Founder: Turnaround Talk
In today’s first featured article, we began to look at the role of a CEO in a company and how certain tasks can only be performed by this important person within the organization. We also took a look at the immense pressure that CEOs are under to perform their duties, especially when it comes to leading a business out of financial distress.
While there are tasks that can be delegated to others to increase the sustainability of a company, only the CEO can truly future proof a company. This is mostly achieved through his or her actions.
We have seen how the CEO sets the tone for the business. In this article, we take a look at the role that they play in inspiring those below them to greatness.
A CEO should give leaders in the incumbent company a stake in the new business’s success
The article points out that, inevitably, there will be conflicts between the new business and the established one. For example, the needs of the new business might appear small to an IT function that has huge projects under way, so the chief information officer (CIO) may not be as responsive to the new business’s needs. Or, as the new business grows and operates in different ways, the existing business can start to perceive it as a threat, leading to counterproductive dynamics and lost value.
In these cases, the CEO must be ready to personally work with the corresponding functional or business leaders to resolve the issue. One CEO told us he would sit down with a resistant business unit head and detail how the new business helped improve his P&L. Clear expectations and explicit agreements with deadlines and metrics are instrumental in providing objective reference points that the CEO can use to exert appropriate influence on incumbent leaders to follow through on commitments.
The article adds that in navigating these organizational tensions, the CEO should structure a governance model that directly incorporates incentives for parent business leaders. One way to do that is to identify the senior gatekeepers of a needed asset or capability, such as data or intellectual property, and provide them with a leadership role in the new business. The role may be to participate on a venture board that helps direct the new business or to be part of a task force to help the new business meet a specific need. In this role, these executives would have accountability for the new business’s success. Tying compensation and bonuses to specific KPIs for the new business has also proved to be effective in many contexts.
In providing these incentives, CEOs must remember to achieve a fine balance between involving incumbent leaders and protecting the new business’s autonomy. That means limiting the incumbent leaders’ ability to stall progress, for instance, by reducing their approval powers and keeping existing reporting structures from taking hold.
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A CEO needs to communicate, and when you feel you’ve done enough, do some more
The article points out that CEOs understand the importance of communication—much of their success is based on how well they do it. But 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.
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 skeptical board, the CEO should highlight growth opportunities and potential disruptions based on marketplace dynamics.
The article adds that Patrick Hylton has adopted a sources of meaning approach to his communications in building support for Lynk. He systematically identified the stakeholders and determined how to align the new business’s activities with their interests. “With regulators, for example, I explained how our new digital payments business would be more inclusive by being able to reach more people from different socioeconomic backgrounds, would help reduce any exposure to pandemics, and would aid labor productivity. I showed through our analysis that customers really wanted digital financial services,” he said.
Building support is just the start. Communications is a continuous effort. One example of this is how the CEO and the CFO of Moody’s announced to the Street that they would be investing in creating several new businesses to aid clients with their integrated risk-assessment and decision-making needs—for instance, in third-party risk management. They made clear that these were part of the overall strategy of the business and communicated why the investments would benefit the core business, for example, sharing “the goal here . . . is to have more comprehensive offerings, to be able to deepen customer penetration and to add new customers that allow us to grow faster.” In every quarter during earnings calls, the CEO talked about the new businesses and focused on progress and linkages to the overall strategy.
Photo By: Canva
The article points out that this near-constant drumbeat of communication serves to reinforce conviction and goals. In our experience, the hallmarks of 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. This last point warrants emphasis. This communications program is best thought of as a CEO narrative, in which business building figures prominently and continuously in the overall strategy.
The article adds that as CEOs drive their communications strategy, they should guard against communications stagnation over time. What they say needs to evolve as the new business changes—it is a story rather than a static set of talking points. Building excitement is important at the beginning, for example, but the message needs to shift and focus on operational progress as the new business matures.
Where do turnaround professionals fit in?
Building new businesses cannot be a side project or an unguided experiment if companies want to grow their revenues, extend their market position, and stay ahead of industry disruptions. New-business building needs to become a core institutional and management capability to drive growth and boost resilience. That can only happen, however, when CEOs focus on tasks in which they have unique authority and leverage and when they commit their time, energy, and courage to them.
Turnaround professionals should take a consultative role in the business. They need to guide the company’s CEO down the right path and encourage them to take ownership of the tasks that are specific to them that will lead the financially distressed business back to profitability.
