Wednesday, May 22, 2024

Apple vs. IBM on CEO Succession

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With Steve Jobs’ untimely departure there has been a lot of speculation whether Tim Cook can do the job.   Given that the iPhone 4S failed to meet expectations and Apple missed expectations on his first quarterly financial analyst call, this doubt has recently grown.    Recently, Sam Palmisano named Virginia Rometty to replace him as CEO of IBM, consistent with a process that has kept IBM alive and assured its success for a century.    

Let’s talk succession this week in the context of these Apple and IBM executive changes.

The Importance of Skill Matching

Picking a CEO for a company often seems like Russian roulette ­– but with all the cylinders loaded, particularly when you see repetitive failures at some firms.   Running an umbrella company like IBM is particularly difficult because it requires a CEO who has been groomed to do it, and this means they have developed at least some credible expertise in every line of business.

 Instead you often see external or internal candidates selected that either are too heavily invested in one area or have no real background in any of the divisions (and the latter tends to work out better strangely enough, as IBM’s own Louis Gerstner showcased).    The individual who gets the job has the best connections and tenure, not the best skills. 

With Steve Jobs departure (great post on Steve Jobs Biography here) Tim Cook, who had been COO, was selected to fill Steve’s shoes.   Tim lacked the marketing, presentation, and product skills that Steve has showcased over the years but was clearly stronger at operations, or doing the things Steve didn’t want to do. 

This is more similar to what happened at Microsoft where Steve Ballmer, who had been hired to supplement Bill Gates and Paul Allen, was shoehorned into a role that he was ill suited for.  Though in that case Ray Ozzie was hired to replace Gates and address the problem we now see at apple.  However, Ballmer was either threatened by Ozzie or unable to work with him, so that effort failed and Ozzie left.  

In both cases the effort wasn’t to assure the success of the company but to reward the loyalty of someone ill-suited for the job as it existed when they took it.   Ballmer has neither been happy nor successful as CEO of Microsoft and, I expect, that same future is in store for Cook as well. 

Recently, IBM choose Virginia Rometty to be their new CEO in a surprise move but one tied to the fact she was more broadly versed than Steven Mills, the more visible heir apparent.   Steve had largely spent his time in one division and was best left in place as a strong number 2, while Virginia had the breadth to take over the CEO spot.  

It is sad that making a smart move like this by a large company should be surprising. But in his last major move as the CEO of IBM, Sam Palmisano showcased why he, too, was an excellent choice for CEO: he picked the most qualified person, not the one that appeared more politically correct. 

 If history serves, Rometty should be both happier in her role and more successful with it than either Cook or Ballmer are in theirs, largely because she was both trained and vetted for it, so that the job and the person are well matched. 

Tenure vs. Most Qualified

Big companies, and here IBM is often no exception, often promote based on time served rather than the quality of your work or how well you are matched to the job.  It is, for instance, not uncommon for a successful salesperson to be promoted and fail catastrophically in management because they just aren’t suited for a management job (this is one of the most prevalent failures).  

My own experience after transferring into IBM from an acquisition as an executive resource started with a marginal review which was based on my tenure, not my accomplishments (I through a hissy fit, escalated, and had it reversed).   But the larger the firm the more often they reward  on tenure not accomplishments, both with raises and promotions. This brings to mind the concept of the Peter Principal, where you get promoted to a level where you are incompetent. I believe it is why we have so many failed CEOs.  

The IBM CEO process is very regimented, though, and you are identified as an executive resource early in your career. Once you’re on that list someone always owns your training and advancement.   You are free to turn down transfers, and I did several times while on the list, but that prevents you from meeting the breadth requirements and your upward mobility will stall.  

This is likely what happened to Steve Mills, who by tenure likely had earned the top spot but hadn’t developed the skills necessary to hold it.  I actually doubt, had he been given this job, that he’d have been either as happy or successful in it, even though he has likely been through much of the same in-depth training as Rometty. 

Wrapping Up:  Hope for HP

Steve was an amazing and largely irreplaceable guy.  If you haven’t read his authorized biography it should be on your reading list.  However, he clearly had rejection issues going back to how he was confronted with being an orphan and this led him to design the CEO role at Apple in such a way that he couldn’t be replaced.    He basically built the Apple product creation and marketing process around his unique skills, which may have made him impossible to replace.  On top of that he didn’t want anyone trained in Apple in what he did, which assured that if those skills existed they didn’t exist in Apple.   Jon Rubinstein likely came the closest and he was forced out.  

Tom Watson Jr. is credited with designing IBM so that it would outlast its founders.   Sam Palmisano recognized that being irreplaceable would destroy his legacy, which is now tied to IBM’s continued success, and this assured the continued success of their now shared legacy.  

Jobs did put in place the Apple University, which could help, along with an executive resource process like IBM’s, to identify and groom future Apple leaders. But even there he was instituted as the key quality control point, which now remains vacant.   In the end this speaks to companies that can outlast people. IBM’s CEO selection showcases a century old process that assures IBM will be around long after we are. 

HP, Apple, Microsoft and a long list of other companies don’t have this done yet though; Meg Whitman at HP has made fixing this a priority, which suggests there is hope for that company which has had CEO issues of late.  

One of Steve Jobs’ accidental and unfortunate lessons may well be that to assure your legacy you can’t allow yourself to be irreplaceable. 

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