Impact of CEO's managerial and engineering background on global automotive companies' performance

Talking about engineering background it was discovered that after financial crisis of 2008 companies tend to employ more CEOs with engineering or scientific background than managerial ones. It corresponds the suggestions of human capitalists who suppose that employment decision should be made on the basis whether the background and capabilities of CEO contribute directly to the company's core activity. However, the research showed that technological background of CEO cannot drive the company to innovation and technological capabilities by itself. The balance is needed in top management team. Corresponding with bounded rationality concept from the Upper Echelon theory, it was researched that executives with engineering background, technical education, training and career path focus more on the information that is relevant to the technological part of the firm's strategy. They increase the recourse base for technology part of a strategy by adding value to it.

Top management team was found as the success factor. Not only the more heterogenous groups tend to perform better and more creative, it was also found that the for successful leadership in technological- or/and science- intensive companies there is no need of engineering background CEO. The positive influence could be achieved by the functional manager in top management team who will be responsible for technologies and engineering. That way the TMT will contribute to the core company activity.

From the study of previous research we understood that the background of the CEO influences the company's performance and that the background of the CEO is forming his/her perception and influences the direction the company undertakes. During that 4 hypothesis were formed:

Hypothesis 1 - firms with CEO with managerial background would be more effective administratively than firms with CEO with engineering background, producing more cars and bringing more profit in terms of ratios per employee .

Hypothesis 2 - firms with CEO with engineering background would be more effective than firms with CEO with managerial background in terms of profit per cars sold.

Hypothesis 3 - firms with CEO with engineering background would earn more profit before interest and tax than firms with CEO with managerial background.

Hypothesis 4 - firms with CEO with engineering background would sell more cars than firms with CEO with managerial background.

To work with the hypothesis we chose case study analysis and correlation analysis where we build a model.

The comparison of different type background managers in case study showed that:

· Company under managerial-background CEO is less complex administratively than the company under the management of engineering background CEO and than the industry in average ;

· Company under managerial-background CEO earns more profit per every car sold than the company under the management of engineering background CEO and than the industry in average .

· Company under managerial-background CEO earns more profit than the company under the management of engineering background CEO and than the industry in average ;

· Company under managerial-background CEO sells more cars than the company under the management of engineering background CEO and than the industry in average ;

We understood that we cannot rely only on the study of two companies with different background CEO and took a closer look by creating a model where we took Top-10 automotive car companies by sales in 2018 and analyzed their reports for the last 5 years available. Also we researched their CEOs and categorized their managerial and engineering background. After that we carried out the correlation analysis which showed that:

· There is no correlation between any type of the background and cars sold;

· There is no correlation between any type of the background and profit;

· There is no correlation between any type of the background and profit per car sold;

· There is no correlation between any type of the background and administration complexity;

· There is a weak inverse correlation between types of the background, the more engineering background CEO has the less managerial he/she obtains and vice versa.

None of the hypothesis were supported during the correlation analysis. However, we took a closer look at the CEOs information from the model and discovered that the majority of CEOs in the automotive industry has engineering and managerial background. The majority of companies prefer CEOs with engineering background than without it. Also if we divide global automotive industry to clusters of North America, Europe and Japan, we would see that all of the main automotive areas mostly prefer CEOs with engineering background than without it. automaker general manager competitiveness

From that fact we can conclude that probably, the engineering background is the requirement to get to the top of automotive company regardless of the country the company belongs to.

The recommendations. After the study of previous research, case study and analysis for correlation we can propose to the global automotive car producers the following:

· To strengthen the CEO with managerial background with high-quality executives with engineering background in top-management team;

· To strengthen the CEO with engineering background with MBA and/or trained executives with managerial background in top-management team;

· In the period when fast changes are needed to hire younger CEO with different types of background, probably the industry outsider, from the relevant industry structure (meaning highly competitive, oligopolistic);

· In the period when the stability and efficiency needed to hire longer tenured, aged CEO from the industry, probably within the company;

· If the acquisition is needed and the market reaction should be positive, try the best to acquire from the place where CEO's background is relevant;

· To form the TMT, not only hire a CEO, in accordance with what company needs, making the top management team as heterogeneous in terms of background and professional as possible.

Conclusion

Analysis of existing research showed that CEO impacts the company's performance in many ways. Especially, his/her background plays an important role. On the background aspects such as age, tenure, education and outsider of an industry factors relies the company's performance. Right combination of those factors can increase the market capitalization, bring stability or increase the risk and innovation orientation of a company.

Engineering and managerial background were studied and the key to successful use of them is to balance the types of the backgrounds in the top management team. However, the companies after the financial crisis tend more to employ the engineering and scientific background CEO. Furthermore, administrative and financial CEOs more often that the others steer the company in the way of offending.

It was found that industry and CEO matter, but it is hard to estimate which kind of background is better suits the global automotive producers.

Case study showed that:

· Company under managerial-background CEO is less complex administratively than the company under the management of engineering background CEO and than the industry in average ;

· Company under managerial-background CEO earns more profit per every car sold than the company under the management of engineering background CEO and than the industry in average .

· Company under managerial-background CEO earns more profit than the company under the management of engineering background CEO and than the industry in average ;

· Company under managerial-background CEO sells more cars than the company under the management of engineering background CEO and than the industry in average ;

Analysis for correlation showed that:

· There is no correlation between any type of the background and cars sold;

· There is no correlation between any type of the background and profit;

· There is no correlation between any type of the background and profit per car sold;

· There is no correlation between any type of the background and administration complexity;

· There is a weak inverse correlation between types of the background, the more engineering background CEO has the less managerial he/she obtains and vice versa.

The main recommendation is that top management team should be heterogeneous in the types of background, managerial and engineering, as well as the CEO and TMT background should correspond the challenges that lie ahead of the company.

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