The Thinking Man's CEO

The Thinking Man's CEO

How George N. Hatsopoulos's everyday approach to management has enabled his company to discover one new business after another

As the environment for business becomes increasingly complex, the challenge of building a successful company is getting more formidable every day. Faced with international competition, quickly changing markets, and a more demanding labor force, most chief executive officers react to this world by burrowing ever deeper into their companies. Yet perhaps the inward-looking CEO is doing only half his job.

The other half -- and by far the more elusive -- of the modern CEO's job is making sense out of the changes and figuring out what opportunities they create. Nobody seems to appreciate this role better than George N. Hatsopoulos, founder, chairman, and president of Thermo Electron Corp. He has been practicing "outward-looking" management for some 30 years.

From the outside, Hatsopoulos's $400-million-plus company seems to be a collection of disparate technology-based ventures rather than anything resembling a cohesive whole. The business of these units ranges from cogeneration and pollution monitoring to heart-assist devices. What's more, they operate independently. But don't be fooled. They are linked by Hatsopoulos's wide-ranging curiosity and his own style, which combines traditional management with the pursuit of outside activities that expose emerging areas of opportunity for his company. As one Wall Street analyst recently put it, Thermo Electron "has developed a rich array of products and technologies that address major national priorities.'

Hatsopoulos, a native of Greece who came to the United States as an undergraduate to study mechanical engineering at MIT, started his company in 1956 with no idea of where it would lead. Most of his early efforts went into thermionics, a technology for converting heat into electricity using no moving parts. Nothing commercial came of it, but Hatsopoulos, as he became more involved in outside activities, has more than made up for that disappointment. His curiosity hasn't led him only to new market opportunities. He's made important contributions to economic thinking on the cost of capital and on trade policy. And he sits now as chairman of the Federal Reserve Bank of Boston.

Senior writer Bruce G. Posner and senior editor Stephen D. Solomon spoke with Hatsopoulos in his Waltham, Mass., office.

INC.: You seem to define your role more broadly than any CEO we know. Would you describe it for us?
HATSOPOULOS: A lot of what I do follows the direction I set when I started the company. I wanted to create a team of people who were dedicated to a common objective -- to create an environment in which talented people could continually learn from one another. One of my main jobs is to worry about the development of people.

The other big part of my job is figuring out which businesses we should be in -- deciding between areas that are already commercial and those that haven't yet developed. Some of them may be 10 or more years away, so it's not easy to do. Among other things, you have to understand the long-range needs of customers -- even if they don't.

INC.: These are customers that you already know?
HATSOPOULOS: Not necessarily.

INC.: So where do you begin?
HATSOPOULOS: Well, unlike most companies, we're not product driven. My ideas about this go back to when I was in high school in Greece. I had made a decision that I wanted to study technology, and that I wanted to do that at MIT. I was going to get my Ph.D. and then build a company that would be technologically oriented, always looking for new ventures. I would have a company that had a certain core technology, then look around to identify what needs existed, and try to invent things that met those needs.

INC.: And that's the way things more or less developed?
HATSOPOULOS: Yes, we have several basic areas of competence, and what we really try to do is solve problems. Finding out what these emerging problems are is my job. I have to be out there all the time, talking with people, taking part in public-policy discussions, anything that will enable me to see broad changes before the other guy. If you do a little studying, reading the newspapers and following things, you will begin to see what problems are coming up.

I spend a lot of my time figuring out what makes the economy tick. How can we fill some of the holes that have been created? It requires a broad understanding of society; and also of what drives our society. The more you understand the overall environment -- and really, it's the whole world -- the better able you'll be to find the opportunities. If you find needs that aren't being addressed, you can make a much greater contribution, and you will have a greater chance of success.

INC.: The role of the CEO that you've defined requires much more long-term thinking than most executives practice.
HATSOPOULOS: Yes, and companies like Honda and Mazda have proven, I think, that it pays to think this way. It took them 15 years to break into the American market. If you don't think this way, you're forced into being reactive, into focusing on short-term problems, because other companies have learned to think longer term and therefore have defined the market for you. The stakes are too high to let that happen.

INC.: So your outside activities are integral to your concept of a CEO's role, which is first and foremost defining the future.
HATSOPOULOS: Yes, this is how my outside activities come around to help the company.

INC.: Keeping an eye out for emerging trends is important, but what's wrong with focusing on markets that are already established?
HATSOPOULOS: Nothing's wrong with it. But it's going to limit your growth. In a market like steel, which has been developing since the turn of the century, many people are already competing. What are my chances of success in that? I think that if you are going to develop new products or services, it is much more beneficial to do it in a market that is in its infancy, where the needs are only now being understood. You have few competitors in a market like that. So, if you are a little brighter maybe and more studious than the others, you might get ahead.