What’s Behind The Rise of the Outsider CEO?

What’s Behind The Rise of the Outsider CEO?

Last month, we highlighted Strategy&’s 2015 CEO Success study, which showed that while most companies still prefer to promote CEOs from within their own ranks, a growing number of organizations are turning to outside candidates to fill open chief executive roles. Now, at Strategy+Business, the study’s authors DeAnne Aguirre, Per-Ola Karlsson, and Gary Neilson discuss their findings in more depth:

Discontinuous change is the principal reason that more companies are turning to outsiders. Some industries, such as energy, are reeling from large and unusual swings in supply, demand, and prices. Others, such as telecommunication services, are moving from an asset-intensive to a consumer-intensive business model. Industries such as utilities and banking are adapting to major changes in regulatory policies. And in nearly all sectors, companies are rethinking their business models in reaction to the rise of digitization.

Companies that find the context in which they operate changing so rapidly often need leaders with experiences and skill sets that are different from the ones that can be found within the company’s current management ranks.

Internal CEO candidates may have excellent records executing past — and even present — business models. But these candidates may lack the skills needed to lead companies through the transformations that will be necessary to succeed in the future, and the boards know it. Boards may also recognize that insider candidates are too steeped in the company’s past practices to envision new approaches. Boards may also recognize that insider candidates are too steeped in the company’s past practices to envision new approaches.

Our data supports this explanation. The industries that have been most affected by discontinuities are those that have brought in a higher-than-average share of outsiders over the last several years.