Do you know your industry?

A recent conversation with the Skinny Professor got me thinking about the idea that to be a good strategist, one must first have learned deep knowledge of an industry and a corporate culture.

Research supports the idea that knowledge of an industry is critical to success as a CEO. CEOs with experience in an industry tend to be more successful than those who do not have industry experience. This might explain the recent failures of several GE executives who have moved to other industries.  Many observers have argued that the GE way was not transferable. An interesting article from Harvard Working Knowledge suggests that the issue is a mismatch of strategic skills. 

While I agree with the HWK position that a mismatch of strategic skills might be part of the problem, I would also suggest that a lack of knowledge of the unique competitive environment of an industry may also play a role.  Each industry has a particular combination of strategic skills that become important. Managers over a number of years hone these skills to the point that they become almost instinctual. Put that manager in a different industry and they tend to revert to the set of skills that they bring with them, whether or not those skills are appropriate for the situation. Give someone a hammer, and everything they see will be a nail.

When a manager changes industries, they often don’t see the differences between industries, because they lack that deep knowledge of how things work. So they reach for their hammers.  

For example, Robert Nardelli moved from GE to Home Depot, and was not successful in making that transition. While Nardelli had a deep understanding of manufacturing, finance and technology from his GE days, he did not really understand 1) retailing, 2) the competitive environment; and, 3) the corporate culture of Home Depot. This lack of deep knowledge was likely a contributor to his failure as a strategist at Home Depot.

Malcolm Gladwell noted in Outliers that it takes 10,000 hours of practice and experience to become an expert in any particular field. I would suggest that it also may take 10,000 hours of experience to deeply understand the working of an industry.  How well do you know your industry?

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