The ability of a company to outperform its competitors is directly related to the performance of its chief executive. There are thousands of books and articles on how to be a successful business leader, and they keep coming. However, they can be complex and too theoretical, and they only reflect one individual's view of the world. This White Paper is a practical guide to the seven key "sins" and five "temptations" that act as barriers to success.
The leadership burden today
Running a company is much harder than it was even ten years ago. The burden of the job gets heavier and heavier as the stress levels increase and the expectations from customers, employees, government and other stakeholders continue to rise.
Against this background, leaders have to be more sophisticated and capable, demonstrating higher levels of business and economic literacy, managing and motivating people who can easily move to new employers, and – perhaps the biggest challenge of all – attracting and retaining talent.
The basics of leadership have not changed. What has changed, however, is that to lead effectively in today's world you have to deliver these basics at a much higher level of performance. To do this, you need to make sure you don't commit any of the "seven deadly sins" described below, or succumb to the "five temptations" outlined at the end of this White Paper.
The seven deadly sins of a CEO
1. Managing not leading
2. Poor delegation
3. Lack of effective people policies
4. No leadership of innovation
5. Tolerating poor people performance
6. Choosing abdication over navigation
7. Lack of visibility
and one that didn't make the top seven but deserves an honourable mention:
8. Poor use of external advisors and expertise.
Deadly sin 1: Managing, not leading
The CEO who commits this sin is placing too much emphasis on operational activities, which are concerned with controlling and manipulating resources and expenditures. If this is how the CEO is spending his or her time, who is leading the business and its people?
The true roles of a leader are:
- Setter of standards and performance criteria
- Corporate governor
- Leader of people
- Risk assessor and manager
Here are a few of the reasons why leaders don't fulfil the above roles effectively.
- Badly managed transition. Most leaders are not prepared for the role when promoted. There is no "prep school". It is too often "sink or swim".
- Wrong priorities. Leaders cannot be perfectionists. They must leave that to managers. Vision and direction are the remit of the leader. The details of implementation are the responsibility of the manager. A leader who spends all of his or her time managing does not have time to lead.
- Lack of formal management systems. The management process must be diarised and enforced – for example, through:
- weekly team meetings
- monthly review meetings
- monthly one on ones between the CEO and his or her direct reports
- quarterly strategy and business plan reviews
- key project reporting presentations
- half-yearly strategy away days.
Deadly sin 2: Poor delegation
Machiavelli wrote, in The Prince: "The first way to judge the effectiveness of the leader is to look at the people he has around him."
Here are the main principles of delegation.
- Sometimes it is not possible to delegate.
- You can only delegate to excellent people.
- People who are poor at their jobs delegate "upwards".
- CEOs should rate direct reports out of 10. Only those in the 9–10 bracket will do, plus any with potential in the 7–8 bracket.
- Get the wrong people off the bus.
- Coaching direct reports is not optional. Leaders need to help the managers directly under them to improve their performance, for example by giving them challenging projects and regular feedback.
- Trust and confidence are essential.
- Systems to identify talent and succession must be in place.
- CEOs cannot delegate the key "deals".
Leadership guru Dr Stephen Covey offers the following formula for prioritising tasks:
Deadly sin 3: Lack of effective people policies
This sin is often the result of having a confusing organisational structure. The most effective structure is a clear hierarchy.
Avoid dual or dotted reporting lines and dotted matrix structures. These are often unproductive and are usually a sign that structures have been built around people rather than around business needs.
Distinguishing the roles
Sales (line) and marketing (staff) are different roles, require different skills and should be separate if possible.
- People in line positions are responsible for producing results. They have an operational role.
- People in staff positions are responsible for providing strategy, advice, expertise and audits. But they have no operational role.
The classic example of this approach, of course, can be found in the military.
The division of HR responsibilities, too, is often misunderstood.
- The CEO is responsible for defining HR policies in line with the strategic needs of the business.
- The HR director or manager is a staff function whose purpose is to help the CEO to design policies and to assist the CEO and line management in implementing them.
Their joint responsibility is to identify, recruit, motivate, and retain excellent people.
Compliance issues can be outsourced to experts!
Some of the key HR mistakes are:
- recruiting from CVs and not behavioural profiles
- not understanding that money is no longer the principal motivator
- not appreciating that for employees, being trained, developed and recognised is paramount
- poor communication.
Sample policy list
Here is a list of suggested HR policies. The important point is that they all need to be designed, installed, enforced and audited.
- Employee handbook
- Code of ethics
- Two-way contract
- Job descriptions
- Job profiling:
- Pipeline management
- Interviewing and selection
- Appraisals and reviews
- Succession planning
- Developmental coaching
- Corrective coaching
- Management development
- Compensation and rewards:
- Equity participation
- Employee assistance
Deadly sin 4: No leadership of innovation
It is crucial to understand the strategic role of innovation. In today's markets, the companies that really differentiate themselves have systems and processes that continually delight and surprise their customers. The need for innovation applies to every aspect of the way in which the product or service is delivered.
The competition always catches up. The key is to stay ahead. Innovation is what produces the next "river of cash".
Innovation requires not only creativity, but also a systematic approach. It needs strong leadership to reinforce its vital role. As CEO, you must:
- keep one hand on the reverse gear
- watch the competition
- not fall in love with the current business idea.
