3 Reasons why Engineers make the Best CEOs

11315050_m

When you look to develop the leadership talent in your organization, where do you go? Many companies look to sales, marketing, finance, or operations to find their next leaders. According to the latest research though, they may be looking in the wrong direction.

Harvard Business Review (HBR) just released their list of the Best-Performing CEOs in the World. They judged CEOs based on hard data like increases in shareholder return and market capitalization. They also looked at the long term, considering the performance of CEOs over their entire tenure. One interesting result from their report was that 24 out of the top 100 CEOs in the world are engineers. In fact, on the top of their list was Jeffrey Bezos of Amazon, an engineer who does not even have an MBA.

Finding engineers in the top spot of market-leading companies shouldn’t come as a surprise. Earlier studies by executive recruiting firm Spencer Stuart came to similarconclusions. In looking at the educational background of S&P 500 CEOs, they found 33% of the CEOs had undergraduate degrees in engineering while only 11% were in business administration.

So the question is, why do engineers make great CEOs? It might make sense that engineers rise to the CEO role in technology companies but HBR found strong performing engineer-CEOs at non-engineering companies like Anheuser-Busch InBev, Intercontinental Exchange, and Sampo. So it’s clear engineers possess certain characteristics that make them well suited for the role of CEO.

The education and experiences of engineers is unique. With a strong emphasis on math, science, and technology, engineers are called upon to design, build, create, improve, and influence just about everything we use in modern society. This puts engineers on the front lines of solving challenging problems and doing the things that others say can’t be done. It’s no surprise then that engineers elevate to leadership positions where their unique background and experience can be used to improve the broader business. Writers on this topic suggest there are three unique characteristics that engineers bring to the CEO role:

1. Engineers have a practical, pragmatic orientation. Nitin Nohria, dean of Harvard Business School, explains that, “Engineering is about what works, and it breeds in you an ethos of building things that work—whether it’s a machine or a structure or an organization. Engineering also teaches you to try to do things efficiently and eloquently, with reliable outcomes, and with a margin of safety. It makes you think about costs versus performance. These are principles that can be deeply important when you think about organizations.”

2. Engineers are analytical and are problem solvers. A recent American Society for Quality (ASQ) survey showed 69% of respondents felt analytical thinking, organizational skills, and problem solving were key attributes for running a successful company. Systematic problem solving is at the root of engineering. It’s also the foundation of what makes a great CEO. Engineering skills include analytical thinking that, at the CEO level, allows for better informed decision making. Engineers tend to be more organized and logical, considering the full consequences of a decision before making a commitment.

3. Engineers are both detail orientated and architectural thinkersMichael Lovell, chancellor of UW-Milwaukee says that, “One of the things we learn in engineering is to be a systems-level thinker, so that we see a very big picture in how adjusting one area affects and impacts downstream other areas. That’s really important when you’re running a large, complex organization. If something gets to [the CEO] level, it’s not an easy problem to solve. [They] need to look at all of the variables before making a decision. It’s a thought process.”

The other interesting conclusion HBR found was that, when a company looked to hire a CEO from the outside, they typically looked for someone with an engineering background. James Citrin who leads Spencer Stuart’s North American CEO practice stated that, “When boards are making decisions, and they know it’s riskier going outside, it often gives them comfort if a candidate has studied engineering.” Citrin says it’s specifically because engineers excel at architectural thinking and logical problem solving.

When looking to develop the next great leaders in your company, are you ignoring the engineering department? Engineers are proving themselves to be strong, capable CEOs who are leading many of today’s top global companies. Smart business leaders recognize this fact and are including engineers in their leadership development programs.

Advertisements

Don’t Underestimate the Emotional Power of your Brand

14783242_m

Three years ago, I had a sales experience that was a real wake up call. After providing a compelling argument to a prospective customer about our company’s latest product, showing how it was clearly superior to the competitor’s offering in every way, our team was flatly shut down by the client. He told us that, “even if you gave me your product for free, I wouldn’t take it.” The problem? He had an emotional connection to the competitor’s brand.

On October 9th, Interbrand, the leading global brand consultancy group, released its annual Best Global Brands Report and the top 5 most powerful brands in the world stayed the same for 2014. Not surprising, these top brands are companies with market leading positions and strong reputations:

  1. Apple
  2. Google
  3. Coca-Cola
  4. IBM
  5. Microsoft

Interbrand examined three key aspects that contributed to each brand’s value:

  • The financial performance of the brand
  • The role the brand plays in influencing customer choice
  • The strength the brand has to command a premium price

While much has been said about how the emotional connection of a brand affects the purchasing decision for consumer products, the significance of brand in business-to-business (B2B) transactions may even be more powerful. A poor purchasing decision of a consumer product, like a soft drink or a mobile phone, would have a minor impact for the buyer. A poor decision in acquiring a large piece of capital equipment, however, could lead to years of negative financial impact and possibly the loss of a job for the buyer.

A recent McKinsey & Company study showed that brands have a strong influence on B2B purchasing decisions. Like consumers, professional B2B buyers use a vendor’s brand to shortcut the buying process. Knowing the reputation of a company’s brand helps the buyer reduce risk and simplifies the evaluation process. In fact, they found that brand was a central element of the final evaluation of a supplier’s value proposition. Brand had an 18% share in the purchasing decision, compared to only 17% for the sales effort.

