The world is changing, and CEOs and senior executives are feeling the pressure from rapidly evolving markets. What are the keys to CEOs, boards of directors and senior executives to achieving success going forward? Protiviti’s Jim DeLoach shares his insights.
A recent survey of 3,000 chief executive officers and senior executives sheds further insights on the increasing complexity business leaders face. Three in four CEOs report that their companies face a significant level of disruption. Seven in 10 are concerned that their executive teams lack the agility to deal with this disruption. Almost all CEOs (98%) recognize they need to change their business model within the next three years in response to internal and external disruptions. A year ago, this same global study reported that 72% of CEOs were concerned about losing their jobs in 2022 because of business disruptions. Furthermore, most top executives (94%) noted that their corporate models needed to be overhauled within three years.
The above findings resonate in light of Protiviti’s recent global survey of the most significant risks companies face. That study indicates varying views across different executive groups about the overall risk landscape. Looking out 10 years, it provides insights as to the top risks on the minds of CEOs as a group.
Included in their list of top five risks are the rapid speed of disruptive innovation enabled by advanced technologies, ease of entrants of new competitors into the market, resistance to change in the organization’s culture and impact of rapidly expanding developments in social media and platform technology innovations. With the acknowledgment given to the speed of change in the marketplace, resistance to change is of particular interest. For 2023 and 2032, this issue is the fourth-rated risk overall, compared to seventh in 2022 and sixth for 2031.
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These studies suggest that many CEOs and their executive teams face formidable challenges. The perception at the top is clear: The organization operates in shifting, dynamic markets, and there is doubt it can adjust quickly enough to remain relevant.
Each CEO is unique, of course, but the studies offer insight into CEOs as a group. The reality is that the speed of change has accelerated to an unrelenting pace. Workplace redesign, talent retention, supply chain disruption, persistent inflation, uncertainty over aggressive central bank policies, the rising bar of environmental, social and governance expectations and a regional conflict that just won’t quit all add up to a changing world in search of an elusive “new normal.” With business model revamping on the horizon as well as concerns over organizational resistance to change, it appears that chief executives are feeling the pressure of uncertainty in the marketplace more acutely than ever.
The implications for smart conversations in the C-suite and boardroom are clear. Following are suggested questions to facilitate the discussion:
- Which aspects of the strategy represent the greatest risks to the enterprise, and why? Is there a process for company stakeholders to arrive at a consensus about the most critical enterprise risks?
- Are there activities the company is undertaking that present huge risks of which the board and CEO are not aware? For example, are there existential threats that can “stop the show” over the next two to three years, forcing the organization to “circle the wagons” and engage in damage control? Does the organization deploy appropriate teams in scenario planning to ensure consideration has been given to effective risk mitigations?
- What are the hard spots and soft spots in the business plan for which the CEO is accountable? Has the plan been stress tested against extreme but plausible scenarios?
- Are there any areas of cultural dysfunction within the company that require correction?
- What can the board do better to help the CEO succeed? Is the board giving the advice and counsel the CEO really needs? Is the board, through its practices and oversight activities, creating distractions for the CEO?
- Do the CEO and board have the talent and resources needed to execute the approved strategy? Does the organization’s culture act as a magnet for talent? How does the CEO know?
Depending on the direction and substance of these conversations, the CEO and board should consider periodic sessions with appropriate independent advisers on specific topics relevant to understanding and preparing for the future, helping both to get on the same page on what the CEO should do to face the future with greater confidence. To that end, there are three keys to achieving this: relevance, culture and alignment.
Sustaining relevance is the call to action of the times
Simply stated, a commitment to sustain relevance is a commitment to embrace change and adapt the business to current and expected market forces. A strong, steady hand and focus on sustaining relevance is “first things first” for the CEO and engenders confidence looking forward.
