Opinion: The odds are against Elon Musk making Twitter a more profitable company

Elon Musk may be discovering what organizational behavior experts have known for years: white knights rarely rescue companies.

This could explain Musk’s reluctance to go ahead with his Twitter TWTR acquisition proposal.
Many doubt Musk’s stated reason – the concern that many Twitter accounts are false – and have therefore wondered if there was any other undeclared reason. Could this other reason be a growing awareness that the odds would be against you in trying to make Twitter a significantly more profitable business?

I have no privileged view of Musk’s thinking, but clearly the Tesla TSLA,
The founder is a smart guy. I wouldn’t be surprised if he knew academic research on what normally works — and doesn’t work — to try to unlock a company’s potential. In short, this research tells me that the chances of Musk succeeding on Twitter are daunting.

Perhaps the biggest hurdle a stranger like Musk would face in switching Twitter is that if the path to follow was easy and obvious, the company would almost certainly have already followed that path. There is no doubt that Parag Agrawal, the current CEO of Twitter, is very smart, having obtained a PhD. in Computer Science from Stanford University.

The counter-argument, put forward by some, is that Twitter’s internal culture is holding back the company. Former CEO Jack Dorsey has made a version of this argument, claiming that the Twitter board “has been constantly the dysfunction of the company.” Others have questioned whether executives, in addition to the CEO, along with executives at the bottom of the Twitter hierarchy, are too entrenched and have created obstacles to the necessary change.

“Most CEOs who try to radically transform a company will fail.”

The problem with this counter-argument is that in a competition between an external CEO and an internal culture, the latter usually wins. Gautam Mukunda, a professor of organizational behavior at Harvard Business School, has found from his research that “most CEOs who try to radically transform a business will fail.”

Rakesh Khurana, a Mukunda colleague at Harvard Business School who is a professor of leadership development, also found that the behavior of a CEO is very restricted. A corporation’s internal culture “exerts a much greater long-term influence on the success of the business” than a CEO, Khurana told me in an interview a few years ago.

Another perspective on the long-term probabilities Musk faces comes from research by Jim Collins, the business consultant. For his book “Good To Great,” Collins compared two groups of companies. The first included companies that transformed from just matching the S&P 500 SPX,
over a period of many years (“good”) to exceed by a margin of at least three to one over a period of 15 years (“large”). The second group included good companies that never experienced such a transformation.

Investigating why companies in the first group experienced this transformation while those in the second group did not, Collins found that a key difference was whether the CEO had become CEO after working for the company for the first time. More than 90% of “good to big” companies had nominated internal candidates as CEO, while only a third of companies in the second group did so. Collins concluded that “taking out a white gentleman to be general manager is a recipe for mediocrity.”

Mark Hulbert is a regular contributor to MarketWatch. Your Hulbert Ratings keeps track of investment bulletins that pay a flat fee to be audited. You can contact him at mark@hulbertratings.com

Also read: Elon Musk no longer wants to buy Twitter, but Twitter can take away $ 1 billion, or more, anyway.

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