The New 2-in-1 CEO

By Paul Nunes and Tim Breene

When Fortune magazine named its Business Person of the Year for 2010, an entirely new and noteworthy type of CEO led the list. Reed Hastings claimed the top slot by making Netflix into much more than a “one-trick pony” about to be crushed by powerful competitors. He was cited not merely for his ability to lead Netflix to a dominant position in the DVD-by-mail business but also for simultaneously launching and driving a new business—movies streamed online—that would cannibalize the first.

Leaders like Hastings are “2-in-1 CEOs”: brilliant leaders who have one foot in tomorrow and the other firmly on top of today’s issues. We’re betting that we’ll be seeing a lot more of them.

Many companies in many industries are facing pivotal moments that absolutely demand a 2-in-1 mindset. When Nokia’s boss declares a state of emergency because the company is caught between a surge of low-end products and the runaway success of other mobile platforms, you know that his organization is crying out for 2-in-1 leadership. When Nissan-Renault chief Carlos Ghosn passionately promotes the all-electric Nissan Leaf while aggressively pushing advances with conventional internal-combustion engine vehicles, you know you’re looking at a new type of leadership.

Increasingly, businesses need 2-in-1 leaders to help cope with everything from globalization to quickening innovation to shorter product lifecycles. (not to mention the companies’ own lifecycles: companies spend far less time today on the Fortune 500 and S&P 500 lists than they did a decade or two ago).

This new breed of CEO can grow not only a currently successful business but can simultaneously develop the next business that will enable a graceful transition from the first.

We describe the changeover from one successful core business to another as “jumping the S-curve.” (The S-curve is an image we’ve borrowed from the science world to describe the familiar growth-stall-decline trajectory that every business follows as it matures.) Though rare, there are businesses that manage to break the cycle of growth and decline by moving seamlessly from one success to another.

Hastings and, of course, Steve Jobs are two CEOs who exemplify the 2-in-1 balancing act. However, this isn’t just a job for executives in the fast-moving worlds of entertainment and consumer electronics. DuPont chief Ellen Kullman, for instance, has led her company into food-related products and alternative energy while it continues to produce synthetic materials.

It’s our contention that more and more CEOs need to take some tips from these leaders. As products hit the limits of their growth more quickly and S-curves get shorter, CEOs will have to be prepared to launch new businesses more rapidly than they have ever had to do before.

So what gives 2-in-1 CEOs their ability to spot the next big thing while successfully juggling their current businesses? They’re not psychic—and they’re not just lucky. If they seem always to be in the right place at the right time, it’s because they’re constantly scanning the horizon for big market insights; for that next game-changing idea; for the trend that will upset current market conditions. That’s how leaders at Toyota were able to change the market for luxury cars with the Lexus brand during a period of rapidly growing affluence and to create a mass market for hybrid vehicles with the Prius just as consumers were demanding greener, more fuel-efficient cars. It’s also how Procter & Gamble regularly creates major new markets for products from disposable diapers to innovative floor-cleaning systems.

Second, the 2-in-1 CEOs “get edgy” when they are making strategy. Instead of turning inward, relying on centralized approaches to extend core competencies, they look outward to the edge of markets and the perimeter of the organization for insights. They might find an idea for a major new product from a far-away brand manager such as Reckitt Benckiser did with the Air Wick Freshmatic. Or, like Cisco, they might solicit innovations by holding a contest. In 2007, its I-Prize competition generated 1,200 ideas from around the world, including the winner, a smart electricity grid that deploys sensor technology.

Third, the 2-in-1 CEOs know precisely when to scale their businesses, waiting to get to a level we call “threshold competence” before they start rapidly expanding their offerings. They resist putting the cart of scale before the horse of competence, unlike so many flame outs of the dot-com era such as online grocer Webvan, which was spending some $25 million a pop on massive, automated warehouses on its way to investing $1 billion in a largely untested market.

Dual-focused CEOs first learn what customers demonstrably and predictably value and plan to scale rapidly only when they’re certain they can repeatedly deliver to the new standard. That was the recipe at Porsche, when it created an SUV, the Cayenne, that offered superior speed and handling as well as size. Despite its late entry into the SUV market, Porsche sold 150,000 Cayennes in its first five years—a huge number for a carmaker of its size.

Finally, they don’t do it alone. The 2-in-1 CEOs see their employees as key resources in the battle to surpass the competition. They work hard to create a culture that cultivates and rewards innovation, commitment, and hard work. Their companies become hothouses of talent, generating a surplus of creative energy that is a prerequisite for jumping to the next S-curve. These chief executives never stop demanding the best, and their companies are defined by transparency and mutual accountability.

Novelist F. Scott Fitzgerald wrote that “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” Today that dictum applies especially at the top of companies, where CEOs are increasingly going to have to lead two very different and possibly competing businesses simultaneously. Look for more of this breed to populate future Fortune lists of the best.