Posts Tagged ‘CEO’

Should The Business Owner Remain CEO?

Tuesday, July 2nd, 2013

From time to time a business owner we’re working with will ask if we think he or she is the right person to take their company to the next level.Should business owners remain in or relinquish the position of CEO?

This concern has its roots in a broader question.

Can entrepreneurs scale the companies they start or should a professional manager/CEO be brought in at some point?

Arguably this is a leadership not a strategy issue. But the two are interwoven, perhaps even inseparable.

Randy Ottinger nicely summarized the alternative approaches in a recent article.

1.  The founder stays on as CEO

This theory, like the others, is supported by research from very credible sources.

The conclusion – founding CEOs consistently outperform professional CEOs on a broad range of business and financial measures. The founders of technology companies, in particular, have core competencies an outsider may not have.

Some high profile companies with successful founder CEOs are Starbucks, Amazon and Apple.

2.  The founder forms a partnership (not necessarily in the legal sense) with a professional CEO

This time, the research concludes that founders maximize the value of their equity by giving up the CEO position.

The founder of LinkedIn supports this alternative. He argues that retaining the founder prevents the loss of the essence and entrepreneurial nature of the company, while at the same time gaining the expertise to scale the company in the professional CEO.

Other companies, which went this route, were eBay and Google.

3.  The founder is replaced by a professional CEO (brought in from another company)

The third alternative is to replace the founder with an outsider.

But Jim Collins, amongst others, concludes that great companies have a much greater chance of success if they hire from within rather than go outside to find a CEO.

So where does all of this leave us?

4.  The fourth alternative – common sense at work?

Clearly, not all situations are the same.

So, perhaps it’s not about choosing either a founder/CEO or professional/ CEO, but about using the leader whose skills and abilities best match the requirements of the task at hand.

Founders typically are innovators with entrepreneurial drive who may not have the skills needed to execute. Professional managers typically know how to execute or scale but are not strong on innovation.

The question, in both cases, is does the individual have at least some of the missing skills and the desire to build on/improve it? (Which ties to one of my theories.)

If the answer is “no” then a “team” approach may be more effective. Titles can always be massaged (e.g. 1 person is President, the other CEO; 1 is CEO, the other COO).

But the job responsibilities must be clear and unambiguous.

You can read Randy Ottinger’s article here.

 

If you enjoyed this post you’ll also enjoy Don’t Shoot Your Strategy In The Foot.

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3 Times When You May Need To Change Your Strategy

Thursday, February 2nd, 2012

We all do things that are crazy.

One of my things is telling people that they shouldn’t be changing their strategy.

I do it when business owners – or CEOs – say things like “It’s time for our annual strategy meeting”. The implication – for me at any rate – is that they change their strategy every year.

But that would be just plain wrong.

Changes to a well thought-out, well-crafted strategy shouldn’t be driven simply because it’s been in place 1, 3 or 5 years.

A strategy shouldn’t necessarily be changed even if it isn’t producing results. In this situation I always look at how well (or badly) the strategy is being executed before I look at the strategy itself.

So when should a company review its strategy? And what makes that review and any subsequent adaptation, revision or recreation necessary?

Here are three occasions.

1.    When the company has outgrown its strategy.

There’s research which suggests that companies can “plateau” when they achieve certain levels of revenue. Depending on the industry those levels are around $5 million, approx. $10 -12 million, somewhere between $18 – 30 million and so on.

Typical symptoms of “plateauing” are upward spikes in revenue which can’t be maintained, increasing lead times delivering the product or service, decreasing levels of customer satisfaction and higher employee turnover.

The plateauing occurs because the things – e.g. strategy, processes – the company has done up to that point in its life can’t support any more growth. It’s like expecting a teenager to fit into the clothes they wore when they were eight.

To rekindle growth the owner either has to change the strategy, the way it’s executed – or both.

2.    Significant internal change.

This occurs when, for example, a company develops a game changing new product or service or finds a new way of doing its existing business. This gives it an edge over its competitors by e.g. reducing costs or increasing efficiencies.

To reap maximum benefit from this new competitive advantage the owner will have to adapt or change the existing strategy.

3.    Significant external change.

In this case the owner or CEO has to react to e.g.:

  • A competitor who is taking advantage of a significant internal change.
  • The industry “maturing”. In other words the business has been around long enough for a number of competitors to have become large enough to e.g.:
    • Reduce their costs and pass this on as reductions in the selling price or,
    • Buy up smaller players who introduce game changing technology or process improvements. This is also known as industry consolidation.
  • Major changes in e.g. the economy, labour pool, legislation governing the industry, or all of the above.

Continuing with a “business as usual” approach under any of these situations is clearly not going to be effective.

To be fair, when business owners and CEOs say “It’s time for our annual strategy meeting” they usually mean that it’s time to start the annual business planning process. That is something that must be done every year.

And, since we have services which can make the annual business planning process more effective, perhaps I’m not as crazy as I look – I mean sound…….

If you enjoyed this you will also enjoy 2 Things That Cause Bad Strategy

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Strategic Music

Thursday, January 26th, 2012

There are many, many different kinds of music – e.g. rock, country and western just like there are many, many different sorts of companies – e.g. software companies, manufacturers etc.

And I’ll bet that everyone can think of at least one favourite tune.

So what has a favourite tune got to do with a business?
Bear with me for a moment and I’ll tell you.

Let’s go back to music first. I’ll bet my favourite tunes won’t be the same as yours. Mine might be classical (or bagpipes) yours might be heavy metal or hard rock. So they won’t sound the same.

