THE NEW CEO -
The 7 crucial early questions for new CEOs
By Konstantinos Apostolatos
How prepared are new CEO's for success?
In our research we analyzed the difference in performance between successful CEOs (read, those who delivered on average top-quartile Total Shareholder Returns during their tenure) vs. their successors over a period of 15 years and the conclusion was that only one out of five managed to sustain over-performance.
While there are several variables in place and it does not make much sense to try and frame ‘recipes’ for success, we have found that CEOs who invest the time to answer a number of key questions early on in their tenure (i.e. during the first ~100 days) vastly improve their chances of success. For the purposes of this article, I have selected seven critical ones, although there are obviously also others.
1. Are we winning?
I vividly remember a first meeting with the ExCo of a client where I had prompted the CEO to focus the entire session on a single question: “Are we winning?”
This seemingly simple question was met with initial astonishment and silence, followed by a very animated discussion around what we actually mean by ‘winning’. There were in fact so many different views in the room as there were participants and one can only imagine how difficult it is to formulate a strategy without having a common understanding of what winning represents.
Imagine how difficult it is to formulate a strategy without having a common understanding of what winning represents.
I was recently speaking to the new CEO of a major F&B company which had under-performed for the most part of 10 years (leading to a very belated decision by the Board to bring in a new CEO) who, upon arrival decided that ‘winning’ represented for the company a doubling of the company value in 4 years (the equivalent of top-quartile TSR vs. a broad set of peers).
It is absolutely fundamental to define and align around a value-relating ‘overriding objective’ early on which clarifies the company's stretch ambition and helps frame a focused agenda to achieve the company objectives.
By the way (as you would have guessed) for the companies that are winning, the question becomes “Why are we winning today and how can we keep on winning in the future?”
2. Do I have a winning strategy.
One of the first questions I ask new CEOs is “What do you anticipate are going to be the ~5 most important strategic decisions you are going to have to take that will have the biggest impact on the company over the next few years and…how are you going about answering them?”
- One of the CEOs told me that his biggest decision would have to be how to grow the portfolio beyond the 1 core/dominant brand which currently represents more than 75% of the overall value of the company.
- The CEO of a mid-sized bank was facing the “How to remain independent vs. sell” question.
- Then a cableco CEO is wondering what the company’s content and media strategy should be in a world of rapidly changing competitive dynamics.
- Finally a credit card CEO is pondering on what the strategic issues and opportunities are under the new PSD2 customer authentification regulation, a question that no one has answered yet.
What will be the 5 most important strategic decisions you are going to have to take that will have the biggest impact on the company over the next few years?
It is absolutely fundamental in our experience for CEOs to properly frame their key strategic decisions and focus most of their time on resolving these, while delegating execution to other members of the leadership team.
CEOs must look at company strategy a lot more from a ‘future back’ rather than only ‘today-forward perspective.
It speaks for itself that most of the discussions today involve the question of how digital technologies may impact the future of companies and entire industries. Although no one has a crystal ball to predict the future CEOs must look at company strategy a lot more from a ‘future back’ rather than only ‘today-forward perspective.
3. Are we delivering a superior customer value proposition as efficiently as possible?
This is a question which should be at the core of each company's 'raison d'être' and an honest/factual assessment hereof should be very high on a CEO's list.
A truly superior value proposition these days goes far beyond the product and delivers unique experiences.
A truly superior value proposition these days goes far beyond the product and delivers unique experiences.
While working with the new CEO of a Consumer Healthcare company in recent times, the CEO believed a priori that they were delivering a superior dietary bundle and service to consumers and was puzzled that they were losing share. When we actually spoke to customers, a very different view emerged: the food was characterized as poor in taste and the service concept "transactional and impersonal".
Getting this equation right, sounds obvious but is so powerful.
- Stanley Black & Decker's unique FLEXVOLT power-tool innovation, for example, changed the way power-tools can be used in the workplace by delivering a cordless, flexible voltage experience of the highest quality for construction.
- Airbnb delivers a 'homely' experience for travellers at an affordable price.
4. Do I have a winning team?
One of the CEOs we worked with was complaining that he inherited a team which is not “up to the task”.
- Specifically he was mentioning that his CFO was an “old-fashioned accountant” who would be a wrong fit, given the company’s acquisitive growth strategy, requiring much more of an investment banker profile.
