MANAGING

AUGUST 2, 1999

STAYING SMART
M A N AG I NG C OM PA N I E S A N D C A R E E R S I N T H E N E W E C ONOM Y

CEO Super Bowl

merica has at least
c om pa red their perfor mWhich make better managers? Elitists
one place that
a nces. Result: a tie (s e e
from McKinsey or bruisers from GE?
seems to manufact a ble). Turns out bot h
ture great basketball playteams are damn good. And
ers: the University of North Carolina. The University of
together they teach a big, important lesson to the rest of us.
Michigan cranks out football greats the way GM cranks out
Note that the result could have changed if we had chosen
Chevies. So now that many companies have decided imdifferent CEOs, which we easily might have, especially for
ported CEOs are better than homegrown, and CEOs are
Team McKinsey. Candidates: William Foote (USG), Richard
getting recruited like point guards and running backs (and
Goodmanson (America West Airlines), Volney Taylor (Dun
s omet i mes even pa id as muc h), its worth asking: Does
& Bradstreet), and Gregory Summe (EG&G), among many
America also have a CEO factory?
others. We chose the CEOs we did because they run the bestAnswer: It has two. General Electric and McKinsey have
known companies.
been legendary for decades as Americas two bubbliest calPickings were slimmer for Team GE. Ex-GE CEOs are
drons of managerial brilliance, but these outfits throw off
fewer for a couple of reasons. GE stock has performed so
more than ideas; theyve also produced an astonishing numspectacularly that most top managers there would leave beber of CEOs of other major companies. And whenever you
hind a fortune in unexercised options if they departed. In adhave two of anything that are extremely good, you cant resist
dition, some of GEs best executives are still in the running
wondering, Which ones better?
to succeed CEO Jack Welch next year, so theyre staying put.
Its a delicious comparison because GE and McKinsey in
Whats most significant about the results of the managerial
many ways are opposites.
McKinsey is proudly elitist, annually skimming the
TEAM McKINSEY
TEAM GE
top graduates of the HarNo. of
Recent
Average annual
CEO
No. of
Recent
Average annual
CEO
vard Business School and
years at
market cap.
stock price
Company
years
market cap.
stock price
Company
McKinsey
in billions
growth
Year started
at GE
in billions
growth
Year started
ot her ultra - e xc lu s i ve
schools worldwide. GE is
18
John Blystone
Lou Gerstner
13
proudly anti-elitist; a fancy
SPX
$2.6
63.5%
IBM
$223.9
45.5%
degree sparks at least as
1995
1993
much suspicion as admiration. To overstate the case:
34
Larry Bossidy
Philip Purcell
11
Morgan Stanley
$54.9
35.1%
At one place an Ivy
AlliedSignal
$37.0
31.6%
Dean Witter
1991
League degree is required,
1993*
while at the other its proHarvey Golub
17
Norman Blake
hibited. By re pu t at ion ,
13
American Express $56.2
34.2%
USF&G*
$2.8
17.8%
McKinsey hires the stu1993
1990
dents with thick gla s s e s
a nd HP calc u lat ors; GE
19
9
Leo Mullin
John Trani
hires the hockey team.
Delta Air Lines
$8.0
15.7%
Stanley
Works
$2.8
5.8%
So which turns out bet1997
1997
ter CEOs? To find out, we
set up a managerial Super
32
3
Gary DiCamillo
Glen Hiner
Bowl. We chose ten CEOs
Polaroid
$1.1
14.6%
Owens Corning
$2.0
5.7%
of large U.S. companies,
1995
1992
f i ve each from GE and
McKinsey, all of whom got
Average annual
Average annual
TEAM McKINSEY
TEAM GE
stock price growth
stock price growth
their jobs in the 90s, and

SCORE:

*Acquired by St. Paul Cos., 1998.

24.9%

SCORE:

*Year Dean Witter spun off from Sears.

