From the corner office, the CEO must be able to see how all of an organization’s divisions, functions, and operations fit together—and how they are affected by the outside world. This is called enterprise perspective, and it is vital to business outcomes (Hambrick and Mason 1984).
But how is it developed? Are executives who have a general management background and profit-and-loss responsibilities better prepared to take this wide view? Based on data from a sample of 58 executives who went through Korn Ferry in-depth assessments of CEO readiness (see sidebar), the answer is, perhaps surprisingly, no.
Our sample was about evenly split between general managers with P&L experience (53%) and executives with predominantly functional experiences (47%), such as in finance, strategy, legal, manufacturing, and purchasing. But neither group was significantly more likely to adopt an enterprise perspective (52% of GMs and 42% of functional executives). In fact, about half the executives in both groups displayed a business unit perspective, which involves a narrower focus and less consideration of the larger workings of the organization.
When we looked more closely at all those who had shown enterprise perspective, we found related attributes: vision and long-term focus. Vision is particularly valuable when dealing with complexity in organizations (IBM 2010), as a CEO must. In our simulated company, 63% of those who had shown enterprise perspective also articulated a vision for the organization. Only 10% of those with the business unit perspective did.
Also of critical importance to CEOs who wish to create lasting value for their companies: a long-term focus. Again, a majority (56%) of the executives who adopted an enterprise perspective during the simulation assessment also adopted a long-term focus when dealing with business issues facing their fictitious global company. Only 16% of executives holding a business unit perspective did.
The bottom line? Organizations looking to hire a CEO who is prepared to run a complex organization and build long-term value should select candidates based on their perspective, not their background. Likewise, when developing or assessing CEO successors, it is useful to measure candidates’ perspectives directly to get an accurate reading of their readiness for the role.
CEO readiness assessments
Korn Ferry CEO simulations are designed to represent a condensed year on the job, focusing on hyper-realistic business challenges that elicit the specific behaviors crucial to success. Executives are required to familiarize themselves with industry and company data to complete, among others, written exercises, financial tasks, company-wide and board meetings, and coaching sessions. Several assessors interact with and score candidates, and scores are compiled algorithmically. The process is standardized worldwide so that executives get the same experience and receive the same rating for the same level of performance.