Amer ica has at le a s tone place thats e ems to ma nu fac-t u
re gre at basketball play-ers: the Un i ver s i ty of North Carol i
na. The Un i ver s i ty ofM ichigan cranks out fo otball gre ats
the way GM cranks ou tC hev ies. So now that many com pa n ies have
de c ided im-p orted CEOs are bet t er than home g rown, and CEOs
areg etting re c ruited like poi nt guards and running backs (a nds
omet i mes even pa id as muc h), its worth asking: DoesAmer ica
also have a CEO fac t ory ?
Answer: It has two. General Electric and McKinsey havebeen
legendary for decades as Americas two bubbliest cal-d rons of ma na
g erial brilliance, but these outfits throw of fmore than ideas;
theyve also produced an astonishing num-ber of CEOs of other major
companies. And whenever youhave two of anything that are extremely
good, you cant resistwondering, Which ones better?
Its a delicious comparison because GE and McKinsey inmany ways
are opposites.McKinsey is proudly elit-ist, annually skimming
thetop graduates of the Har-vard Business School andot her ultra -
e xc lu s i ves c ho ols wor ld w ide. GE isproudly ant i -
elitist; a fa nc yde g ree sparks at least asmuch suspicion as
admira-t ion. To over s t ate the case:At one place an IvyLe a g ue
de g ree is re qu i re d ,while at the other its pro-hibited. By re
pu t at ion ,Mc Kinsey hires the stu-dents with thick gla s s e sa
nd HP calc u lat ors; GEhires the hockey team.
So which turns out bet-ter CEOs? To find out, weset up a
managerial SuperBowl. We chose ten CEOsof la rge U.S. com pa n ie s
,f i ve each from GE andMc Ki n s e y, all of whom gottheir jobs in
the 90s, and
c om pa red their perfor m-a nces. Result: a tie (s e et a ble).
Turns out bot hteams are damn good. And
together they teach a big, important lesson to the rest of
us.Note that the result could have changed if we had chosen
different CEOs, which we easily might have, especially forTeam
Mc Ki n s e y. Candid ates: William Fo ote (USG), Ric ha
rdGoodmanson (America West Airlines), Volney Taylor (Dun&
Bradstreet), and Gregory Summe (EG&G), among manyot hers. We
chose the CEOs we did because they run the best-known
companies.
Pic kings were sl i m mer for Team GE. Ex-GE CEOs arefewer for a
couple of re a s ons. GE stock has perfor med sospectacularly that
most top managers there would leave be-hind a fortune in
unexercised options if they departed. In ad-dition, some of GEs
best executives are still in the runningto succeed CEO Jack Welch
next year, so theyre staying put.
Whats most signific a nt about the results of the ma na g er i a
l
MANAGING
TEAM McKINSEY
STAYING SMARTM 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
Lou GerstnerIBM $223.9 45.5%1993
Philip PurcellMorgan Stanley $54.9 35.1%Dean Witter1993*
Harvey GolubAmerican Express $56.2 34.2%1993
Leo MullinDelta Air Lines $8.0 15.7%1997
Gary DiCamilloPolaroid $1.1 14.6%1995
No. ofyears at
McKinsey
John BlystoneSPX $2.6 63.5%1995
Larry BossidyAlliedSignal $37.0 31.6%1991
Norman BlakeUSF&G* $2.8 17.8%1990
John TraniStanley Works $2.8 5.8%1997
Glen HinerOwens Corning $2.0 5.7%1992
Recent Average annualmarket cap. stock pricein billions
growth
Recent Average annualmarket cap. stock pricein billions
growth
No. ofyearsat GE
CEOCompany Year started
CEOCompany Year started
18
34
17
19
32
13
11
13
9
3
TEAM GE
Average annualstock price growth
Average annualstock price growth
24.9% 23.2%TEAM GE
SC OR E :TEAM McKINSEY
SCORE:*Acquired by St. Paul Cos., 1998. *Year Dean Witter spun
off from Sears.
AUGUST 2, 1999
Which make better managers? Elitists from McKinsey or bruisers
from GE?
C EO Sup er Bow l
Sup er Bowl is that the score was so clo s e de spite the sha r
pl ydi f ferent cultures of the two teamsand that both teams
areexcellent. Consider: The S&P 500 has on average advanceda b
out 15% a ye a r, com p ou nded, through the 90s. The s eCEOs have
averaged about 24% annual stock price appreci-ation during their
tenures, an enormously superior perform-ance. So for all the
amusing (and overblown) caricatures ofthe brainiacs vs. the
bouncers, what you really want to knowis not how McKinsey and GE
are different, but how theyrethe same.
