Apple (NASDAQ: AAPL) made a big splash recently by recruiting Angela Ahrendts, the CEO of Burberry (LSE: BRBY), to lead Apple's retail operations. This is the highest-profile new hire by Apple, but Ahrendts is only one of a pack of outsiders that Tim Cook has brought into Apple's senior management ranks. It raises the question: Will these outside hires be effective? Academic research and Apple's recent history suggests that the odds are stacked against these newcomers.
Academic studies suggest challenges ahead
A study by Matthew Bidwell of the Wharton School compared outside hires to internally promoted candidates. He found that on average, outside hires were paid substantially more and had better experience and education, but typically performed worse and had had higher exit rates, especially during the first two years on the job.
Another study, co-authored by Nancy Rothard of Wharton, suggests that outside hires, particularly those with extensive experience, often struggle to adapt to the culture of the new company. She concluded that rather than paying a premium for experienced outsiders, companies should invest in training and developing internal candidates.
Jim Collins and Jerry Porras conducted a six-year research project at Stanford, which culminated in the best-selling book Built to Last. Among the successful companies they studied, very few relied on hiring top outside talent. They concluded: "[O]ur research shows why it is extraordinarily difficult to become and remain a highly visionary company by hiring top management directly from outside the organization."
The sad stories of John Browett and Mark Papermaster
Apple's recent track-record with big-time outside hires has several black marks, namely John Browert and Mark Papermaster. Both came with sterling credentials, and neither lasted very long at Apple.
In 2012, Apple hired John Browett away from his post as CEO of Dixons Retail, the U.K. electronics retailer, to become Apple's SVP of retail. Browett has degrees from Cambridge and Wharton. He advised retail clients as a consultant at the prestigious Boston Consulting Group, he served served as CEO of Tesco.com. During his tenure as CEO of Dixons Retail, he received high marks for improving the company's customer service and financial position. Browett lasted only six months at Apple before being fired. According to Browett, it was a problem of cultural mismatch: "I loved working there. The issue is I just didn't fit with the way they ran the business. "
In 2008, Mark Papermaster was hired as Apple's new SVP for devices hardware engineering, with responsibility for both iPod and iPhone hardware. Papermaster has a bachelor's and master's degree in electrical engineering. During his 26-year tenure at IBM, he gained a reputation as one of the leading chip designers in the industry. He was a driving force behind the development of the PowerPC chip. He led two different hardware development groups at IBM. Apparently his knowledge and expertise were important enough that IBM and Apple engaged in a extended legal battle over his non-compete agreement. Despite his impressive experience and technical prowess, Papermaster lasted only 15 months at Apple. His departure was initially blamed on iPhone antenna issues, but later Apple insiders confirmed the cause was broader cultural issues. He couldn't navigate the internal politics. Steve Jobs didn't respect him. He simply didn't fit in at Apple.
Foolish bottom line
Obviously, time will tell if Apple's outside recruiting strategy works. Academic findings and Apple's recent history suggest it might not, but I'm hoping that Apple defies the odds. After all, I'm an Apple shareholder, and I'd like to see these new executives succeed. Ahrendts, in particular, has impeccable credentials. Perhaps this will be the exception to the rule -- either way, I'll be monitoring the situation closely.
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