July 16, 2021
TPL Insights: Building Peak-Performance Cultures #76 – How a New CEO’s First Year Shapes Their Destiny
By Rob Andrews with paraphrased content from Millan Alvarez-Miranda and Michael D. Watkins’ article in Harvard Business Review July 13, 2021
Every CEO must simultaneously develop strategy and drive execution — and the need to do both simultaneously has never been more critical. As we emerge from Covid-19, companies need to drive short-term results while rethinking strategy amid seismic shifts in competitive environments and ways of working. It’s not strategy vs. execution; it’s strategy and execution with the right balance in the right timeframes.
While all leaders need to do this, research shows that few do it well. This problem can be particularly acute for newly appointed CEOs, who must rapidly diagnose and address current business challenges while laying a foundation for the future. Alvarez-Miranda and Watkins see many next-gen leaders who are competent at crafting strategy; they are global natives who rose to the top primarily by taking those big-picture roles in organizations that ran like clocks. But they lack deep operational experience and fail to realize that boards first want to see that they can run the existing business before embarking on new strategic endeavors.
The result can be a dangerous lack of alignment. Boards assume that CEOs understand that short-term goals and execution are vital priorities, while new CEOs often focus on vision and strategy to the exclusion of execution.
Avoiding Four Dangerous Biases
Alvarez-Miranda and Watkins have seen new leaders fall into four traps:
- Failing to diagnose the execution weaknesses of their businesses. New CEOs might also fail to understand the extent to which their new organization’s culture can absorb needed changes, which often implies letting go of yesterday’s values and beliefs that keep the company stuck in the past. As a result, they build a strategy that is not grounded in the competitive, customer, and cultural realities.
- Making decisions about their teams too quickly. New CEOs naturally look for people like themselves, and when they don’t see sufficient strategic thinking ability or openness to change, they rush to judgment. They can also underestimate the importance of having a team with strong execution skills, especially early on.
- Neglecting relationships with the execution side of the business. There is a tendency to delegate responsibility for ongoing operations and focus on “the real work” of developing the future. In doing so, new CEOs can miss out on enlisting key drivers of execution, e.g., sales managers, customers, suppliers, and country managers, who may dismiss the new leader as being out of touch with work at the front lines.
- Failing to develop a coherent, efficient strategy deployment process while maintaining execution excellence. Many organizations have some sort of strategy implementation process. But it doesn’t work because it’s complex, time-consuming, and lacks buy-in from lower-level leaders who believe it’s not built to help them do their jobs. As a result, the strategy remains conceptual not operational.
Balancing Strategy and Execution Through the Transition
A solution is to have a framework that provides a clear view of key phases of transition activity and the associated imperatives for new CEOs to develop strategy and drive execution. Alvarez-Miranda and Watkins have developed a framework consisting of three distinct phases that unfold during the first year of a leader’s tenure: defending, extending, and transcending the core. They roughly correspond to the first 90 days, following 90 days, and final six months of a CEO’s first 12 months.
Phase 1. Defend the Core
During the first 90 days, the focus should mostly be on understanding and defending the company’s existing core businesses. On the strategy side, this often means resetting priorities for core units and aligning with the board on short-term goals. On the execution side, the new CEO should focus the team on stopping non-value-add activities, implementing a strong operating model, and securing some early wins to maximize short-term profit and cash flow. This phase is also an opportunity for the CEO to model the right behaviors, such as being decisive but judicious and focused but flexible, and so shape the company culture to support change and growth.
Phase 2. Extend the Core
During the next 90 days, the new CEO’s strategy/execution priorities should shift to identifying ways to extend the core business by expanding the portfolio and/or entering promising adjacent markets. On the strategy side, this typically means refining or replacing the corporate vision, mission, goals, and strategic priorities and securing buy-in from the board for supporting investments. On the execution side, the leader should work with the team to develop an effective strategy deployment plan that drives execution, for example, by adopting a process such as the OKR (Objectives and Key Results) pioneered at Intel.
Phase 3. Transcend the Core
During the final six months of the first year, the new CEO should lay the groundwork for transcending the core business to drive growth. On the strategy side, this means adopting the best methodologies to define the company’s main bets and experiments, including new research projects, pilot programs, and minority stakes in new businesses. On the execution side, the goal is to stimulate innovation and strengthen a high-performance organization internally principally by selecting the right people to lead key initiatives and, if necessary, transforming the culture to be more open to experimentation and have a bias to action.
At the end of phase three, the corporate strategy should be well defined, communicated, and in the process of being deployed, and the core business under control and growing.
Alvarez-Miranda and Watkins present an excellent model. We suggest a critically important augment that might run concurrently with Phase 1, or be commissioned by the outgoing CEO, CHRO, or board of directors, in advance of the new CEO’s arrival. It adds clarity and the creates most expedient route to the new CEO’s successful first year.
Alvarez-Miranda and Watkins suggest, and I agree, that new CEOs should seek first to understand and defend the core business, reset priorities, stop unproductive activities, implement a strong operating model and shape the company culture. They should redefine corporate purpose, vision, mission, goals, and strategy and implement a strong measurement system such as OKRs. Finally, the new CEO should work to transcend the core business, drive innovation and growth, and ensure the culture is one of peak performance.
As we believe that a culture of peak performance is the only sustainable competitive advantage, conducting an assessment we refer to as an Organizational Health Index (OHI) could be the best way to quickly develop the optimal roadmap for the new CEO. The OHI, which is as important to an organization’s health, as an annual physical examination is to your own physical health, can be commissioned by the outgoing CEO, board of directors or CHRO, and begins with crafting a central question around which all relevant stakeholders are engaged. The central question might be as general as “How to we take XYX, Inc. to new heights?”, or as specific as “How do we position XYZ to overtake ABC competitor?”
Once the central question is articulated, a representative set of stakeholders is identified, across, up and down the organization, to include shareholders, management, employees, providers, and customers. Stakeholders are then engaged with customized questionnaires, surveys that benchmark the company against peak performing organizations, and one-on-one interviews that extract from major stakeholder groups their views on the company’s cultural health, strengths, weaknesses, opportunities, and threats, and readiness to change.
The output of the OHI can become the new CEO’s definitive guide to understanding the execution weaknesses of their new organizations, assessing key members of the leadership team, informing their decisions around change, and establishing effective relationships on the execution side of the business, avoiding the first three biases to which new CEOs often fall prey. Having avoided potentially fatal biases, the OHI is the ideal companion to assist the new CEO in navigating phases I, 2 and 3.
How are your new leaders dealing with potentially fatal biases and multiple priorities? We would love to start a conversation and become your thought partner. Click on this link to learn more about our OHI.
Consultants in Retained Search & Leadership Advisory