The answer couldnt be clearer. The companies are alike intwo
major ways that seem to explain a great deal about thesuccess of
their alumni. The first and most important simi-la r i ty is an
absolute insistence, blu nt and unc om promising, onthe best
peoplefinding them, developing them, evaluatingthem, and getting
rid of them if they dont measure up. Vir-tually every company would
say it shares those values, but inreality hardly any is in GEs and
McKinseys league when itcomes to living them.
B oth com pa n ies are extreme mer i t o c rac ies, says No
elTichy, who used to run GEs Crotonville management centerand is
now a professor at the University of Michigans busi-ness scho ol.
As a re s u l t, people get bet t er and bet t er thehigher you go
in the organization. This is notalways the case.
It starts with re c ruiting. As Mc Kinsey ha sg rown, it has
faced the pro blem of finding morenew em plo yees who are up to its
extraor-di narily high stand a rd. The obvious cou r s ewou ld have
been to hire more from the elite in-s t i t u t ions where the firm
alre ady re c ruited. Butg oing after the top 10% rat her than the
top 5% of the Ha rva rdB - s c ho ol class wou ld, by de f i n i t
ion, have lowered stand a rd s .So they didnt re ach de e p er into
the existing talent pool, say sAnd rew Ac kemann, the firms for mer
di re c t or of profe s s iona lp er s on nel. Instead they widened
the search, lo oking int omany di s c i pl i nes globally for the
brightest people arou nd. Pa r tof Ac kemanns job was to di rect a
mini-M BA pro g ram forh i res with Ph . D.s, M.D.s, and law de g
re e s .
Both GE and McKinsey devote a lot of time and moneyfar more than
most companiesto developing their peoplethrough tons of formal
education and training. Consideringtheyve already brought aboard
many of the smartest peoplea rou nd, thats a powerful one - two
comb i nat ion. It also me a n st he com pa n ies have secured the
moral right to carry out someof the most int en s i ve, merc i less
perfor ma nce eva lu at ion sfound anywhere in business.
At GE its called Session C. At McKinsey its the PIA, the
personal impact assessment. In both cases its a very care-fully
orchestrated system of performance reviews, as Acke-mann describes
McKinseys system, and its realnot someb.s. bu re auc rat ic
exercise, as Tichy says of GEs rou t i ne .Deep, hone s t, fre
quent perfor ma nce rev iews are di f f ic u l t,even painful,
which is why most com pa n ies dont do them. Butthey are clearly
one of the most significant reasons GE andMcKinsey produce so many
outstanding managers.
A key to assembling the best people is the commitment oftop
executives, which is strikingly similar at the two compa-nies.
Evaluating people is the CEOs job at GE, says Tichy,and Welch
acknowledges its how he spends most of his time.At McKinsey, says
Ackemann, massive amounts of partnertalent are devoted to
recruiting and to management of themer i t o c rac y. Those
messages from the top tell every ma na g erat both companies:
Developing and evaluating people arentjust items on your to-do
list; theyre the most important partof your job.
Pe o ple focus is the first big simila r i ty betwe en GE
andMcKinsey. The second is exposure to many disparate busi-nesses,
which gives exe c u t i ves more ideas and con f idence tha nmost
business people ever acquire. Its obvious how this hap-p ens at Mc
Ki n s e y. Sp end a few years as a con s u l t a nt, and
youll see all kinds of companies, good and bad, risinga nd
falling, and youll learn pro di g iou sl y. At GE it take smore
doing. The company is a conglomerate, althoughthey get hives if you
call them that, and it may be theonly con g lomerate thats worth
more than the sum of itsparts. Thats largely because the company
knows howto tra n s fer good ideas from one cor ner of the em pi re
toa not her, giving every operat ion an ad va ntage its single
-
industry competitors dont have.E xe c u t i ves raised in such
an en v i ron ment get a couple of ad-
vantages. First, they just know more. Managerially, theyves e en
the wor ld. The y ve built a gre at er fund of ideas and prac-tices
than managers whove spent a career in one industr y.Second, theyve
seen ideas applied successfully across indus-t r ies, ma king them
less afra id to try the unc on vent iona l .Youre very reluctant to
turn the world upside down if its theonly world you know.
Our managerial Super Bowl may not have yielded a clearwinner,
but it has definitely served a purpose. Those compa-n ies on the ro
s t ers arent really two teams fighting each ot her,obviously;
theyre ten separate companies, each one againstthe world. But
because their common traits are so clear andstriking, imagining
them as teams showsmuch more em-phatically than viewing them
individually ever couldwhat ittakes to be a world-beater.
GE AND MCKINSEYSHARE AN AB-SOLUTE INSIS-
TENCE ON FINDINGAND DEVELOPINGTHE BEST PEOPLE.
1999 Time Inc. All rights reserved. Visit our website at:
http://www.fortune.com
