In the second of nine articles exploring 9 things he has found surprising in business, Peter Massey asks why are so many intelligent CEOs apparently short sighted.
Have you ever been in a meeting when you can feel a decision is wrong. Perhaps your business case has been turned down. Perhaps you’d be thinking “that’s so short sighted”.
What do we mean by “short sighted”?
It might be a logical decision for now but it ignores the consequences. Consequences over time affect other factors in play.
It might be to gain advantage now, regardless of what happens later. Don Peppers talks about “bad profits”. Profits taken at the expense of the customer and your subsequent relationship.
A common example is renewal premiums or subscriptions versus new business premiums or subscriptions. It would make more sense if they were the same or better for loyal customers. But in practice we see new customers getting the best deals in many cases.
The consequence is that customers learn they are not valued. They learn to negotiate or switch in search of a bargain. Customer acquisition rates may go up, but customer numbers and profits may go down.
You could be sat in the meeting that decides the subscription rates and, intuitively or logically, you can see it’s wrong not to reward loyalty. But can you explain why in what is a complex set of interacting data, changing over time? Business cases or arguments need logic and spreadsheets but they need more.
Read our article How to Calculate Customer Lifetime Value – The Formula to discover how to quantify the total value of a customer to the organization.
One of the surprises I’ve found is that few leaders are long sighted, i.e. looking for and investing in the most viable and joined-up business model across years. Perhaps Tesco at one time, LV for a number of years. Tesla or Amazon now.
Many companies (or politicians – but let’s not go there!) appear short sighted when it comes to making their performance and numbers work. But as individuals they do not lack intelligence.
One factor is that whole industries are often driven by market analysts who don’t know and don’t care about what happens to customers – they are just numbers. And they want to see progress every quarter without fail, immediately putting pressure on any strategy or leader to perform now.
Another critical factor is CEO and senior management tenure. If they believe they have only two or three years to make an impact, they will act within those timescales.
But if you think about it, it can take a quarter to recruit a new leader, maybe two quarters for their notice before they join.
A quarter to assess and understand, another to detail a plan, another to build the budgets and another two to build the teams. So in the third year there’s a rush and short-term decisions abound. Where is your CEO in this cycle?
According to one 2019 source, tenure in the FTSE was 6.6 years for men and 3.3 years for women.
According to another source, the best-performing CEOs have over 15 years’ tenure.
Understand Your CEO Cycle
This isn’t a plea for shareholders to stick with their CEOs a bit longer. But we should understand better the pressures on CEOs and why some “short sighted” decisions have to be made.
So back to that gut feeling in your meeting. What’s to be done?
1. Understand Time Horizons
First, examine and understand where your leadership team is on their rollercoaster ride. It will help you understand their time horizons.
For example, if yours is new in the role but has not yet announced their plans, how you can influence them before the plan is made. One client told me they’d researched their new CEO’s learning style and realized he loved spreadsheets, so presented their story in that way rather than PowerPoint.
For example, what is your PR machine telling the City the new CEO will have to do and how can you align with making that happen? What does your CEO see their legacy as being as they approach the end of their tenure – it’s a very powerful motivator.
2. Scenarios Across Time
Second, include scenarios, trends and outcomes across time in your thinking and plan – not just this quarter or year. Not just pay back in X years or months.
For example, how does the CEO see themselves in five years’ time and today. What milestones do they see or you imagine on the way? How does the narrative bring that home?
A classic might be when we reach year 3 of your plan, we’ll need to move office. Do you see us using the same tech, the same desks, the same processes after we move? So what do we need to have done in year 1 and 2 to enable that?
Third, explain how your plan affects the business model for the better – what intangibles does it build and how do those intangibles help the CEO get where they are aiming to be, achieve their vision?
Intangibles might be reputation, morale, team and so on. For example, if your CEO wants their acquisition strategy to work (the typical 2+2=5), then showing how your initiative brings disparate teams together into better scaled-up processes may be the key point.
To find out how to improve communication in your organization, read our article: How to Improve Internal Communication in the Contact Centre
If recruitment and talent retention are critical issues, then how does your initiative drive internal morale and external reputation to help this?
4. Tell the Story
Fourth, create and tell the story. Bring it to life with real examples of pain points addressed, customer and employee feedback and proof of revenues. It’s easy to pick holes in the costs in business cases, but it’s much more important to build faith and belief in the associated story and, by implication, revenue projections.
A client once told me he always said no when asked for a business case for his ideas. People would be taken aback.
He’d continue: “If I haven’t explained my idea well enough yet, there’s no way they are going to get it in a business plan. So I say no and ask for some time with them to discuss the idea further.”
Scenario Planning and Beyond
For those of you with a keen interest, you can go further and take a look at scenario planning and building models or gaming simulators. One of the key things is finding a visual language for modelling across time.
Try Senge’s Fifth Discipline as a great place to start. Another key thing is building and testing models together so that the parties all believe what the models are telling you.
The result is the whole team can build instant business cases once they believe how their market and business model works, how the numbers underpin what happens.
Written by: Peter Massey at Budd
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