MONEY
A new face at the top brings new hopes and often new strategic priorities. When Microsoft replaced CEO Steve Ballmer with Satya Nadella in 2014, the move signaled the possibility for major change. Indeed, the company eventually announced its strategy to venture massively into cloud computing.
When new CEOs take charge, they sometimes change or even reverse the entire strategic course of the company — a course that, such as in the case of Microsoft, often aligns with entrepreneurial growth opportunities.
Newly appointed CEOs might consider such an entrepreneurial focus attractive for various reasons. Following an entrepreneurial strategy ultimately drives growth and increases a firm’s advantage against competitors. Those are excellent messages that a new CEO can convey to shareholders, customers and employees right after assuming office.
We researched changes in a firm’s entrepreneurial strategy after CEO successions. We found that new CEOs indeed change a firm’s strategy and that this change tends to go into a more entrepreneurial direction. Interestingly, we found CEOs hired from the outside are more likely to change a firm’s strategy more drastically. However, insider CEOs are more likely to adopt new entrepreneurial strategies much sooner.
There are several reasons for the shift to more entrepreneurial strategies. First, a CEO replacement inherently means that the personal preferences and habits of the most influential individual within a firm change. Second, the board of directors may give the incoming CEO a clear mandate to venture a stagnant company into new growth opportunities
Third, newly appointed CEOs may want to stake out their territory with bold moves and thus be more inclined to reverse their predecessors’ decisions.
However, our research shows differences with regard to the previous employment of the CEO. Our results suggest that CEOs hired from the outside change the strategy more drastically — be it more or less entrepreneurial — than their internally recruited counterparts. The apparent reasons are that externally recruited CEOs bring in more diverse experiences, different skill sets and a new personal network. All of this enables them to initiate more far-reaching strategic shifts.
There’s a great deal more we’d like to understand how CEOs transitions affect the existing entrepreneurial strategy of firms. For instance, how does a new strategic course set by a new CEO pervade the entire organization across hierarchies and various business units?
For now, boards of directors can build on our research to realize how the choice between an insider and outsider CEO alters their firm’s entrepreneurial strategy and the pace of that change. For shareholders or employees of a firm undergoing a CEO transition, they can potentially read from that choice to what extent drastic strategic changes are in store — and how quickly the clock is ticking.