23.2%

Super Bowl is that the score was so closedespite the sharply

personal impact assessment. In both cases its a very caredifferent cultures of the two teamsand that both teams are
fully orchestrated system of performance reviews, as Ackeexcellent. Consider: The S&P 500 has on average advanced
mann describes McKinseys system, and its realnot some
about 15% a year, compounded, through the 90s. These
b.s. bureaucratic exercise, as Tichy says of GEs routine.
CEOs have averaged about 24% annual stock price appreciDeep, honest, frequent performance reviews are difficult,
ation during their tenures, an enormously superior performeven painful, which is why most companies dont do them. But
ance. So for all the amusing (and overblown) caricatures of
they are clearly one of the most significant reasons GE and
the brainiacs vs. the bouncers, what you really want to know
McKinsey produce so many outstanding managers.
is not how McKinsey and GE are different, but how theyre
A key to assembling the best people is the commitment of
the same.
top executives, which is strikingly similar at the two compaThe answer couldnt be clearer. The companies are alike in
nies. Evaluating people is the CEOs job at GE, says Tichy,
two major ways that seem to explain a great deal about the
and Welch acknowledges its how he spends most of his time.
success of their alumni. The first and most important simiAt McKinsey, says Ackemann, massive amounts of partner
larity is an absolute insistence, blunt and uncompromising, on
talent are devoted to recruiting and to management of the
the best peoplefinding them, developing them, evaluating
meritocracy. Those messages from the top tell every manager
them, and getting rid of them if they dont measure up. Virat both companies: Developing and evaluating people arent
tually every company would say it shares those values, but in
just items on your to-do list; theyre the most important part
reality hardly any is in GEs and McKinseys league when it
of your job.
comes to living them.
People focus is the first big similarity between GE and
Both companies are extreme meritocracies, says Noel
McKinsey. The second is exposure to many disparate busiTichy, who used to run GEs Crotonville management center
nesses, which gives executives more ideas and confidence than
and is now a professor at the University of Michigans busimost business people ever acquire. Its obvious how this hapness school. As a result, people get better and better the
pens at McKinsey. Spend a few years as a consultant, and
higher you go in the organization. This is not
youll see all kinds of companies, good and bad, rising
always the case.
and falling, and youll learn prodigiously. At GE it takes
GE AND MCKINSEY
It starts with recruiting. As McKinsey has
more
doing. The company is a conglomerate, although
SHARE AN ABgrown, it has faced the problem of finding more
they get hives if you call them that, and it may be the
SOLUTE INSISTENCE ON FINDING
new employees who are up to its extraoronly conglomerate thats worth more than the sum of its
AND DEVELOPING
dinarily high standard. The obvious course
parts. Thats largely because the company knows how
THE BEST PEOPLE.
would have been to hire more from the elite into transfer good ideas from one corner of the empire to
stitutions where the firm already recruited. But
another, giving every operation an advantage its singlegoing after the top 10% rather than the top 5% of the Harvard
industry competitors dont have.
B-school class would, by definition, have lowered standards.
Executives raised in such an environment get a couple of adSo they didnt reach deeper into the existing talent pool, says
vantages. First, they just know more. Managerially, theyve
Andrew Ackemann, the firms former director of professional
seen the world. Theyve built a greater fund of ideas and pracpersonnel. Instead they widened the search, looking into
tices than managers whove spent a career in one industr y.
many disciplines globally for the brightest people around. Part
Second, theyve seen ideas applied successfully across indusof Ackemanns job was to direct a mini-MBA program for
tries, making them less afraid to try the unconventional.
hires with Ph.D.s, M.D.s, and law degrees.
Youre very reluctant to turn the world upside down if its the
Both GE and McKinsey devote a lot of time and money
only world you know.
far more than most companiesto developing their people
Our managerial Super Bowl may not have yielded a clear
through tons of formal education and training. Considering
winner, but it has definitely served a purpose. Those compatheyve already brought aboard many of the smartest people
nies on the rosters arent really two teams fighting each other,
around, thats a powerful one-two combination. It also means
obviously; theyre ten separate companies, each one against
the companies have secured the moral right to carry out some
the world. But because their common traits are so clear and
of the most intensive, merciless performance evaluations
striking, imagining them as teams showsmuch more emfound anywhere in business.
phatically than viewing them individually ever couldwhat it
At GE its called Session C. At McKinsey its the PIA, the
takes to be a world-beater.

1999 Time Inc. All rights reserved. Visit our website at: http://www.fortune.com