Not All Managerial Experience Sharpens Strategic Foresight

Many managers build their career in several firms, working in different functions, and across different industries. Each of these experiences builds their knowledge and shapes their judgement about which of their firm’s strategic initiatives are likely to be successful.  

This ability to anticipate outcomes accurately is known as strategic foresight, and it is a critical capability for effective strategic decision-making.  

But which career path provides managers with superior strategic foresight?

In our research, co-authored with Nauman Asghar, HEC Paris graduate at the University of Liverpool, Russ Coff of the University of Wisconsin-Madison and Philipp Meyer-Doyle of INSEAD, we find that some experience sharpens foresight, while some clouds it. 

We tracked managers who placed bets by purchasing their own company’s shares ahead of launching a new product. We looked over the share purchases of 1,803 senior executives across 257 companies ahead of 2,863 product launches between 2016 and 2018.

We used stock returns 18 months after the announcement of the new product as a proxy to evaluate the managers’ foresight: whether they correctly judged a product’s prospects ahead of its launch. If managers can spot winners early, the shares they buy before a product is released should go on to perform better than the market average. And they did.

We found that when managers increased their stakes ahead of a new product rollout, those who had experience in several firms in the same industry enjoyed stock returns that were almost 35% above the study’s average over 18 months. Experience in multiple functions was associated with an 8% higher return. Yet those with careers spanning multiple industries achieved stock returns nearly 31% below the average over the period.

Why is that? Because moving between firms broadens managers’ knowledge without forcing them to learn a different industry. Firms competing in the same sector share many of the same customers, products and strategies. That gives managers shuttling between firms a deeper understanding of their industry’s best practices and demand across the market. Which leaves them better placed to ascertain a new product’s potential.

Similarly, experience in different functions allows managers to weigh up the different inputs of a new product and its launch campaign, and whether these different pieces are effectively combined: a great product will not be a success if the marketing campaign is ineffective.

On the flip side, broader industry experience creates a different problem: managers become more likely to import the wrong lessons from the wrong industry, drawing analogies between markets that appear similar but really are not. That makes it harder to judge whether a product will be success.  

And that divide grows when uncertainty hits. During financial market volatility, share prices swing more than usual. Managers with careers spanning several firms and functions in the same industry got even better at judging new product launches, while those with experience that stretched across industries became even more likely to get those calls wrong.  

That pattern also showed up in the mistakes those managers made. Those with broader experience across industries were more likely in the first place to place losing bets on their company’s new product launches. Managers who built careers across several firms and across different functions were less likely to make those mistakes: they knew which bets to make.

Two key lessons for successfully recruiting an executive

1. Our research suggests that, when selecting leaders to steer new strategic initiatives, employers should look closely at the careers they’ve forged and consider those who have come up through several firms within the same industry.
2. When developing managers, move them around different functions in the same company because this helps them to understand the connections between the different organizational elements necessary for success.

Yet we also sound a note of caution: there is no suggestion that companies should always back managers with broader experience across companies and functions or shun those with experience in different sectors. The key question is: what type of strategic foresight do you need?