Developing Inside-Outside Leaders

A number of researchers, including Joseph Bower, a professor at Harvard Business School, and Jim Collins, the author of “Good to Great”, have argued that companies perform better when they appoint insiders as their CEO.  However, the problem that many companies face when it comes time to appoint a new CEO is that they have been managed with leadership development as an objective, which means that they often feel they have no choice but to turn to an outsider to fill the position.  Bower observed that both insider and outsider CEOs have strengths and weaknesses at the start: insiders know the company and its people, but are often blind to the need for radical change; and outsiders see the need for a new approach, but are able to effectively make the necessary changes because they don’t know the organization or industry sector well enough.  The answer, according to Bower, is a dedicated effort by companies and aspiring leaders within those companies to nurture “inside-outside leaders”, described as “internal candidates who have outside perspective.
According to Bower, companies need to have a pool of CEO candidates who have the following four core skills necessary in order to move the firm forward and produce the desired results: the ability to judge where the world and the company’s markets are headed, and frame a vision of how the company should reposition itself; the ability to identify (and if needed recruit) the talent that can turn this vision into reality; an understanding, in a deep and substantive way, of the problems the company faces; and comprehensive knowledge of how the company really works, including being fully embedded into the firm’s administrative inheritance and deep and trusting relationships with key players.  While every CEO needs to have a clear outside perspective, three of the four skills mentioned by Bower require extensive inside knowledge that usually has been accumulated over a long span of time while performing roles and completing activities that expose a person to challenges specific to the company and its industry.
Bower argued that his research supported the proposition that:

 “. . . [T]he best leaders are … people from inside the company who have somehow maintained enough detachment from the local traditions, ideology, and shibboleths to maintain the objectivity of an outsider. They know the traditions and the people of the company but also know how those will have to change. They know what best-in-class looks like as well as how the class will change. They’re able to look at the organization’s administrative heritage as if they had just bought the company.”

Companies and candidates for leadership positions have a role to play in nurturing inside-outsider leaders.  From the company’s side, it all begins with recruiting from a diverse pool of individuals who are both highly talented in their area of specialization and have the potential to be general managers.  Hopefully, these individuals, given the right opportunities, will develop the ability to manage effectively in the context of the company’s strategy, systems, and culture, which means they will become good “insider leaders”.  The challenge for the company is to provide these candidates with resources and support to develop an outside view, and this should be a core goal of the company’s leadership development program.  However, prospective leaders need to manage their own development from the beginning of their careers with the company, and Bower provided the following list of questions that aspiring CEOs should continuously consider as they move down their paths within the company and take on different roles:
At Recruitment:

• Why are you being hired? Is it just for a job today, or is there a career path?
• Is this a company where talented people stay for many years? If not, will the experience it provides make you attractive to future employers?
• How will the company help you grow? What pattern of assignments will you get? Will you have time to learn?
• What kind of mentoring will you receive?
• What kind of training is offered? What is done in-house? What is done through outside programs?
• How soon can you run a business? If you don’t get general management responsibility early, you can’t learn the job.
• Is this a cookie-cutter program, or are young people given the chance to try out new ideas?

Once You Are On The Job:

• Do you meet your numbers?
• Do you help others? Are you developing their talent?
• What do you do for your peers? Are you just their in-house competitor?
• When you manage up, do you bring problems—or problems with possible solutions?
• Are you transparent? Managers who get a reputation for spinning events gradually lose the trust of peers and superiors.
• Are you developing a group of senior-manager friends who know you and are willing to back your original ideas with resources?

Self-Development:

• Is your network expanding outside your division? What about outside the company? Have you visited with customers, vendors, and related organizations? If you have a union, have you ever talked with its leaders?
• Do you know individuals in your community who aren’t businesspeople? You can learn more about what you don’t know from them than from people just like you.
• Do you attend seminars or expand your general knowledge beyond your immediate business?
• Are you involved with the community in some way? You can develop many leadership skills by working with an outside organization.

Living a Balanced Life:

• Are you there for your family? Managing can be lonely—support of family can be invaluable.
• Have you cultivated a relationship with someone—spouse, close friend, mentor—who tells you the truths you don’t want to hear? The higher you rise in your organization, the more your colleagues will tell you what they think you want to hear.

The questions above shed further light on the role that the company can play in the development process for its prospective leaders.  In particular, performance evaluation, and support and feedback from experienced mentors, is essential for leadership candidates as they wind their way through a series of increasingly complex assignments over a number of years.  Candidates needed to be rigorously trained in planning, budgeting, performance evaluation and compensation in order to understand how to develop and present deliverable plans and become accountable for execution of those plans.  Mentors also need to work with leadership candidates to nurture, yet temper, their tendency to think “outside the box”, a valuable outside trait yet one that must be managed carefully so as to not tear to quickly at the inside culture and established ways of doing things.  As Bower explained: “The trick is to give the young manager the time and leeway to turn a new idea into a great business without giving him the rope to hang himself.  The mentor must make sure resources are adequate but not excessive, dole them out stage by stage, and then wait and see. The mentor, in other words, is a kind of venture capitalist, teaching potential leaders how to make new ideas work.”
To learn more, see J. Bower, “Solve the Succession Crisis by Growing Inside-Outside Leaders”, Harvard Business Review, 85(11) (November 2007).
Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedIn, Twitter and Facebook.