Not all managers are equally suited to all business situations. The strategic skills required to control costs in the face of fierce price competition are not the same as those required to improve the top line in a rapidly growing business or balance investment against cash flow to survive in a highly cyclical business. Such skills are usually transferable to new environments—and are the most portable type of human capital other than general management skills—but they won't offer an advantage if the strategic needs of the company don't match the manager's skills. When the telecommunications industry was deregulated and challenged by new entrants, for instance, few former Bell Systems managers were able to successfully transition to the fast-moving, entrepreneurial, growth-oriented environment, despite being seasoned veterans of what was considered one of America's best-managed companies.
By the 1990s, GE's Appliance and Lighting businesses required careful attention to costs given mature industries and highly unionized labor forces. Its Aircraft Engines, Power Systems, Industrial Systems, and Transportation Systems businesses were cyclical and required careful management of capital. GE Capital, Plastics, Medical Systems, and NBC were areas of growth, whether organic or through globalization or acquisitions.
By coding our GE managers' resumes, we were able to determine their strategic skills and categorize these individuals as cost controllers, growers, or cycle managers on the basis of their line management experience at GE. Using S&P industry reports, we then coded the strategic challenges facing each new company the former GE managers were hired into. Nine of the twenty executive transitions we studied involved strategic skill matches, meaning that, for instance, a savvy cost-cutter was hired into a company where cost management would turn out to be the key driver of success. The other eleven constituted mismatches. When the strategic need matched the strategic experience of the hired GE executive, companies saw annualized abnormal returns of 14.1 percent while mismatched pairings saw returns of -39.8 percent. (See "The Impact of Fit.")
Consider the experience of Paolo Fresco, whose success spearheading GE's growth into Europe did not follow him when he became chairman of Fiat in 1998. Fiat was not cost competitive, and yet Fresco's attention was diverted by investments in technology and Web presence, as well as by acquisitions meant to diversify the company's portfolio. After the carmaker slid into a protracted liquidity crisis, Fresco and his board supported a politically explosive plan to divest Fiat's core automobile business; when that was rejected by creditors and shareholders, he resigned in 2003. Consider, too, John Trani, who in 1997 left a long career at GE Plastics for toolmaker and hardware manufacturer Stanley Works. Trani had held GE Plastics through a long period of extraordinary growth. When he joined Stanley Works, the company had emerged from a period of expansion and, with sales flattening, had to shift its focus to cost control, a type of expertise Trani lacked. Three years into his tenure, he delivered a -10 percent annualized abnormal return.
However, knowing how and where to cut was clearly a plus for Carlos Ghosn, who is not a GE alumnus but is one of the cases we teach on a new CEO widely known for transforming the nearly bankrupt Japanese auto manufacturer Nissan into one of the world's most successful car manufacturers. Having previously turned around Michelin operations in Brazil and overseen the integration of the Goodrich-Uniroyal acquisition, Ghosn earned the nickname "le cost killer" for his role in the Renault turnaround. His Nissan revival plan included cutting purchasing costs, closing plants, rebuilding the sales organization, establishing a new market-driven personnel system, improving cross-functional collaboration, and simplifying product development.
Steve Bennet was hired in 2000 as CEO at Intuit in large part because of his reputation as a driver of growth. While at GE, he had increased profits in equipment financing 150 percent, launched several new businesses, and been named executive vice president of GE Capital. Both Intuit founder Scott Cook and outgoing CEO Bill Campbell believed that the entrepreneurial, consensus-managed, decentralized, and somewhat laid-back Intuit needed process discipline and more strategic focus if it was to improve margins and top-line growth. They wanted someone who could continue to build the 4,000 employee, $1 billion company and who could execute. In addition to making numerous organizational and management changes, Bennett refocused Intuit's development strategy so that it was more customer driven—more focused on creating new markets and rolling out new products. Along with improving its business and tax software and restoring healthy profits to the seemingly mature Quicken, this approach led to a host of successful new innovations. Bennett achieved double-digit revenue growth within his first year; in his first five years, annual revenues increased an average of 17 percent, and annual income an average 24 percent. The company also achieved the second-highest margins in the industry, after Microsoft.