Why CEO’s shouldn’t set strategy

Although CEO’s see strategy development as a key part of their role, their detailed involvement can do more harm than good. There are three reasons why CEO’s should not become immersed in detailed strategy development:

  1. You don’t know everything. Former Asda boss Allan Leighton once said, “I’m lucky if I’m right even half the time.” Seeking to have all the answers creates a dependent and, most likely, slow and unresponsive organisation. According to consultants Booz Allen, Bob Nardelli’s dismissal in 2007 as CEO of Home Depot in the US, “was driven by his failure to hear and respond to investor’s concerns – very much the actions of an imperial CEO.”
  2. It inhibits others and prevents ownership. The problem with CEO-led strategy is that, to the rest of your team, it can feel like an order. You may get compliance – for a while – but will you get genuine enthusiasm and support?
  3. CEO tenure periods are less than the strategy cycle. In Europe average CEO tenures are now little more than 5 years, and CEO turnover grew from 5% in 1995 to 15% in 2006. Consequently, there is significant pressure on you to deliver big results quickly, even if that goes against the best longer-term strategy for the business.

So what should the effective CEO be doing? In short, the answer is providing leadership. There are five key roles for the CEO in the strategy development process.

  1. Set goals. When he was CEO of drinks giant Diageo, John McGrath set his top-team a three-year profit target, demanded that the shape of profit growth be acceptable and insisted that the strategy should be in line with the company’s vision. What he did not do was prescribe specific solutions – he wanted his team to create the answers and then deliver against them.
  2. Engage the top team. At an fmcg client of mine, the CEO used the top team to develop a refreshed strategy in a series of full-day sessions. The time spent by the executives allowed them to agree on the key strategic issues faced by the business and explore alternative routes forward. The result was an agenda with strong buy-in from the top team.
  3. Align the strategy with the company’s values. When Herb Kelleher believed that a strategy or initiative was not in line with Southwest Airline’s raison d’etre, he would simply reply “And how will this help us be the low fare airline?”
  4. Communicate, communicate, communicate. During his time as CEO of Boots in the UK, Richard Baker would communicate – in major presentations and one-to-one encounters – the company’s six strategic priorities. Over time people from across the business began to understand what was important and why, and changed their approach and behaviour accordingly.
  5. Have the final say on big decisions. Although I don’t believe CEO’s should become too immersed in strategy development, I do believe that you must sign-of on it and that you should also have the final say on big investment decisions. You may wish but ultimately it will be down to you.

As CEO of your business are you spending too much time trying to have all the answers for your detailed strategy development and not enough time on being a leader? By taking a step back, allowing your team to take the lead, and then holding them accountable for results, you may find that you get both a better solution and more commitment to effective implementation.

 

To find out more contact Stuart by clicking here or call +44-(0)1636-526111.