What Should A CEO Really Do?
One of the reasons many CEOs fail in achieving their objective is not being clear about which financial end-game they want to pursue because that will determine the underlying strategy and direction
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Tons of books, white papers, and articles have been written on this subject. When I was first asked to write this article, I was inclined to decline, or change the subject to something about “Bollywood”. Bollywood crazy India still wants more on that. However, on a more serious note, it’s quite evident to many of you, and me, that even today, many companies under or over-perform depending upon the leadership at the top, so the question is still as valid as it was over a 100 years ago. So let’s take a shot at it.
Define the strategy
Where does a company want to go, and how will it get there is still something that needs to get answered year on year, and the authority and accountability for that sits in the CEO’s domain. Sure, take all the help you can from your board, external advisors, senior leadership team, and the employees in general, but at the end of the day you own it, and that’s what you get paid to do.
A critical part of this is determining the end financial game – do you want to grow revenue faster than profits, grow profits faster than revenue, or be one of the lucky CEOs of an e-commerce firm where you don’t have to worry about profits, but only market share. In my view one of the reasons many CEOs fail in achieving their objective is not being clear about which financial end-game they want to pursue because that will determine the underlying strategy and direction.
At the risk of wading into the Tata leadership situation, leaving the personalities aside, my personal view is that Ratan Tata was confident that the financial end-game should be that revenue should grow faster than profit, whereas Cyrus may have believed that growing profits faster than revenue is the more important call to make, and everything that has happened since then flows from these two different positions. Anyway, that’s my take.
As a general once said, don’t fight a war you can’t win. Similarly, in the corporate context, don’t formulate a strategy you can’t execute. But at the end of the day, it all comes down to execution. In my recent book on Execution Excellence, I emphasize the critical importance of successfully executing strategy. It is the Holy grail of business. I’m a big believer in the Balanced Scorecard as a framework to execute strategy and drive enterprise performance.
It starts with focus. No more that 20-25 strategic objectives to focus on, and balancing those between financial, customer, process, organisational and technology related objectives. And they all need to be linked. The ownership of these 20-25 objectives need to be clear. And the real trick is in picking the right performance measures for these objectives. Performance Measurement is an art and a science. A right mix of lead and lag measures is needed. Financial measures are always lag measures, so measuring performance simply on lag measures in not good enough.
Setting the right targets
You may define the strategy right, and lay out the right execution framework, but what if you get the targets wrong? Remember, this conversation on targets is not a budgeting discussion – we know budget targets are something between a minor or major fudge, as it’s all a negotiation. I am talking about real targets that CEO a believes in. Targets are of 3 categories – aggressive, realistic and easy. The challenge is most CEOs pick too many aggressive or sometimes easy targets. Too many aggressively stretch an organisation beyond a logical point. In my view one needs to set only 3-5 aggressive targets to get the job done. One of them obviously needs to be financial, but the rest need to be drivers to financial performance.
Defining the organisation’s culture
This is tricky one. It often tends to be seen soft and fuzzy, hard to define. In reality, it is not hard to spot cultural themes within many organizations. Some are performance oriented, some are client oriented, some are innovative, and so on. But this often starts at the top, as the CEO leads in defining an organizations culture. The reality in life is what’s important to the boss, is important to me. That’s human nature. If a CEO wants an organization to be client focused, then he or she needs to lead the way by spending time with clients, making the client experience or client satisfaction critical measures used to track success in executing strategy, and so on. It often starts with basic CEO behaviour. If a CEO is late for meetings, don’t expect the organisation to run as clock-work.
A strategic view on human capital
I am a bit contrarian on this topic. Enterprise progress or delivering shareholder expectations should not be held back for the sake of carrying 100 per cent of an organisation. Not feasible or practical. Too many CEOs get pre-occupied in trying to build consensus and carrying the whole organization. As a result, the shareholder suffers and the good performers in an organization suffer. The organization needs to be performance oriented, and a honest process needs to run every year to identify those that may not be able to fully contribute meaningfully to the growth of an organization and they have to be exited in a humane way. Unfortunately, too many Indian employees are seeking global compensation without the accountability or risk of not having life time employment or variable pay.
Before I close, a final word for those seeking a different answer for those CEOs working in family owned businesses. Fortunately, or unfortunately, 80 per cent of the world’s companies are family owned. So, unless you are planning to move to another planet, there is an 80 per cent chance you will end up working for a family owned business. The rules of the game are the same on what the CEO should do. Enjoy the ride.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.