But the funny thing is, although they don’t sound the same they will have some things in common.

Such as what you might ask?

Well, with a few exceptions, they probably feature more than one musical instrument. Perhaps there’s someone singing, in fact there may be backup singers as well.

Our favourite tunes will also have a musical score and – where required – lyrics for the vocalists.

The score is a great thing. It not only tells the musician which instrument to play – and when – it also tells them how the instrument must be played. Pretty detailed action plan wouldn’t you say.

Lyrics are also essential for anything other than a pure instrumental. They tell the vocalists – lead and backup – what to sing and how to emphasize the words.

OK so where am I going with this?

Well, I was listening to one of my favourite tunes the other day and a few things occurred to me.

Although each piece of music is different, like companies in different industries, they do have things in common.

The instruments – guitar, drums, key board – are like the different parts of a company – sales, operations, finance. They can play by themselves but when they work together the result can be amazing.

The score is like the strategy – it determines how the band/orchestra will get to the final result. It tells every instrument/musician how to work together while giving them a plan in the form of the notes and chords to be played.

In the better bands, the individual members have input to the score. Sometimes the situation allows them to improvise (you could say the plan is flexible). In some situations improvisation – and even innovation – is required. Jazz springs to mind.

But no individual instrument or musician has a role (departmental plan) that is more important than the score (business strategy). Think of an orchestra for a moment. The musicians in each section – e.g. strings, wind and percussion – see their own part in the piece. But only the conductor has the full score.

And that brings me to my last couple of points.

Every band has a leader – lead guitarist, lead singer, band major – who keeps the focus on the score or lyrics. Rather like the role of the CEO or business owner. He or she doesn’t have to know how to play all of the instruments; the specialists are there for that.

Some bands or orchestras become more popular than others. And, while individual players/musicians may come and go, some bands perform for a long time – years, decades or longer. Innovating and working with new material but maintaining superior quality of output. Why – because the culture, amongst other things, fosters that type of environment.

Finally, the public – you and I – doesn’t pay for the score. We pay for the result – the sound, the music, how it makes us feel.

And that’s an important perspective (particularly for consultants). No one pays for the strategy, they pay for the results – and how the results make them feel.

So, what kind of music are you going to make in 2012?

If you enjoyed this you will also enjoy Design Thinking and Strategy Development.

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Design Thinking and Strategy Development

Friday, October 14th, 2011

A little while ago I asked our LinkedIn group the question “Is design thinking dead in the water or does it still have something to offer strategy?”

I did it because I was on the fence a bit and Bruce Nassbaum who was one of Business Week’s major advocates for design thinking, had recently come out¹  and said he was moving on to something new.

But now I don’t agree with him and here are a couple of reasons why.

1. The Baby and the Bathwater.

Nassbaum states, quite correctly I believe, that design thinking is a process which generates the real deliverable – creativity.

He goes on to argue that because it had to fit with the existing concept of business process, design thinking “was denuded of the mess, the conflict, failure, emotions, and looping circularity that is part and parcel of the creative process.”

I can certainly see a few of the more analytically oriented CEOs and business owners I’ve known taking that stance! But Nassbaum goes on to say that in the few companies where CEOs and managers accepted the “mess along with the process” then “real innovation took place”.

So what’s the real issue? If it’s that design thinking only works where the culture supports it then the process isn’t the problem. As is so often the case, the real culprit would appear to be the execution or implementation of the process.

To abandon the process in these circumstances would appear to be throwing out the baby with the bathwater.

2. And In the Other Corner….

The MIT Sloan Management Review says that “Design thinking — distinct from analytical thinking — has emerged as the premier organizational path not only to breakthrough innovation but, surprisingly, to high-performance collaboration, as well.”²

And the Rotman School of Management (in the interests of full disclosure, I am an alumni) offers a “unique program that merges the practices of business and design at our Strategy Innovation lab”³

Being the skeptic that I continue to be, I am reluctant to believe something simply because an academic has said it.

But you have to attach credibility to an academic with an MIT pedigree (no pun intended). While Rotman, with its mission “redesigning business education for the 21st century” has it’s MBA program now ranked in the top 15 in North America by the Financial Times.

3. The Clincher.

I’ve encountered and read several other articles and blog posts which suggest that design thinking is alive and well and continues to have a role to play in strategy development. But the clincher is an article4 I read recently (oddly enough in the Rotman magazine) which lays out a design thinking tool kit for managers.

The authors link the concept of design thinking to the process they’ve laid out and the 10 tools they recommend. I like the logic and I’m familiar with the tools. I can see how it would complement the strategy development process we use.

I have some questions still about the practicalities of the tool kit but, for now at least, I’m off the fence.

There’s still time for you to express your views – either here or on our LinkedIn group

If you enjoyed this you will also enjoy Why Strategy Is Still Worth A Business Owner’s Time and Adaptive Strategy – A Way To Profits In The New Normal?

¹Design Thinking Is A Failed Experiment. So What’s Next? www.fastcodesign.com/1663558/design-thinking-is-a-failed-experiment-so-whats-next

² Design Thinking – Hard skills from a soft science http://sloanreview.mit.edu/special-report/design-thinking/

³ Rotman School of Management www.rotman.utoronto.ca/businessdesign/default.aspx

4 Designing For Growth: A Tool Kit For Managers, by Jeanne Liedtka and Tim Ogilivie in the Rotman Magazine, Fall 2011, page 17

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