Wednesday, June 22, 2016

Is Experience Overrated?

In this month's issue of Harvard Business Review, we read about fascinating new research by Jeffrey Cohn, of the executive search firm DHR International, and J.P Flaum, of the consulting firm Green Peak Partners.  They have studied the CEO hiring practices and philosophies of 32 private equity firms.  Why examine these companies' selection processes for bringing new CEOs on board?   Cohn and Flaum argue that these firms are different than most publicly traded companies, because the private equity partners have far more skin in the game than the board members of most public firms.  Thus, the private equity partners worry a great deal about getting the hiring decision wrong.  

What did these researchers find?   First and foremost, Cohn and Flaum argue that, "Experience is overrated."   Here's an excerpt from the Harvard Business Review feature on their research:

When filling a CEO position, there’s comfort in hiring someone with prior CEO and industry experience. But the first criterion can dramatically narrow the pool, and the second can yield candidates who are so familiar with the industry that they’re hidebound or likely just to recycle the strategic playbook from their last job. Similarly, overemphasizing quantifiable success in prior positions can be misleading, because results are often a function of “right place/right time” or organizational or team factors rather than one individual. And even within an industry, different competitive positions can demand very different skills—cost cutting versus product innovation versus business model change, for instance. The researchers write, “Past accomplishment and current challenge is rarely an apples-to-apples comparison.” Many of the interviewees said that over the years, they’ve become more open to “nontraditional” candidates who lack degrees from blue-chip schools and haven’t checked the usual boxes in a career progression. One put it this way: “You need someone who can come into a new situation and pick up the fundamentals quickly. A great athlete…is more important than someone with years of experience in an industry.”

You need to be careful about the conclusions you draw in this case.  I don't think private equity firms believe that experience does not matter.  They have concluded that experience is overrated.  I think that is probably true in many circumstances.  Why?  As the excerpt above states, past success may not simply be a function of individual skill.  It may have to do with "right place/right time" as well as a series of organizational and team factors that contributed to high performance.   

Moreover, I would argue that experience can be a curse as well as a blessing in many situations.   Successful people do get trapped into believing that they have discovered a "formula" for managing that can be applied in all future situations.  Years ago, Chuck Knight, the former CEO of Emerson Electric, visited my class.  He had retired after several decades at Emerson, during which time the firm enjoyed remarkable success.  A student asked him, "Mr. Knight, if you were asked to lead a Silicon Valley firm today, would you apply the highly celebrated Emerson strategic planning process that you employed with much success for years?"   He replied, "I probably would try, and I probably would fail... and so, I'll stay retired."  Everyone laughed.  However, he made the powerful point that it would be so enticing to try to apply his winning formula in that new job, but the context would be so different.  That same formula would not be ideal in that new circumstance.  However, most leaders has a tendency to rely too heavily on what worked for them in the past.  That's the potential curse of experience.  


Peter Langton said...

Interesting view of the experience trap...another aspect of the hiring fail is often the hiring oversight group does not possess the skill to evaluate the necessary job skills and leadership acumen they are looking for. I often see hiring committees seek only "industry" people to fill jobs and get fooled by someone who knows the lingo of the industry versus someone that has the foundational skills to be successful. The key question is what does the organization need? Transformation? Innovation? Someone who can get the best out of the current team or someone that can develop a new team. Far too often hiring committees and officers simply recycle what they are replacing then complain that nothing has changed.

Kevin Franzen said...

Human resources may be one of the last departments to be particpating in inavation. I worked at a large company that hired MBA's from smaller schools to entry level jobs and also hired the Chief Marketing Officer with 4 years of expierece and an Ivy league MBA. All the smaller school MBA's had more years of experience.
The thought of seperation of managment and leadership when looking at a CEO has to be a hard one to question in interviews. So yes looking at work history will play a huge part. We can look at Steve Jobs and the perfomace history of Apple with his two terms of CEO.
So with the idea of leading in mind theres many factors that are to hard to contemplate in the competive business world. The pressue to be right almost doesn't allow for the best vetting of people. Henry Ford was said to take people out to eat and see if they pre tasted the food or just salted it to see about the judgments they made. This would seem odd in our social media world but does make sense.
There is no time for a CEO trial period on a search and that hurts too. The ablity to hire one as a intrum verses the true CEO seems to be a press issue with the stock value and the hiring commities are under that pressure.
Sorry wheres spell check when I need it.