To keep the innovative spirit alive you need to hold meetings, conduct research and set priorities. You need to ask: "What are we going to do each year to systematically delight our customers with innovative products and services?"
Deadly sin 5: Tolerating poor people performance
The effects of this all-too-common sin are all pervading. Tolerating poor performance from your people harms the performance of the business and drags down your own performance as CEO.
Many businesses recruit or promote people into positions that are beyond their competence. Even when it is obvious that something is seriously amiss, a CEO may be reluctant to act for any of a number of reasons. For example:
- They think if they wait, things might get better.
- They worry it will cost too much to get rid of the person.
- They don't want to be the one to fire a colleague.
Such hesitation can cost the business dear.
Deadly sin 6: Choosing abdication over navigation
A business needs to be actively "steered" at all times. A good leader will make good use of a number of navigation tools.
Draw up a clear and visionary strategy
Keep the end in mind, by stating it on a regular basis.
Choose an effective business model
Adopt a business model that works and produces profit. Too often the limited resources available for marketing are insufficient to meet targets.
Use the right kind of KPIs
The best key performance indicators are predictive. Most measures of business performance are results (or "outcomes"). The really important measures that need to be highlighted are the "drivers" – the actions that implement the factors critical for success.
If you are not sure what your organisation's critical success factors are, look back at performance over the past 12 or 13 months and work out what activities have contributed to today's results. Once you have identified these factors, link your KPIs to them.
For example, if a company introduces monthly sales training sessions for staff and soon afterwards sees an increase in sales volume, these training sessions can be set up and monitored as a KPI. If one is missed, it will immediately be noticed and corrective action can be taken.
Constantly check the strategic position
Are you continually reviewing and adjusting the risk/return ratio? Factors such as changing market conditions may mean that you need to revise your strategy to maintain an acceptable relationship between risk and return.
In extreme cases, a company may decide to move into a completely different business area in order to obtain the desired return – as when IBM switched from computer manufacture to consultancy.
Use targets, not budgets, for navigation
- Disassociate management and statutory accounts. They are different and serve different purposes.
- If possible, avoid budgets and concentrate on targets and plans. Budgets seriously constrain or delay good business decisions.
- Targets are intermediary goals on the strategic journey.
- Plans are only as good as the revenue forecasting horizon. Beyond that, it is all speculation.
- Separate fixed and variable costs. The latter are a vital component of cost of sales, gross margin and break-even calculations. Where judgement is needed to define a cost as fixed or variable, use common sense.
- Avoid allocation of costs as they usually give business managers costs and pressures that they don't control.
- Group all marketing costs together and treat them as a strategic block. This is the section of the profit and loss account where the "fuel" is injected to make the business grow.
Conduct market research
Deleting market research as a budget item means that the business flies blind.
Look for financial capacity to grow
Why wait until next year's budget to move forward along the growth path? Do it as soon as the tools indicate that the capacity is available.
Deadly sin 7: Lack of visibility
The most dangerous place for a business leader is behind his or her desk.
Visionary leadership is about painting a picture of where a company is going. It is not so much what is said – more the fact that it is being said. People's reaction will be "Thank God someone around here is leading". Do it often.
Ways to be more visible
- Go on walkabouts.
- Deliver stump speeches.
- Take brown bag lunches.
- Attend team meetings.
- Attend company meetings.
Stump speeches are a great way to communicate regularly with staff about how the company is doing, where it is going and why it is a great place to work. But they are only effective if you are receiving and responding to staff feedback on problems.
Inviting different groups of people to weekly or monthly sandwich lunches gives the opportunity not only to deliver your stump speech, but also to solicit questions and ideas from the group. This shows that you don't think you know it all, and that you value their contributions.
Deadly sin 8: Poor or little use of outside advisors
Very rarely does a business have on its payroll all the expertise that is needed for key decisions. Using the best available (and affordable) outside help with formulating policies or business plans makes sense, if an optimum solution is required.
Even if you don't use outsiders to create or implement key decisions, consider using them for validation. Well run companies have boards of advisors populated with people who can be accessed on a regular or occasional basis as required.
High performing business leaders also use external sources to help them work "on" the business as well as "in" the business.
The five temptations of a CEO – why chief executives fail
In his book The five temptations of a CEO: A leadership fable, published in 1998, Patrick Lencioni describes some common traps that can ensnare hard driven executives.
Temptation 1: Choosing status over results
- Leadership is about producing results, not looking good.
- The best leaders live to win.
- They don't become hostages to their egos.
Temptation 2: Choosing popularity over accountability
- Good leaders have skills that correct behaviour that does not produce the desired results.
- Management should be objective rather than subjective.
- Leaders should work for long-term respect, not affection.
Temptation 3: Choosing certainty over clarity
- Leaders create clarity when they are decisive.
- Employees need clarity.
- Leaders cannot be right all the time.
- The cost of not taking the risk of being wrong is paralysis.
Temptation 4: Choosing harmony over productive conflict
- Poor leaders promote consensus when they should be mining and encouraging more conflict.
- Leaders should encourage "passionate discourse around ideas".
- Once a decision is made, however, the team must all back it.
Temptation 5: Choosing invulnerability over trust
- Leaders often mistakenly believe that they lose their credibility if their people feel too comfortable challenging their ideas.
- Leaders must make themselves vulnerable, show weakness, admit mistakes, and celebrate other people's strengths.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.