- The Chief Marketing Officer on the other hand lacked capabilities in a world rapidly moving into omni-channel customer interactions.
- Finally, his CHRO was “a politician and an administrator, not a strategic talent director”.
If you want to change the team, then change the team!
What I told him was…”if you want to change the team, …change the team.”
In other words, it is fundamental to be uncompromising in terms of the composition of your team in early days of your tenure because hard decisions that are postponed only become a lot more arduous at a later stage.
In addition, you send a very strong signal to the entire organization when you select a top team early on.
4. How do we want to manage the company?
In my experience, great strategies are useless without the right governance mechanism in place.
This is something that is often trivialized and underestimated but a major issue in many large companies. This is about the end-to-end governance mechanism that starts with strategy formulation and links it consistently to resource allocation, strategic planning, budgeting, delivery and performance management/incentives.
It is about setting high standards in decision-making across the board, being focused, being consequential and disciplined and fostering a culture of accountability starting from the very top.
Be crystal clear about the roles your team plays and how management spends its time together.
It is also about being crystal clear about the role of the ‘Center’ (i.e. to add value above and beyond what the units can do for themselves), the role of the ExCo, Divisional and BU management and how management spends its time together.
It is also about not wasting valuable corporate resource. In short, it represents the organizational ‘wiring’ that can navigate the company. So being crystal clear about the management model early on is a sine qua non..
5. What are my true strengths as a leader and what do I need from the rest of my team
Don't try to be something you are not.
At A.T. Kearney we have a program called ‘Expanding Horizons’ for all of our partners which starts with the key principle that, as a leader, you need first and foremost to further enhance and leverage your intrinsic strengths, not try to be something you are not.
This may sound like a relief to an incoming CEO but my experience is that it is much easier said than done because when people get to the CEO position, their initial assumption is that they have to appear to be best in everything and most of them have an extremely hard time to hold a mirror and recognize that they are not born to be superhuman.
I often use the sports analogy which is that, if you are a goal-scorer, you do not need to also prove that you are a great defender.
What are the relative strengths in my team, and how can we combine them best?
One of the CEOs I worked very closely with was brilliant - a great visionary and motivator and financial engineer, but had very little feeling for marketing. And yet he would always want to make all important decisions himself, even in areas that he did not master.
Going back to question 3, the obvious thing to do within a leadership team is to ask how the specific strengths of individuals can be combined to form a successful team but this can only be done if you start with an honest assessment of relative strengths of the key players.
7. Do we have the right capabilities to win in the future?
In one of my recent articles (“Are we running 21st century HR with a 20th century model?”), I argued that most HR systems of large MNCs of today are out of date and have not adapted to a world of rapidly changing talent capabilities needed. (Practically every function is, for example, impacted by digitization), flexible labor forces and the like.
This is a particularly sensitive area and one of the greatest weaknesses/unanswered question I see today.
Do we have the right people, with the right capabilities and values acting in ways that will help us to to achieve our strategy?
In fact, I have yet to encounter any CEO (or CHRO, for that matter) who has fully ‘done the math’ and reflected in concrete terms on the big question of how talent pools will need to evolve, how to build the required new capabilities and what it would all take in terms of investment. And yet the same senior people still believe that delivering their strategy is feasible. One CEO recently told me “we know that we don’t have the required capabilities but I don’t know where to start”.
In summary, new CEOs need to invest the time to reflect and decide upon a number of fundamental questions, as opposed to getting dragged into a hyper-active day-to-day delivery mode, way ‘down the weeds’ of the organization. The wise words of one of my most respected clients always resonate with me…”go slow and reflect first, in order to go fast later”.
Konstantinos Apostolatos is a partner with A.T. Kearney where he leads the Global Strategy & Top-Line Transformation Practice, which includes A.T. Kearney’s CEO Agenda Center of Excellence.
Konstantinos has been advisor for over 30 years now and has been working closely with CEOs and their Leadership teams on topics including Corporate Strategy, Corporate Governance, CEO-Agenda, Growth, Business Strategy and M&A. He has worked across multiple sectors with primary focus on Consumer Goods & Retail but also Luxury, Pharma, and Telecoms, to name just a few. In addition to his regular client engagements, he is now involved in a new initiative that aims at preparing direct reports to the Chief Executive for the top job.
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