Growth5 Blog

Tuesday, May 19, 2009

Do CEOs Matter?

Tom Marsden sent me this article from The Atlantic entitled, "Do CEOs Matter?" - the answer in the vc world is "yes, a lot, obviously." A better title would have been "Do CEOs of Large Companies Matter?". The article is interesting nonetheless as it points out that the smaller groups in a large organization (with a startup size and startup leadership dynamic) are what make the difference in large corporations.

Some highlights:
1. Scholars have spent the last 40 years figuring out what influence a CEO has in large organizations. Theories range from 4.5 to 14.5%.

2. "...people simply don’t feel allegiance to large entities like corporations, no matter who’s at the helm. Their loyalties are far more localized...

Small groups perform best when they operate collaboratively, and not merely as drones subordinated to a leader. The team leader’s job is to establish the conditions that enable team members to collaborate competently; the leader needs to spell out exactly where teams should end up, but not dictate the step-by-step process of getting there. Leaders who act boldly and intelligently can make significant differences in teams’ effectiveness—but no matter how the leaders act, teams become less effective as they grow in size...

Ideal team size is about six people; performance problems increase exponentially as team size increases beyond that, and the impact of leadership becomes quickly diffused."

3. "Paul Osterman, a professor at MIT’s Sloan School of Management, contends that middle managers are neither “victims,” robbed of the ability to act independently by some faceless bureaucracy, nor “villains” like Dilbert’s Bozo-haired boss, too clueless to do anything but gum up the works. In Osterman’s view, the middle manager is the secret hero in the large corporation’s rise to social and economic dominance. That rise “depended on middle managers,” he says, “because you just couldn’t achieve the scale that we have without people doing the kind of planning work that they do.” As “craft workers,” middle managers value their task, sense its importance to the larger cause, and feel great loyalty to the people they work with."
Start your business, see what size team works for you, then repeat that size team over and over as opposed to creating a sprawling ineffective super-size organization.

Interesting side note: Do you think current GE CEO Jeffrey Immelt is tired of former GE CEO Jack Welch complaining about what a horrible job Immelt is doing? Immelt is quoted in this article as saying, in the 1990s, “anyone could have run GE and done well. Not only could anyone have run GE in the 1990s, [a] dog could have run GE. A German shepherd could have run GE.” Ouch.

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