CEOs: How well do you know your company?

Founder's Mentality - The CEO's checklistIn my recent discussions about strategy with the leaders of some of the biggest family businesses in South America and Turkey, we covered a number of topics. One of the issues they raised is the difficulty holding companies have in accessing the actual performance of individual underlying businesses.

The problem they presented is a common one among large conglomerates. The conglomerate has a number of large divisions, and each division is made up of many different smaller businesses. In reality, the holding company holds a set of holding companies, and its managers are at best two steps removed from the person who actually runs the business. In most cases, they are three or four steps removed. As one head of planning told me, “You talk about the difficulty that CEOs of large corporations have in meeting regularly with their business unit heads, but for us it is far worse. Our group CEO never actually meets with the head of any business. He meets with divisional heads who are far removed from the running of the business. They are always at such a high level of abstraction that no one can talk about real business issues; no one has specific knowledge.”

As we unpacked this problem, we explored the tools that conglomerates typically use to manage this complexity. The list is a good one, used by many professional firms. To gather specific data on real business units, a central office sends out templates with requests for information on:

  1. Financial performance and trends—by product line, by customer, by channel
  2. Competitive shares and trends—by product, by customer, by channel and trends
  3. Customer survey data and employee survey data
  4. Product and service feedback data (by customers and channel partners) on performance relative to the  competition
  5. Cost data, and preferably relative cost data, that shows cost position by key products and services vs. key competitors

We all can easily imagine the sets of 50-slide PowerPoint presentations that each underlying business unit assembles. On one level, the holding companies don’t suffer from a lack of data about the underlying businesses; they are awash in it. However, most top leaders confess that it is very difficult to see below the surface of each business and get a sense of what is truly going on.

So we started brainstorming, asking ourselves: Is there a CEO checklist? Is there a set of questions we could ask any business head that would begin to give us a feel for the underlying culture of the company? More importantly, is there a way to gain more insight about the CEO himself or herself?

Our confident answer to all was “yes.” We agreed that with a little time, we could develop a set of questions that would pressure test whether or not the CEO was in control of the business.

By no means is the list I share below sufficient, but it’s a start—consider it Draft 1.0 of the CEO Checklist.

  1. What is your core business?  What is the repeatable model that drives its primary success?
  2. Who are the target customers for this model, and what evidence do you have that you are offering something better than the competition? (The best evidence to collect in the very near term would be feedback from your most profitable promoters.)
  3. Is your core business the leader in its market? If not, what are you doing to become the leader?
  4. Does your business capture leadership economics (vastly superior economic returns in the areas of the business that are true leaders)? If not, what are you going to do about it?
  5. Who is the king—that is, who is in charge of delivering the core product and service? Are you doing all you can to ensure the rest of the organization supports the king? How often do you directly connect with the kings and queens of your business?
  6. What feedback loops do you use to improve your core repeatable model and make sure you know when you need to change it? Can you respond faster than the competition?
  7. How have you co-created your strategy with the front line? Are they pulling through your strategy changes or are you still relying on push changes?
  8. How are you resolving the inherent conflicts generated by the matrix? What is your conflict-resolution process, and how often do you get involved? Do you have a Monday meeting in which the buck stops with your team to resolve last week’s issues?

One journalist in India last year said he could always tell an “EGO” (someone skating over the top of the business for the power and prestige) vs. a CEO (a true leader). He asked them a simple question: How is your recent acquisition going? An EGO talked about the market price performance after the acquisition and what would happen with the next one. A CEO talked about all the problems he or she was having integrating the two companies and retaining key customers and employees.

An EGO could probably answer the eight questions well, but a true CEO will be refining his answers to these questions every moment of every day.

This entry was posted in The paths to Great Repeatable Models by James Allen. Bookmark the permalink.

About James Allen

James Allen is a senior partner in Bain & Company's London office and recognized as a leading expert in developing global corporate and business unit strategy. He is co-head of Bain’s Global Strategy practice and a member of Bain & Company's European Consumer Products practice. He is co-author, with Chris Zook, of Repeatability (HBR Press, March 2012) and Profit from the Core (HBR Press, 2001 and 2010).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s