Yesterday Sears announced that it was replacing its CEO, Alywin Lewis. Seems like just yesterday Home Depot replaced Robert Nardelli as CEO (actually it was January 2007). Both of these executives had distinguished careers prior to their appointments as CEO, but both of them failed in a relatively short time. What do these two men have in common?
- Neither man had any experience in retailing. While Lewis had been in the restaurant industry, restaurant operations are to retailing like mathematics is to software coding. Close but no cigar!
- Neither man had any experience in merchandising (selection, assortment and inventory level of goods). Merchandising is the key to successful retailing and no other industry except retailing develops the requisite skills. While "location, location, location" is the mantra of retailing, merchandising is the critical success factor.
- Both men focused on non-critical priorities in retailing. Lewis focused on cost reduction and Nardelli focused on improving IT systems. Both priorities are important in any business, but neither priority builds store traffic, increases average sales per customer or improves gross margin. Each man focused on the wrong area and clearly communicated to their thousands of employees that they did not understand retailing....and would be short term CEOs.
An interesting contrast to these examples is the CEO succession at Wal-Mart since Sam Walton. Both succeeding CEOs spent time running merchandising at Wal-Mart and David Glass, the immediate successor to Walton, was a world class merchant (industry speak for a merchandiser). Lee Scott, the current CEO, began his career in logistics and distribution but he ran merchandising before he became CEO. He was undoubtedly put in charge of merchandising as his last "test" before becoming CEO. Both Glass and Scott also spent almost their entire careers at Wal-Mart.
The points to take away from these examples include:
- In complex industries such as retailing (telecom and pharmaceuticals would be other examples), the CEO should come from the industry.
- The CEO must have real experience in the critical success factor areas of the business. Industry experience alone is insufficient if the CEO candidate spent all their time raising capital or doing acquisitions or other non-critical activities.
- Promote from within. Internal promotions insure industry expertise, knowledge of corporate culture and a motivational example to all employees.
While these points are directed toward hiring CEOs, I believe the advice applies to all hiring. Hire from the industry, make sure candidates have real experience in the critically important areas of the job and look inside for candidates before going outside.