Director: Corporate-911
With the passing of one of our great business icons this week and the continuing clamour for corporate accountability, I thought that I should focus on the CEO’s role in Leadership. Raymond Akerman cast a giant shadow in South Africa. He always accepted the good and the bad and responded with charm, equanimity and decisive actions.
When it comes to the accountability of the CEO, there are tasks that only they can do. Their actions will set the tone of the company.
Set the bar high: Look to launch unicorns
McKinsey recently wrote that if companies expect 50% of their new revenues to come from new businesses, products, and services, they need to aim high.
Too often, however, new businesses fail to lead to transformational value, with about four-fifths generating less than $50 million in revenues, according to our research. The CEO has a challenging role to play to ensure that the time and resources that go into a new business are worth it. The CEO’s laser focus on value is crucial in keeping the organization from being distracted by the latest hot idea that might sound good, but that doesn’t have the market potential to be transformative.
The article adds that orienting the entire company toward this level of value starts with identifying a clear aspiration, ambitious goals, and specific targets.
For example, the CEO of one insurance company was explicit in wanting to quadruple the size of its B2C business within only five years by building a new digital customer-centric B2C offering. From the beginning, targets included ambitious concrete milestones, such as the launch of a minimal viable product within five months and go-lives in two additional countries within one year, as well as operational key performance indicators (KPIs), such as one million website visitors within the first nine months.
Bold ambitions are particularly important when there is directional clarity in a business-building thesis and its value but there is not enough conviction in some parts of the business to invest in hiring a significant number of people or building out the technology assets needed to capture the opportunity.
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If the CEO does not step forward in these moments to act as a bridge by pushing forward decisions, actively building support, or driving toward specific deadlines, the initiative grinds to a halt or reverts to business as usual. An important part of a CEO’s role, as we have learned in business transformations and other contexts, is to help organizations avoid these collective-action problems.
Inevitably, some new businesses will fail. CEOs must not get too attached to a single business but instead focus their energy on where the real value is: developing a serial business-building capability. Serial business builders generate an average of 40% greater revenue for each new business they build when compared with first-time new-business builders. For this reason, CEOs need to focus their energy on managing a portfolio of new businesses (for example, recalibrating strategies and reallocating resources) and strengthening the organization’s institutional business-building muscle.
Protect the new business from business as usual
The McKinsey analysis makes it clear that allocating protected funding for the new business is one of the most important things a CEO can do. CEOs must invest sufficiently and then protect that money from the inevitable attempts from incumbent parts of the enterprise to take it back as issues arise.
In practice, securing promises of investment is often easier than securing and distributing the investment itself because funding tends to follow a traditional (and inflexible) P&L-driven process that relies on annual budgeting cycles. The result is that funding can’t be released when needed, or funds are taken from other initiatives, which creates resentment in the existing business.
To secure the new business’s financial independence, the CEO needs to establish a dedicated and protected funding source as well as an agile budgeting approach based on venture-capital-style stage gates whereby funding tranches are unlocked when the new business hits certain milestones.
Business-as-usual protocols and processes can pose a significant danger to the new business and require the CEO’s active intervention. The new entity needs new mechanisms for funding and expectations that don’t tie to the quarterly P&L cycle of a company.
The markers of success are different; it’s crucial to provide clarity on KPIs that are meaningful to a new business—such as revenue growth, accomplishment of milestones, and customer experience—and to get leadership alignment on those KPIs. Existing compensation structures and hiring processes are often less appropriate when it comes to attracting talent, and they are hard to change because they require the CEO to work closely with the head of HR.
The CEO needs to put in place a clear governance process. With that grounding, the CEO should work to mould a governance model that incorporates focused oversight aimed at enabling the new business, providing explicit authority for the new entity to make decisions (often through a venture board), and installing a funding mechanism in which the budget is released based on meeting specific KPIs.
Communicate, and when you feel you’ve done enough, do some more
CEOs understand the importance of communication—much of their success is based on how well they do it. However, in the context of supporting a new business, CEOs often underestimate how systematic and persistent communications need to be and how much they can affect the outcome of the new business. By communicating that a new business is part of a broader shift to become more of a digital, software, or tech-enabled company, for example, a CEO can help support new multiples for his or her public companies.
Image By: Steve Buissinne via Pixabay
The article adds that the art behind successful communications is being systematic and intentional in tailoring the message to the audience. Focusing on how the new business can help drive growth and build skills for the incumbent, for instance, can help convince those in the company who might be resistant to the new business. When speaking to a sceptical board, the CEO should highlight growth opportunities and potential disruptions based on marketplace dynamics.
The McKinsey article points out that this near-constant drumbeat of communication serves to reinforce conviction and goals.
In remembering the life of Raymond Ackerman, the hallmarks of his effective communications include:
- reaffirming vision and rationale;
- highlighting meaningful external validation;
- setting ambitious but realistic expectations;
- being authentic (including when there are setbacks);
- celebrating progress;
- understanding the salient facts (such as progress against KPIs); and
- maintaining a cohesive message.
He was a model of a fine leader and a remarkable entrepreneur. He will be sorely missed. Our condolences go out to his immediate family and all at The Group he founded and led for so many years.
