The Role Of The CEO
The CEO has no role. There is far too much self importance attached to being a CEO. The closer the leader of the pack moves towards not having a role, the greater is the degree of effectiveness with which he or she is dispensing her duties.
The CEO has no role and precisely for that reason becomes the most critical of positions in an organisation. There is a huge temptation in CEOs to assume a role. There is an enormous tendency in the appointers of the CEO to give her an objective. There is gigantic comfort within the peer group of the Chief to let her make as many decisions as possible.
In these three parameters - the urge to assume a role which is supported by the given objective and further aided by the power to make innumerable decisions - the CEO misses out on a monumental insight - "I don't have a role."
Let's see how this happens. Allow me to take you through three very recent cases that I have observed quite carefully.
I was engaged in consulting with a large manufacturing company. This organisation has ambitious plans, invested heavily in expanding capacity to reach those plans, hired the best of talent and has somewhat reached the initial targets too. There is a discerning test for growth and it's called market share. Despite having reached their targets, the organisation found that their market share had declined.
Faced with a declining Market share, a significant pressure on profit margins and an alarming rate of attrition, it was time to look for a new CEO. A CEO with a staunch background in sales was hired. "What is my role? What do you expect?" the question was asked. Prompt came the response from the interviewing board, headed by the vice chairman, "increase Market share, restore profits and do it quick time." In this organisation where the entire hierarchy was being questioned and demeaned day in and day out over the declining Market share, everyone was happy to allow their new boss to do all the deciding.
The CEO was determined. He has an impeccable record and this one will be no different. Frequent meetings. Meticulous analysis. Incessant reviews. New salesforce. Attractive distributor schemes. Anything and everything that could be done to increase sales was done.
Two years later. The sales have increased. The Market share is down by one more percent.
Attrition is at thirty one percent. The CEO has a clearly defined role, clearer then ever - solve the mess, increase Market share, restore profits.
Two years ago I was hired by an academic institution by a newly appointed Director to resolve conflicts amongst the faculty. The earlier director had allegedly run the institution in a misappropriated manner and encouraged a culture that had led to infighting within the faculty, power centres with students and a highly self-centred culture. The result being that the very capable faculty was upset and insecure. The reputation of the institute is on the decline. Financial irregularities were quite rampant.
The trustees finally appointed a new Director. Misguided as they were by the previous administration, the trustees formed a governing council to keep a close watch over the new administration.
In the various meetings that I had with the Director and subsequently with the head of human resources, I believe that we were quite in agreement that what the place needed was a sense of purpose, restoration of value systems and a clearly defined path forward.
Interestingly the council did define the path forward. Sadly the council was comprised by and had corporate minds and compared a 'not for profit organisation' with a 'for profit' one. Path forward was clear - sort out the mess so we can increase the number of students and run to capacity. Develop an alternate revenue stream from corporate education. The role was assigned. The role was taken. The decisions followed. The strengths of the academic organisation was not geared to meet the objectives.
A year later the place was better than a year before. However the objectives weren't for the place to be better. In the end everyone got fed up. The governing council with academician mindset of making the place better for students and the academician with governing council's insistence on financial models. In constantly trying to achieve the patch up between the two and in failing insofar as the council was concerned - the director resigned.
The institute awaits a new director to come and take on the role - set things right, run to capacity and develop corporate education as an additional stream of revenue.
I was working with a software company. For three years this company had failed to grow.
They were almost locked at a certain turnover and couldn't break the barrier. A year later the results were phenomenal and I will get into those reasons in a later chapter. For now let's study what happened in these three years.
Preceding to these three years, the company had taken certain expansion decisions that led to huge losses and erosion of cash reserves. They however managed to arrest the situation in time and now the goal was to take the company back to the level of cash reserves it had. The goal was clear - it can only happen through growth.
Year on year, month on month, week on week, the management had to find a way to increase sales. Schemes. Incentives. Marketing. New verticals. The sales were still locked at the same place. There was nothing wrong being done. The same things these executives had done in their previous companies had led to increased sales but just not here? Why?
Year on year the role of the CEO remained - increase sales. Year on year the reality remained - sales will not increase.
These are not unique situations. These are common to most organisations. Yes the same practices does lead to results too and thus a misconception arises on the way to achieve.
However these results are not necessarily an indication of the right way because the effects of the approach might take a little longer to be visible. The economic collapse of the United States stands as a prime example.
If you carefully examine all the three cases mentioned above you will notice that all three situations are a result of the CEO failing to do his role. Whether it is the declining Market share of the manufacturing company, a culture problem at the institutes or the inability to break past the sales barrier in the software company, they are all results of a certain way that those organisations would have been managed.
In CEO assuming a role for example to increase Market share or to increase sales as being the prime responsibility, the decisions taken or actions implemented by the CEO will primarily aim at finding solutions to the reality. Most organisations in this reactive mode would get into short term solutions such as scheming, Market gimmicks, monetary incentives to employees or dealers. Furthermore these short term solutions as we will discuss in a later chapter also is the main driver of corruption or 'business through bribing'.
In all the energy that gets directed and redirected through insane number of meetings and reviews, we lose out on one of the most basic questions. In fact the first sign of an organisation getting embroiled in an incorrect role for the CEO is the insane number of meetings and reviews being called for. The question that all of these meetings miss out on is 'what is the real cause of this situation?' No matter what cause you were to discover! I can guarantee you the solution would not lie in scheme, incentives and bribes.
One might be fooled into thinking that this question is being asked all the time. Well, in a sense you might be right. The question may be asked. The answer is rarely sought. The reason is simple. The mandate given to the CEO is to correct the situation. She much rather spend the time in getting people to discuss what she thinks will solve the problem than get into investigating what led to it. After all what gets patted on the back in board meetings are initiatives backed with an excel sheet on return on investment.
