Complacency Creeping In? Time To ‘Think Like Outsiders’

In one of Nobel-Prize winning psychologist Daniel Kahneman’s experiments, a grocery store put Campbell Soup products on sale for 79 cents with a sign above the display that read “limit 12 per customer.” Another grocery store ran the same sale but with no purchase limit. On average, how many cans were purchased per customer in the first store? Seven. And in the other store? Roughly three.

What’s going on here, and why is this relevant? The experiment shows the power of what is called an “anchoring heuristic.” A heuristic is essentially a mental shortcut or rule of thumb the brain uses to simplify complex decisions (also known as a cognitive bias). An anchor is a piece of information that someone relies on to make a decision. In the supermarket experiment, shoppers’ brains anchored on the purchase limit of 12 and adjusted downward. Those who bought only three cans of soups didn’t have the number 12 in mind, so they made what might be considered a more normal-size purchase, or one adjusting upward from zero.

Now let’s apply this learning to the way many CEOs traditionally approach their strategy. Each year, these CEOs refresh their goals based on the prior year’s assumptions—what still holds, and what doesn’t? By contrast, the best CEOs periodically do thorough analyses of all aspects of their businesses in the same way that they did when they took the role, as though they were coming in from the outside with fresh eyes. They’re not wed to the past, encumbered by internal loyalties or willing to bow to short-term pressures.

Can an incumbent really act as boldly as an outsider? Yes. In the early 1980s when Intel’s profits plummeted from $198 million one year to $2 million the next, then-president Andy Grove asked Gordon Moore, Intel’s CEO at the time, what Moore thought would happen “if we got kicked out and the board brought in a new CEO.” Moore responded that a new CEO would get the company out of memory chips. Grove stared at him and asked, “Why shouldn’t you and I walk out the door, come back and do it ourselves?” The rest is history: Intel moved away from dynamic random-access memory chips and staked its future on a new product, the microprocessor. The move helped usher in a run of success for the company that lasted for decades.

Michael Dell of Dell Technologies found a novel way 30 years into his tenure to prompt his leadership team to think like outsiders. “I told them that we were going to have a new competitor five years from now. This company was going to be in every business that we’re in, and they were going to be faster, more innovative and lower cost than us. They were going to put us out of business.” He followed up this grim prediction by saying, “The way we’re going to prevent this is we’ll become that company. Because if we don’t do it, it’ll be done to us.” This thought experiment spurred hours of conversation among his leadership team as they re-thought the company’s future from the outside in.

Those in the private equity world will recognize that this exercise takes a page right out of their playbook. In that world, an asset is reassessed every two or three years, and bold actions are taken accordingly. The idea is to view a company through the eyes of theoretical new owners looking to form a new investment thesis and, in doing so, acknowledge that both the company and the external environment will have changed meaningfully since the previous investment thesis was formed. It also encourages important voices of dissent to “speak truth to power” where needed. This thought process is helpful in any organization. “You have to reinvent yourself. The world changes. You have to change,” former Itaú Unibanco CEO Roberto Setúbal advises.

The same is true for your own leadership effectiveness. As BlackRock CEO Larry Fink says, “One of the most important characteristics of a good leader is knowing your weaknesses and admitting them.” To achieve this self-knowledge, successful CEOs find great benefit in getting an outsider’s perspective. Chevron’s Wirth undergoes periodic 360-degree reviews that gather feedback from board members, his team and managers below his direct reports. When looking at this extensive feedback, Wirth asks, “What are the real messages here? And what are the things that I need to change that are the most important?” Such assessments, he says, “allow you to understand yourself and others, and how you interact with others. They create a framework for conversation about behavior and preferences and can give you a vehicle to get any baggage out on the table.”

Collaboratively define the next S-curve

Between three and five years into their tenure, the best CEOs typically take what they’ve learned and, thinking like an outsider, create the next performance S-curve for their company. The concept of the S-curve is that for any strategy, there’s a period of slow initial progress as the strategy is formed and initiatives are launched. This is followed by a rapid ascent from the cumulative effect of initiatives coming to fruition, and then by a plateau where the value of the portfolio of strategic initiatives has largely been captured. Aligning and mobilizing the organization to drive toward the next level of performance isn’t easy, as JPMorgan’s Dimon explains: “Companies are always slowing down, always getting more bureaucratic. Even great people who don’t intend to slow things down tend to do this,” he says. “You have to constantly fight to improve.” Dominic Barton, McKinsey’s former global managing partner, uses a powerful analogy for the intensity of effort required: “No one likes change, so you need to create a rhythm of change. Think of it as applying ‘heart paddles’ to the organization.”

Often the most difficult and powerful lever to drive change mid-tenure is to adjust your own leadership style. BlackRock’s Fink puts it succinctly, “If you’re going to be successful, you have to transform yourself.” For example, Adobe’s Narayen realized mid-tenure that he should be more directive: “I recognized that my job isn’t just facilitating; it’s making the final call on the big issues so we can move forward.”

For Best Buy’s Joly, the mid-tenure shift was in the opposite direction. He went from “making a lot of the decisions” during the turnaround S-curve to “pushing decision-making down” during the next, more growth-oriented phase. After the turmoil of the global financial crisis, Bank of American’s Moynihan realized mid-tenure that he had to do a better job of being strategic. “I had to learn to walk and chew gum,” he says. “I had to execute day-to-day, but I also had to always be looking farther into the future.”

Excerpted from A CEO for All Seasons: Mastering the Cycles of Leadership with permission from McKinsey Research.