The role of the Chief Executive Officer (CEO) is crucial in any company for its success and ability to create wealth for its shareholders/owners or other measures of performance if the organization is not a publically traded corporation. Standard key accountabilities of the CEO are:
- Be the chief strategy officer
- Be the prime mover among all of the leaders in the organization
- Typically serves as chairperson of the board of directors but
- Reports to the various committees of the board
- Is ultimately accountable for achieving planned performance of the organization
Life as a CEO can be exhilarating but it can also be extremely stressful and lonely. The average tenure of CEOs in publically traded firms is about five years before that person moves on due to being replaced or being hired away.
In my twenty five years in the strategy consulting field I had the extreme honor of working for nine great CEOs and some not so great. What made the difference? I think Jim Collins in his book From Good to Great nailed the answer to this question by his concept of Level 5 Leaders. Level 5 leaders build enduring greatness through a paradoxical combination of humility and professional will. These CEOs typically were leaders who were analytical and at the same time motivated everyone in the organization. They knew who they were as people – their strengths and weaknesses and were not pretentious grandstanders. CEOs in organizations like Walgreens, Gillette, Nucor Steel, Kroger and others exemplified Level 5 leadership for Collins.
Perhaps the “acid test” for those who could have the qualities for this kind of leadership can be found in the CEOs who run businesses for the leading private equity firms. The bar for who takes on that role in these firms is very high. Private equity firms are people who raise large pools of funds, primarily from wealthy individuals, and then invest that money to buy companies who have good brands and positioning but who are underperforming in some areas. The mandate is to dramatically improve the organization’s performance and then usually sell it for a nice return to the investors. The private equity firm’s general managers must deliver an expected return on the pool of dollars raised to invest in these “deals”, or their ability to raise future pools of dollars drastically diminishes. As such, being a CEO in this type of firm takes a special person.
HM Capital Partners of Dallas, Texas developed several years ago a series of assessments of who can be the CEOs of their firms. Please see their website (www.hmcapital.com) for the large number of successes they have enjoyed and their current portfolio of businesses. Their premise behind these assessments comes from Albert Einstein’s quote: “You cannot solve a problem from the same level of thinking that created the problem”. The golden days of private equity investing where costs could be taken out and the balance sheet improved for a quick re-sale are gone according to these firms. Real transformation of organizations is required today and “next level solutions” must replace “current level solutions”. This shift is from very linear thinking to “whole systems” thinking:
Current Level Solutions Examples:
- Reverse labor productivity losses
- Cut ineffective sales and marketing spend
- Reduce inconsistent net pricing
- Aggressive product complexity reduction
- Expose sales to cash cycle abuses
- Eliminate negative return on investment on capital expenditure projects
Next Level Solutions (include but transcend current level thinking) Examples:
- Operate with a view that the entire firm is a value chain of interconnected activities that strive to reduce costs while increasing customer willingness to pay
- Innovation through “repurposing” assets and making assets super productive
- Create market presence from “multiple inside and outside” perspectives
- Strategic initiatives are not single discrete projects, but are assessed as being part of a “whole system” where mutual reinforcement is key
Furthermore, HM Capital distinguishes the characteristics of Current versus Next Level:
Current Level Solutions: Linear Next Level Solutions: Systemic
Play the game to win Change the game
Follow established formulas and leverage best practice Disregard current formulas and establish new practices
Strategic planning – linear thinking Strategic thinking at the “whole system” level
Leadership favors one or two strengths Leadership displays versatility across multiple strengths
See what competitors see See what no one else sees
So what brings about Next Level Solutions? Next Level Leaders. Rand Stagen of the Stagen Leadership Institute says “Developmental psychology clearly points to a leader’s inner capabilities and versatility as the invisible drivers to next level performance”. And he suggests these Key Dimensions of Leadership Versatility:
- Cognitive capacity (IQ)
- Emotional capacity (EQ)
- Relational capacity (RQ)
- Adversity capacity (AQ)
- Ethical capacity (E2Q)
This set of capacities creates the overall ability to view issues from multiple and interconnected perspectives and allows the next level thinking and solutions to happen. Perhaps it seems that HM Capital and other successful private equity firms are looking for super men and women. How many people in our economy have all of these attributes of versatility? I do not know for sure but in my experience two to three out of ten executives exhibit these attributes. But all of these private equity firms feel this versatility is the direct cause in growing the value of their firms. What do you think?
Dr. William Bigler is the founder and CEO of Bill Bigler Associates. He is a former Associate Professor of Strategy and the former MBA Program Director at Louisiana State University at Shreveport. He was the President of the Board of the Association for Strategic Planning in 2012 and served on the Board of Advisors for Nitro Security Inc. from 2003-2005. He has worked in the strategy departments of PricewaterhouseCoopers, the Hay Group, Ernst & Young and the Thomas Group. He can be reached at firstname.lastname@example.org or www.billbigler.com.