It starts with focusing the organization on understanding markets and customers at the speed of change. It continues with ongoing improvement of the company’s customer-facing processes and offerings so that they are effective in meeting evolving market demands and customer needs in distinctive ways. It also includes a focus on ensuring that back-office processes reinforce the company’s brand promises and are supportive of efforts to improve the customer experience. Along the way, leaders should listen to the people in the workforce for critical insights.
In an environment of rapid disruptive change, the quest for sustained relevance presents a challenge for long-standing incumbents who achieve excellence at what they do best. Market success and the blinding lights of short-termism breed resistance to change. By contrast, agility is the key to sustaining an organization’s relevance. Much more than product innovation, agility entails delivery of products to market through new business models adapted to evolving customer experiences. It is driven by offering solutions to the market ahead of anticipated demand based on reliable, insightful data.
The CEO faces two fundamental questions in sustaining relevance:
- Is the strategy the right one in view of current and expected market developments, and is it focused on the right outcomes? Understanding the critical assumptions underlying the strategy and tracking them over time against developments in the marketplace to ensure they remain valid is a way to “reality test” the relevance of the strategy.
- Is the strategy and business model for executing it on course? This question is about understanding the storyline underlying actual performance against plan and highlighting the headwinds the organization needs to address.
A powerful third question is also important: How do we know? Thus, the CEO dashboard should address both of the other questions. Effective metrics, measures and monitoring earn the confidence of the CEO and board in the organization’s continued relevance.
Organizational culture based on trust and values is a key differentiator
People and culture should be front and center for every CEO. The Protiviti survey noted earlier points to the importance of doubling down on retention through employee engagement and experience. The future of work and the workplace is driving the need for significant investments in upskilling and reskilling. But retention is also important to avoid poaching of upskilled and reskilled workers by competitors. This requires a trust-based culture that embraces empathy as well as core values attractive to talented people. A commitment to diversity, equity and inclusion as well as to human rights, safety and well-being builds trust. So does community impact through investing in people and in where their families live, work and play.
For CEOs, building and sustaining a strong culture is a fact-based journey that begins with straight talk and transparency. Leaders should learn what their employees really think through confidential, anonymous surveys, share the unvarnished results across the organization, and commit to improve the culture and work experience in response to those results. Once employees are engaged and perceive that their leaders are sincerely interested in and deeply committed to listening to their feedback and continuously improving the workplace experience, the process of building trust and inculcating core values takes care of itself through successive iterations of collecting and acting on feedback and regular strategic communications from the CEO.
Alignment is the CEO’s most critical challenge
The CEO’s quest for alignment covers a lot of ground. It begins with the executive team to ensure that all the chief executive’s direct reports are pulling in the same direction, particularly with respect to major transformation and change initiatives. With a focus on relevance through monitoring of markets and customer needs, executive alignment is achieved through the “blocking and tackling” aspects of linking strategy, people, processes, reporting, technology and data.
Executive alignment sets the tone at the top, which has always been important. But rank-and-file employees are more influenced by their immediate superiors than by what the CEO and executive team say. That is why alignment of the mood in the middle with the tone at the top is of vital importance to the chief executive. Performance expectations and reward systems linked to the strategy, periodic assessments of the mood in the middle and buzz at the bottom, and effective escalation processes are critical tools in this regard. Directors and CEOs should also pay attention to the warning signs posted by independent risk management functions and in audit reports that suggest things are out of sync.
Alignment efforts should embrace core values. This starts at the top with leaders who model the desired behaviors: Leaders cannot say one thing and do another. They cannot set policies and not abide by them. CEOs must decide the behaviors that best represent the company’s brand promises which differentiate and resonate with buyers and drive these behaviors with intention and integrity throughout the organization. These behaviors should emphasize treating others with dignity and respect.
The key takeaway
CEOs are feeling the pressure in an unprecedented environment of uncertainty amid ever-expanding expectations. If one or more of the three keys — relevance, culture and alignment — are at the root of their CEO’s concerns, boards should direct their focus accordingly to ensure they are contributing value consistent with their duty of loyalty obligations. The CEO should also focus C-suite conversations to address these matters.