Consider, for a moment, this compelling image: A charismatic leader sweeps into a troubled organization and, in the nick of time, saves it from certain demise. Larger than life, this heroic CEO has a seemingly magical ability to inspire and motivate the rank and file and to make needed change happen.
Many of us like to think that such creatures exist. Indeed, some researchers argue that a talented CEO exerts the most powerful impact on an organization's fate. But others maintain that social structure —that intricate web of relationships among a company's employees, systems and processes — is most important in determining whether the organization will succeed or fail.
An April 2001 working paper, “When Does Leadership Matter? The Contingent Opportunities View of CEO Leadership,” shifts the debate away from this either-or approach. Rather than asking whether individual agency or social structure matters more, the researchers reframe the debate itself. They ask: Under what circumstances will a CEO have a major impact on his or her organization?
To answer that question, authors Noam Wasserman, Nitin Nohria and Bharat Anand of Harvard Business School offer two critical dimensions that influence the magnitude of a CEO's impact on a company.
Resource Availability. This dimension derives from two conditions: an organization's level of debt (higher debt means less cash available to direct toward investments or acquisitions) and level of slack (that is, the number of extra people or amount of assets that the CEO can easily redeploy to take advantage of an opportunity).
Scarcity of Opportunities. This dimension stems from a confluence of three industry characteristics: exchange-constraint, or the degree of dependency between two industries when they buy or sell major portions of their output to each other; concentration, or number of players in a particular industry; and growth. Specifically, high exchange-constraint and concentration in an industry reduce the number of opportunities available, whereas high growth increases the number of opportunities.
Not surprisingly, the study suggests that CEOs at the helms of companies with low debt levels and high slack levels — thus high resource availability — will exert a more powerful impact on their organizations.
But the study reveals something much more counterintuitive regarding scarcity of opportunities. As the authors point out, most might assume that the more opportunities a CEO encounters, the more impact he or she will exert on the organization — regardless of industry.