“In business, what’s dangerous is not to evolve.” – Jeff Bezos, CEO of Amazon
The Chief Executive Officer’s (CEO) job is as difficult as it is important. The CEO is responsible for the overall success of a business entity and for making top-level managerial decisions. Although they may ask for input on major decisions, the ultimate and final decisions lie on their authority. Name the top CEOs in the world and one will find a few things they have in common that distinguish them from the rest; It starts with their mind-set and what they do differently that set them apart.
Understanding the Peerless Role of a CEO
Little is solidly understood about what CEOs really do to excel. For all the scrutiny of the CEO’s role, McKinsey’s long-time leader, Marvin Bower, considers the CEO’s job so specialized that he felt executives could prepare for the post only by holding it. Many CEOs today express similar views in their experience, even asking other CEOs how to approach the job doesn’t help, because suggestions vary greatly once they go beyond high-level advice such as “set the strategy,” “shape the culture,” and “get the right team.”
The incomparable role of a CEO is the most powerful and sought-after title in business, more exciting, rewarding, and influential than any other. Talk of the biggest moves of a company and that is what the CEO controls, accounting for 45 percent of an organisation’s performance. Despite the dazzle of the role, serving as a CEO can be all-consuming, lonely, and stressful. Just three in five newly appointed CEOs live up to performance expectations in their first 18 months on the job. The high standards and broad expectations of directors, shareholders, customers, and employees create an environment of relentless scrutiny in which one move can dramatically make or derail an accomplished career.
A Paradigm for CEO Excellence
A leader is bound to set the direction for the company and have a plan in the face of uncertainty. One way that CEOs try to reduce strategic uncertainty is to focus on options with the firmest business cases. Research shows, however, that this approach delivers another sort of outcome: the dreaded “hockey stick” effect, consisting of a projected dip in next year’s budget, followed by a promise of success, which never occurs. The CEO decides ultimately (where do we want to be in five, ten, or 15 years?). Good CEOs do this by considering their mandate and expectations (from the board, investors, employees, and other stakeholders), the relative strengths and purpose of their company, a clear understanding of what enables the business to generate value, opportunities and trends in the marketplace, and their personal aspirations and values.
Strategy: Make bold moves early.
To move “boldly” is to shift at least 30 percent more than the industry median. Making one or two bold moves more than doubles the likelihood of rising from the middle quintiles of economic profit to the top quintile, and making three or more bold moves makes such a rise six times more likely. CEOs who make these moves earlier in their tenure outperform those who move later and those who do so multiple times in their tenure avoid an otherwise common decline in performance. A good move is matching talent with value. The best CEOs take a methodical approach to matching talent with roles that create the most value.
Learn the art of effective resource reallocation
Resource reallocation isn’t just a bold strategic move on its own; it’s also an essential enabler of the other strategic moves. Companies that re-allocate more than 50 percent of their capital expenditures among business units over ten years create 50 percent more value than companies that re-allocate more slowly. To ensure that resources are swiftly reallocated to where they will deliver the most value rather than spread thinly across businesses and operations, excellent CEOs institute an ongoing (not annual) stage-gate process. Such a process takes a granular view, makes comparisons using quantitative metrics, prompts when to stop funding and when to continue it, and is backed by the CEO’s personal resolve to continually optimize the company’s allocation of resources.
Give Equal Attention to Performance and Health
Ask successful investors what they look for in portfolio companies and many will tell you they’d rather put money on an average strategy in the hands of great talent than on a great strategy in the hands of average talent. The best CEOs put equal rigor and discipline into achieving greatness on both strategy and talent. When it comes to putting great talent in place, almost half of senior leaders say that their biggest regret is taking too long to move lesser performers out of important roles, or out of the organization altogether. Many CEOs also say they regret leaving adequate performers in key positions and failing to realize the full potential of their roles. The best CEOs think systematically about their people: which roles they play, what they can achieve, and how the company should operate to increase people’s impact.
Combine speed with stability
“Agility” is one of the most widely used and misunderstood management buzzwords of the past decade. For many leaders, agility evokes speed in decision making and execution, as opposed to the deliberate pace dictated by the stable, standardized routines of large organizations. The facts show that agility requires no such trade-off. On the contrary, companies that are both fast and stable are nearly three times more likely to rank in the top quartile of organizational health than companies that are fast but lack stable operating disciplines. Excellent CEOs increase their companies’ agility by determining which features of their organizational design will be stable and unchanging (such features might include a primary axis of organization, a few signature processes, and shared values) and by creating dynamic elements that adapt quickly to new challenges and opportunities (such elements might include temporary performance cells, flow-to-work staffing models, and minimum-viable-product iterations).
Pursue Teamwork: Put dynamics ahead of mechanics
The dynamics of a top team can strongly influence a company’s success. The best CEOs take special care to ensure their management team performs strongly as a unit. The reward for doing so is real; top teams that work together toward a common vision are 1.9 times more likely to deliver above-median financial performance. In practice, CEOs swiftly adjust the team’s composition (size, diversity, and capability), which can involve hard calls on removing likable low performers and disagreeable high performers and on elevating people with high potential. CEOs should also calibrate individual relationships, maintaining distance to be objective but enough closeness to gain trust and loyalty.
Decision making: Defence against biases.
Cognitive and organizational biases worsen everyone’s judgment. Such biases contribute to many common performance shortfalls, such as the significant cost overruns that affect 90 percent of capital projects. Behavioural economist Dan Ariely, one of the foremost authorities on cognitive biases, admits, “I was just as bad myself at making decisions as everyone else I write about.” Nevertheless, CEOs sometimes feel as though they’re immune to bias (after all, they might ask, hasn’t good judgment gotten them where they are?). Excellent CEOs endeavour to minimize the effect of biases by instituting such processes as pre-emptively solving for failure modes (premortems), formally appointing a contrarian (red team), disregarding past information (clean sheet), and taking plan A off the table (vanishing options).
Social purpose: Be part of the bigger community
Many corporate social responsibility programs are little more than public-relations exercises; collections of charitable initiatives that generate good feelings but have minimal lasting influence on society’s well-being. Excellent CEOs spend time thinking about, articulating, and championing the purpose of their company as it relates to the big-picture impact of day-to-day business practices. They push for meaningful efforts to create jobs, abide by ethical labour practices, improve customers’ lives, and lessen the environmental harm caused by operations. Remember, visible results matter to stakeholders.
Personal working norms: Do what only you can do
CEOs can easily become overwhelmed, which is understandable given the sheer breadth of their role. As the dean of Harvard Business School, Nitin Nohria has said, “CEOs are accountable for all the work of their organizations. Their life is endless meetings and a barrage of email. Plenty of research also suggests that many CEOs are beset by loneliness, frustration, disappointment, irritation, and exhaustion. While no CEO can escape these emotions completely, excellent CEOs know that they will serve the company better by taking command of their well-being
Becoming an exemplary CEO requires authenticity. Remarkable CEOs indulge in merging the reality of what they ought to do in the role with who they are as human beings. They deliberately choose how to behave in the role, based on such questions as: What legacy do I want to leave? What do I want others to say about me as a leader? What do I stand for? What won’t I tolerate? The world’s best CEOs answer these questions according to their strengths and motivations, as well as the company’s needs, and create mechanisms to track how they are doing. By expressing these intentions as part of the rationale for their decisions and actions, CEOs can minimize the risk of failure.