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How Target’s new CEO, Brian Cornell, can succeed as an outsider

Target's new CEO, Brian Cornell, will be the first outsider to lead the 112-year-old company. (April L. Brown, File/Associated Press)

When Target announced in May that its former CEO, Gregg Steinhafel, was departing, many predicted the retailer would look outside its red-clad, bullseye-covered walls for its next chief executive.

And Thursday morning, Target did just that, naming to the top job PepsiCo executive Brian Cornell, who has also led Wal-Mart's Sam's Club division and hobby retailer Michaels Stores.

Target has never had an external CEO before — Cornell will be a first for the Minneapolis-based company, which has been called "famously insular" and is known for promoting from within. Yet it's not just at Target that outsiders a rare breed. Reported data from the research firm Equilar shows that of the 27 changes at the top of consumer-related businesses in the last five years, just seven have brought in a CEO from the outside.

When outsiders are picked, it's usually because the board wants two things: a fresh perspective at the top and someone unencumbered by the past who can make changes fast. And surely, those are both in demand at Target, where Cornell will have to repair the retailer's image after a disastrous data security breach and improve sales with a revamped product mix and online experience. He'll also face the unusual job of leading a senior team strong enough that it felt comfortable complaining about his predecessor to the board, reportedly even issuing an ultimatum: Either he leaves, or we do.

All of which likely makes Cornell's job trickier than even the average outside CEO's. An interesting piece of research published by two professors in MIT's Sloan Management Review in 2012 might give some insight, however, into what could help him succeed. The researchers examined the circumstances in which external CEOs are more successful than their homegrown peers. On average, they found, in a study of 90 companies over a 30-year period, insiders and outsiders perform relatively the same over the first three years. Yet when a few particular conditions are met, the outsiders tend to perform better.

The first is when the company is either seeing high growth in its industry or falling behind when it comes to performance. Target's board can check that box. The security breach over the holidays put a significant dent in sales, and profits have fallen six straight quarters.

The second is when the outside CEO replaces the top management team with new executives — yet this could be difficult for Cornell. Members of the senior team appear to have demonstrated their power with the board, and some have been named as strong internal candidates for the top job in the future. Too many changes might also sour internal opinion, especially at a company where the promote-from-within ethos is so strong.

Working in his favor, though, is that the company's senior team doesn't seem resistant to change. CFO John Mulligan, who has been interim CEO, has already discussed changes to the store and Web site, replaced leadership in the struggling Canadian business, and moved top leaders to the 26th floor of Target's headquarters to speed up decision making.

Finally, the researchers found that (contrary to conventional wisdom) outsiders actually performed better when they didn't rush to make big changes. "Externally hired CEOs have a higher likelihood of failing if they make too much strategic change too soon — that is, if they act before they understand the company’s business and culture," they wrote. This too will be difficult at Target, as it is in much of Corporate America today, given that there will be plenty of calls for Cornell to move as fast as possible.

As always, the right approach is probably somewhere between the two extremes of rapid change and patient observation. Making some thoughtful tweaks to the senior team or bringing in a few fresh outsiders is a good idea for Cornell, or any new CEO. Doing too much or choosing to change out popular executives, however, could backfire.

Similarly, he'll need to show progress quickly without rushing to judgment. Whatever retail chops he may already have, it will take time to really learn what makes Target's culture tick and to understand the unique challenges the company faces. The pressure on Cornell will be to hurry up, but he should do so with moderation.

Read also:

Why Target's next CEO could be an outsider

An ousted CEO so popular his employees are protesting to get his job back

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Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.



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Tom Fox · July 31, 2014

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