The chief is back in town

"Never go back" is advice often dished out to those contemplating a revival of a relationship with an old flame. But should it equally apply in business?

by Knowledge@Wharton
Last Updated: 23 Jul 2013

Last week Michael Dell returned as CEO of Dell, replacing Kevin Rollins. Dell's decision to offer its former boss his old job back follows a well-trodden pattern in corporate America, where many entrepreneurs found a company and build it to a certain size before handing it over to a CEO to run -- only to be invited back to lead the company when the going gets tough. But how successful are these second time CEOs? And what will Michael Dell need to do to turn around the company he started?

In an interview with Knowledge@Wharton, Wharton management professor Peter Cappelli says that whether or not the experiment succeeds depends on the needs of the company at the time. "I think the record is mixed, he said. "Generally, there's a sense that organisations need different skills at different times. And so, the people who have founded organisations and have the entrepreneurial zeal and the ideas and such often aren't the people who can take the organisation to the next phase."

"Sometimes you need more administrative skills, more management skills. Sometimes leadership and zeal isn't enough," Capelli says. "On the other hand, the founders have a symbolism that becomes very important when they step back in -- in terms of the sense that they give the employees or their ability to sell ideas to the outside audience at different points in time."

One of Michael Dell's first acts after taking charge again was to fire off a memo to all employees saying that there would be no bonuses for 2006, describing the year as one in which there had been "great efforts, but not great results". Cappelli says that the act's symbolism was more valuable to Dell than the savings it will bring. "It's a powerful message that comes from the owners…that something has got to change. So it certainly is an important statement to shake people up. I think it's also a statement to the investment community and to outsiders, too, that we're taking this seriously. Does it de-motivate people? Yes. Are there some downsides to that? The answer is yes, probably."

In his memo, Michael Dell also attacked Dell's bureaucracy, which he claims has slowed the company down -- a provocative assertion given that Dell built its reputation on the speed with which its supply chain could make customised computers for customers. Cappelli argues that the company has not suddenly become bad at executing its famed business model. Rather, the environment in which it operates has changed. "I was looking over the press releases and the analysts' comments on the transition at Dell. They almost all universally praise the idea that Michael Dell is coming back. They almost all universally have nothing to say about what it is that he'll actually do.

"The other thing I thought was interesting was about that comment from Dell is that one of the things Kevin Rollins was seen as good at was being tough and cost-focused -- which is exactly what a lot of the analysts say Dell has to do to go forward. In fact, he seemed to be pretty good at the kinds of things that most of the analysts say they ought to be doing," Cappelli says.

Cappelli argues that this is symptomatic of a wider trend within the business world: the replacement of strategy with leadership. "Companies rarely have a clear sense of the direction that they need to go in when something like this happens -- that is, the environment around them changes," he says. "They substitute new leadership for new strategy."

These changes in leadership are usually motivated by a desire to prove to the investment community that the company intends to do something different, Cappelli says. But he warns that such actions may not always be appropriate. "I think as a result, the leadership gets churned much more often than it would have in previous generations, and much more often than it actually deserves to be churned."

Review by: Nick Loney

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