Leadership

Instant MBA

Written by Kim Shiffman

The secrets to susatined growth
Your company is growing by leaps and bounds — but will it still be in five years? For “What Happens to Gazelles?” a trio of researchers, including Simon Parker of the University of Western Ontario, investigated whether certain management strategies are associated with sustained growth. To do so, they interviewed the CEOs of 121 independent, mid-sized firms that had grown quickly over four years. Then, they tracked the firms’ performance over five more years. They found that many of the companies that continued to grow had leveraged a single dominant product rather than diversifying (likely reflecting the risk of new-product development); didn’t rely on customer complaints as a basis of quality control; and did not sell shares to employees. (The authors admit that further research would be necessary to understand the last finding.) But the most powerful conclusion? “Firms are unlikely to be successful if they attempt to draw lessons from observing growth in one period and applying these lessons routinely at a different point in time.” In other words, today’s best practices probably won’t work tomorrow.

The case against hired gungs
It might be hard to imagine, but there may come a day when you look in the mirror and decide you’re no longer the best person to run your company. If that day comes, here’s where to look for your replacement: your employees. According to “Once an Outsider, Always an Outsider?,” a study to be published in an upcoming edition of the Strategic Management Journal, employees promoted to CEO routinely outperform externally hired CEOs after three years. “When it comes to strategic change, outsiders typically are good at rapid cost-cutting and divestment,” says Rice University’s Anthea Zhang, who co-authored the study with Nandini Rajagopalan of the University of Southern California. But as time passes, obvious opportunities for cost-cutting dry up.”Inside CEOs, because of their deep knowledge and roots in the firm, are more likely to initiate and implement strategic changes that can build the firm’s long-term competitive advantage,” says Zhang. The study looked at the tenure and performance history of 193 CEOs in the U.S. industrial sector between 1993 and 1998.

Originally appeared on PROFITguide.com
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