Internal vs. External CEOs—The Microsoft Case Study
There is no denying that the CEO is one of the most important pillars in the success of a company—whether in the company’s financial positioning, its acceptance in the marketplace, a happy board, or employee morale. These variables are interrelated to some degree, but the CEO drives the company through each of these, both individually and collectively.
The news from Microsoft about its CEO Steve Ballmer's retiring within the next twelve months once a succession plan has been finalized has recently received global attention. Discussion about who the next CEO will be, what the CEO's focus should be, whether the person should be an internal or an external hire, and what challenges this new person will need to tackle are all being feverishly talked about.
The Vegas bookies are even placing odds on who the new CEO will be. While their list has both external and internal candidates—and Microsoft itself has mentioned that it would also look at external candidates—recent takes from analyst firms are that the hire would be organic (internal to the organization). One reservation specific to Microsoft regarding external hires is that they have typically not been very successful at the company.
Studies show that while both internal and external CEOs have their pros and cons, external CEOs are more successful in organizations that are poor in their performance or are in a high growth sector, alluding that they are more aligned to lead a company to success in a case of turnaround management. Whether or not Microsoft classifies itself right now for turnaround management is an open question; however, it definitely is in a high growth sector, including the mobile and the cloud markets.
Alaska Air Group is a great example of a company that drove a successful internal succession plan a few years ago. Similarly, there was a recent story on how Ross Levinsohn was supposed to take over Yahoo from his interim CEO position, but to his surprise Marissa Mayer was chosen to fill the spot.
The world is watching to see which path the Microsoft succession planning committee takes. One report suggests that if an external person were to take over, it would be a good idea not to make any major strategic changes in the early post succession period. Since Ballmer just announced his grand plans and realigned the organization to help succeed in the devices and services space, it will be interesting to see who the successor is and whether that person continues on the road that Ballmer recently laid out.
Microsoft’s third CEO and how the company fares under the new leadership will be a great case study for years to come on whether a CEO should be internal or external.
