Companies today must determine how their businesses should adapt to rapid change. They may face threats of potential disruption or they may be challenged by weakening in businesses where the market has become increasingly competitive. At the same time, they might realize that potential benefit can come from adopting modern technologies, for example AI (artificial intelligence) and increased connectivity, so they might strive for a digital transformation. Thus, companies are recognizing the importance of moving beyond business as usual. And, they face the challenge of how to change in an effective manner.

Sometimes, recruiting a new CEO from outside is seen as the solution to the challenges associated with change. According to the December 14-15, 2019 Wall Street Journal article “The Rise of the Outsider CEO” by John D. Stoll, more companies are bringing in CEOs from the outside. The article says, “Hiring an external candidate for CEO is now more common than picking an internal one, according to data provided by Challenger. The firm, which studies executive turnover at thousands of firms and entities in government, private and non-profit sectors estimates 56% of the 1263 CEOs vacating the post through November were replaced by an external candidate. (The trend through the prior nine years was 48%.)”

Citing other sources, the article points out that “an outsider’s perspective can inspire change.” However, the article goes on to explain that “hired guns, who are usually paid more than internal hires, have a mixed record.”

As I see it, based on my 25+ years researching business success and failure patterns, there are reasons for the mixed record of outsider CEOs. Although outsiders are often hired to drive the change that insiders are thought less able to handle, merely bringing about change is not enough for success. Yes, change is needed, but not any old change will do. Success comes from instituting the right changes. This happens when the changes build upon strengths and are a good fit for the company.

Some outsider CEOs may introduce changes that are right for their new employer. These CEOs can be successful in their new environment. But, many CEOs from outside make changes that don’t fit their new company. After an impressive track record of success elsewhere, they may try to bring what had worked so well previously to their new company. But, due to major differences from one company to the next, what worked well elsewhere may not fit the new company at all. Thus, it may give rise to poor outcomes, or worse yet, lead to major disaster.

That happened when the retailer Penney’s recruited an Apple executive as its new CEO. The new executive brought approaches that worked well at Apple to Penney’s. Since Penney’s was very different from Apple, the changes the new CEO made did not fit at all. As a result, the company’s performance tanked and was far worse under the new CEO than it had been before his arrival. So, rather than revitalizing the company, the changes led to worse deterioration. Merely shaking things up with major change was not what Penney’s needed to strengthen its lackluster performance. Instead, Penney’s needed change that would be a good fit for its business.

Today, it’s not just weak performance that drives the need for change. Desire for digital transformation may be why an outsider is brought in to revamp a company. Yet, while companies do need to adopt modern technologies, digital transformation is not immune from the dangers of ill-fitting change. The wrong technological changes can be costly and can fail to deliver desired results. Just like executives recruited to strengthen the bottom line, outsider CEOs brought in to enhance a company’s technology can easily misjudge what fits their new employer. Thus, even for digital transformation, it is important to enact the right kind of change.

Since new CEOs can easily misjudge how well their changes fit, their track record is mixed. Unlike many external hires, an insider can often have a better perspective on how the company works and what might be a good fit. Yet, the outsider may bring a fresh perspective and added expertise that can be beneficial if applied in a way that is right for the company. So, it’s important to think through proposed changes and make the ones that actually can work well for the company.

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