Expertise has its limits, says Rajesh Chandy. In changing times, companies need to look beyond what they know
At the beginning of my Market Driving Strategies executive education class at London Business School, I always show the participants the incredible diversity of industries, nationalities, and functional roles represented in the class. The joy of learning in the class is in large part the joy of learning vicariously through the experiences of others with very different backgrounds.
We already know that this sharing of experiences is incredibly powerful. In previous research, for instance, my co-authors and I investigated why some Indian companies succeeded in expanding into established markets overseas where others failed.
We discovered that indirect learning plays an essential role in growing a successful business in a market outside the one you’re familiar with. Emerging market firms that grow in developed markets manage to overcome their lack of direct experience in competing there by learning indirectly through their leaders, competitors and inter-firm networks.
How might this phenomenon play out in other contexts? Together with Stephen J Anderson, Assistant Professor of Marketing, Stanford Graduate School of Business, and Frank Germann, Assistant Professor of Marketing, University of Notre Dame, I’ve been examining the professional backgrounds of 506 American CEOs from 233 publicly listed firms. We have already collected and analysed data for 2002–2006 and, thanks to the support of the Leadership Institute at LBS, we're in the process of expanding it to include a much larger set of companies and time periods.
So far we have found that more than 25% of CEOs have a marketing or sales background and that, of the marketing CEOS, half were hires from outside the company. CEOs with marketing backgrounds were more likely than those with other backgrounds to have had experiences in other companies and other geographic regions: 63.44% had worked for three or more employers before taking up the reins in their present role and 83% of them had worked in different geographical regions. Interestingly, these people were also more likely to invest in R&D and innovation.
In some contexts, however, there was a high level of insularity. We found that a much larger percentage of CEOs with finance backgrounds had never worked outside finance, outside their region or even outside that one particular company.
A variety of experiences yields new perspectives
Why does that matter? When people talk about diversity in teams they tend to think of demographics. Take gender, for example: you’re female and I’m male, so our team is diverse. There’s a good reason for focusing on that, of course – the proportion of female CEOs in our study was less than 5%. But diversity of experience is just as important.
If all you’ve ever seen is your own market, you might believe that it remains more or less static. You might be tempted to view disruption as a phase that will pass. But if you’ve experienced change elsewhere and seen that there are other ways of doing things, you perceive the world around you as malleable – it can be shaped by you or by someone else. So you tend to be more open to new ideas and influences.
The evidence suggests that diversity of experience has the most positive impact on company performance in sectors characterised by greater dynamism and frequent change – particularly in tech. It might not seem so important to an established firm such as a bank. But even if your industry is not characterised by change today, it might be tomorrow. If you’re a banker who is concerned about fintech, hiring another person with exactly the same banking or consulting background as you isn’t going to give you that diversity of experience to help you face the future.
Every CEO should be preparing their company to confront organisations that might shape their industry. A CEO who has worked in China – or as an entrepreneur in a tech company going after the big banks – or in eastern Africa with mobile money will see the possibilities. If it’s happened elsewhere, it could happen here.
If you have a broad range of experience beyond your own sector, company and region, you will be able to walk in the shoes of others more easily because you’ve effectively been there before. Some of us may be able to more naturally take the perspectives of others but we can all nurture that skill by seeking diverse experiences – whether we’re in the C-suite or running our own tiny business.
During an action research project providing marketing skills to microentrepreneurs in Cape Town, I saw a man grow his security firm from one employee to 54 in a matter of months. He was able to do so because he had worked at Radisson hotels, where he learnt to anticipate customer needs. He had no experience of running a company but he knew what would make it succeed. And part of his success was because he brought a totally different set of perspectives – drawn from his experiences working in a multinational hotel chain – to the task of running a security service in a township. Watch Professor Chandy's TEDx
Diversity of experience matters more for leaders in the context of change
Diversity is particularly important for people seeking leadership roles in contexts that involve change. Marketing experience seems to make a particular difference in unstable industries. Our research shows that leaders with a marketing background are more likely to focus on the future with a growth mindset and on the world outside – customers, competitors and the environment. When the world is changing, that has an impact on performance. So to the extent that you work in a dynamic context, maximise the extent to which you’re filling your life with diverse experiences.
Does every single person need to have a diverse set of experiences? Not necessarily. Deep expertise and continuity can have value. But if you want to be innovative, you need to create new ideas out of bringing together different things. Take technological diversity, for example: say you were in the automobile industry and you were the expert on gearboxes – maybe it’s not a bad idea for you to have some electronics experience. The combination of those two experiences adds even more value.
I call this copy-edit-paste innovation. The creativity is in knowing where to copy from, how to edit and where to paste to, and then edit again. Innovation is not just a story of dreaming up a new idea; it’s about knowing where to draw inspiration from and how to change things to your own context. And that’s where diversity of experience comes in. You know things can change and you’ve seen them change elsewhere.