEO, thereby building strategic momentum. At the same time, exceptional CEOs are 48% less likely to reorganize the company, 40% less likely to launch new products, and 23% less likely to shuffle management teams.
Strategy 3: Achieve Organizational Balance
According to the study, ‘exceptional CEOs are less likely than the average CEO to undertake organizational redesign or management-team reshuffles in the first two years in office. This could be a function of the strategic game they were playing… since there are only so many initiatives and changes that organizations and people can absorb in a short space of time. Indeed, since the exceptional group contained an above-average proportion of outsider CEOs launching fundamental strategic rethinks, the data may reflect a sequencing of initiatives, with structural change following strategic shifts.’
Aspiring CEOs can learn much from this study. Think like an outside. Use strategic review process. Stage change over time, not all at once.