In the three examples stated in this chapter, the outcome led to CEO having a role. A role to correct the situation. Am I suggesting that that is not needed. Certainly not. Of course the situation needs to be corrected else the there will be no organisation left for us to be discussing what the CEO should do? However those outcomes need not define the role of the CEO. In fact those outcomes are a result of certain actions of the management and one of which is defining such roles. Those outcomes are a result of the CEO not doing what he or she is supposed to which simply put is to create an organisation that delivers a different outcome and not to create solutions that attacks outcome.
Everyone has had a certain career path prior to being a CEO. They have all had certain specific areas that they would have pursued namely sales, finance, manufacturing, IT etc. The natural conclusion to draw on being assigned a CEO role clubbed with the introduction assigned to that role is that one's core functional expertise must be put to use. While there is no harm in using one's knowledge on must remember that the most successful CEOs have been the ones who have resisted the temptation to gain the comfort zones of operational clarity and have been comfortable with absorbing ambiguity.
In the 21st century, an era of management where the judgement day pronounces on the basis of profits and valuations above all else, it's even more imperative for the CEO to be clear about his or her pursuits. It is this leader, his or her decisions or indecisions and his or her actions or inactions that affects lives of people, affects the life of the organisation and affects the ecosystem within which an organisation operates.
People in an organisation defines it's purpose, mission, values, visions and goals. It's a safe conclusion that organisation as such doesn't have any purpose, mission, values, visions and goals. People do. At various times thus in the life cycle of an organisation, the degree to which these set of purpose, mission, values, visions and goals are pursued will change depending upon how dearly people treat these. The head of these people is your CEO.
In most cases and in most boards where this CEO represents the organisation,the prime topic of discussions is governed in some form of the other by profitability. Yes, profits are very important as no profits will mean no company. However, sadly when profits or market-shares or sales numbers become the roles of the CEO, the very same starts to deteriorate. It always will without fail and the reason is very simple.
Profit in pure terms is surplus left in your balance sheet. Profit can be created or increased in two ways.
One - organisation receives certain value for good or services provided. The utilisation of this value received can be managed in a manner that leads to a surplus. In other words allocating this value or resources acquired through this value in profitable manner. Let's call this allocation or utilisation.
Two - creation of more and more incoming value through attracting more customers or increased size of offering to existing customers. Let's call this creation.
How would a management that constantly is guided by predominantly financial goals as was the case with three examples mentioned look at allocation and creation? Where would they allocate resources? How would they create more customers?
Invariably allocation becomes about reducing costs and because of immense pressure on numbers, creation becomes about scheming, short term focused marketing and, or business through bribing.
In this whole circle of dedicated efforts through brainstorming, meetings, reviews, ideation, strategising for creation through schemes and incentive plans for employees and dealers, the basic assumption of the management becomes that just because their organisation is guided and motivated by profits, so would others be driven by similar greed.
Yes, it works too for sometime. This model, however does not give any organisation, any thought leadership. It does not result in any innovation to increase any value for the customer. It is replicable by almost anyone and that is what happens. Thus it works short term and starts to erode thereafter or fails to at least provide growth to exponential expectations that were set forth. This clearly explains the failure of the manufacturing company mentioned earlier to increase Market share as the model was so easily replicable that everyone did. It explains the failure of the academic institution as they over stressed their energies into thinking of ways to fill seats rather than worry about ways to improve quality of education. It explains the failure of the software company where nothing wrong was being done and everything was done on past experience of employees in other companies. They just didn't know how to deal with a situation when the Market stops responding to schemes.
I said earlier that when profits or market-shares or sales numbers become the roles of the CEO, the very same starts to deteriorate. It always will without fail and the reason is very simple. The reason is that in all the attempts to find these short term solutions, the real cause is still not known. Everyone is so busy in doing something including the CEO that no one is there to just stand and see. In having invested years of energies in reactive solutions we might be a bit too far away from the cause.
Profit is necessary for an organisation to exist. However profits need to be an outcome of the way the organisation is managed rather than the prime reason for which it is managed.
Whenever CEOs get into a role to operate something either because they have been told to arrest a problem or because no one else is there, he or she is already on the wrong path. He or she is no longer engaged in building an organisation that will deliver the profit. He or she is now engaged in delivering the profit. It cannot sustain. Organisation building is a special skill. The alternate isn't in trickery.
Let's put it further in perspective. An organisation must be profitable to exist. Profits come from revenue received through some customer or the other. Very simply put, organisation exists to create and serve customers. The more the customers, more will be the growth and Market shares. That is the end objective of any for-profit organisation you will come across anywhere in the world - to create and serve more and more customers.
What does the organisation have that allows it to exist? It has certain resources. These may be capital, people, infrastructure or any other assets.
What does the organisation do to be able to create and serve customers? An organisation essentially can perform three functions - attract resources, utilise resources or transform resources such that it continually increases value for the customer and thereby for itself.
The first role of the Chief Executive Officer of an organisation is to not have a role. She has a responsibility and an objective.
The objective is to increase value for the customers through attracting resources (for example attracting people that will best perform the existing task. That is not necessarily attracting the best talent but attracting talent that will best perform the task), utilise resources (allocate resources to accomplish tasks that need to be achieved) and transform resources (change innovation and continuous improvement in performance of all resources).
The responsibility is to do the right thing and in the interest of the organisation to not succumb to role definitions originating from short-term greed inspired definitions of her appointers for that will create an organisation that increases value to itself through increasing value to customers. That will create an organisation that relies on innovation and value creation which will lead to thought leadership. That will create an organisation that will be far greater in value. This organisation will not be in any way created by assigning the CEO short term roles and goals. This organisation will be created by letting the CEO create it.