According to Mohanbir Sawhney, Professor of Technology at Northwestern’s Kellogg School of Management, there are three dimensions of benefits that B2B companies need to build into their value proposition:

  • Functional (what the product does)
  • Economic (what the brand means to the customer in time and money)
  • Emotional (how the brand makes the customer feel)

Traditional B2B sellers tend to talk in terms of product features, functionality, performance, and ROI. Professional buyers need these details but they are also looking for the emotional connection – trust, reputation, confidence, ease of doing business, and security.

IBM famously played this emotional connection to their advantage in the 1970’s by spreading fear, uncertainty and doubt (FUD) about any of IBM’s competitors. The argument used by the IBM sales force at that time was that good things would happen to people who stuck with IBM but bad things loomed over the competitors’ equipment and software. This was epitomized by the phrase used by purchasing agents that “nobody ever got fired for buying IBM.”

The challenge for B2B sellers is to recognize is that brand plays a major role in the purchasing decision. There is an emotional element for professional buyers that can’t be ignored. Smart companies are reviewing their value propositions and asking: What is the reputation of our brand? How can our brand address the emotional needs of the buyer better than the competition?

Realizing the importance of the emotional connection of our brand made us completely revamp our value proposition. We already had a great product with a strong functional and economic message but our emotional message was weak at best. Tying in a strong message about our brand to add that critical element of trust, reputation, confidence, ease of doing business, and security was exactly what was needed. This simple change helped us create $20 million of new business for our company.

5 Lessons from the Shop Floor

Shop floor

“I know the last few days have been difficult for us all, but I want to be clear that nothing takes away from the huge amount of passion and expertise that I know exists in this business, or from what I believe we can build in the future.” E-mail to employees from Tesco CEO Dave Lewis on September 25, 2014.

Tesco, the multinational grocery and general merchandise retailer headquartered in the UK is in a major crisis. An accounting scandal that unearthed a $400 million gap in profits last month as well as declining sales from increased competition has newly named CEO Dave Lewis scrambling to turn the situation around. His answer? Send nearly 4,000 employees from Tesco’s headquarters, including senior executives, to work in his stores over the next three months. His program, called “Feet on the Floor,” is designed to get managers out of their “ivory towers” and into the stores to better understand their employees and customers.

This is a great example of a CEO who recognizes the value of gemba. Gemba is a Japanese term meaning “the real place.” In lean manufacturing terms, it means the shop floor, the place where real value-added activities take place, real problems occur, and real solutions are implemented. In other industries, gemba might be the call center, the warehouse, the construction site, or in the case of Tesco, the retail store.

One of the biggest mistakes companies make today is that leaders are too far removed from “the real place.” They are making decisions and trying to solve problems far away from where the actual value-added work is done. Taiichi Ohno, father of the Toyota Production System, had an interesting way of teaching the value of gemba to his engineers. He would take them on the shop floor, draw a circle, and make them stand in it for two hours. When he returned, he would ask them what they had learned. If he wasn’t satisfied, they would have to repeat the process.

Taking a cue from Mr. Ohno, we ran a program in our company called “Fridays on the Floor.” On the first Friday of every month, the plant leadership team would spend four hours on the shop floor. Instead of observing, however, managers would “work” along side manufacturing employees in different departments. Managers then shared their observations to the rest of the leadership team. What we learned changed the view of our business completely.

1. There is a significant gap between management expectations and reality.Despite the investments and improvements we had made in the plant, we were shocked to still find inadequate tools and equipment as well as inefficient layouts. We learned the most important point of gemba is to face reality. There is no substitute for witnessing first-hand how your employees add value.

2. Employees are creative and innovative and care about the success of the company. Throughout the plant, we found examples of processes that had been improved by employees to be more efficient and effective. We learned that “kaizen,” the practice of continuous improvement, was alive and well with our workforce. We only needed to tap into that talent to accelerate the process.

3. There is a rich and useful world of “tribal knowledge” to be discovered. The collective wisdom we found on the shop floor was incredible. Employees knew which procedures, work instructions, and training tools were good and ones that were not. They knew when equipment needed service, when tooling needed to be changed, and when there was a potential for a quality problem. Turning “tribal knowledge” into standard work and best practices became another opportunity for us to speed up our continuous improvement efforts.

4. Barriers are removed when management and employees work together. We found that by getting out on the shop floor and working with employees, they saw us differently. They respected us for being willing to get dirty and see the production line from their perspective. In turn, we respected them for their ability to produce high quality products with less than ideal tools, equipment, and procedures. The gap between “us” and “them” closed significantly as a result of this program. This led to increased trust and better communication.

5. Time on the floor makes you a better decision maker. The more time we spent on the shop floor, the better informed our decision-making became. We developed a better understanding of the full capabilities and limitations of our organization. We were also exposed to more challenges and opportunities for improvement. The time spent with shop employees also made us aware of the untapped knowledge we had in the organization.

Time will tell if Dave Lewis’ plan to get his leadership team exposed to gemba will work. There is no doubt they will be exposed to direct and real feedback from employees and customers. Each leader will develop a richer understanding of the problems that are affecting Tesco and the opportunities for improvement. The barriers between the leaders and store employees will be removed and Tesco’s management team will be better equipped to make critical decisions for the future of their business.