Spotlight on the role of CEOs


  • Business
  • Monday, 10 Mar 2003

BY K.P. LEE

CHIEF executive officers (CEOs) have probably never had it tougher. These days, when they are not being accused of lacking in vision, they are punished for paying themselves too much.  

Depending on whom you listen to and what you read, the CEOs of today either fail to strategise for their companies, or they strategise well but lack the will to execute.  

Grame Deans

They play it too safe, or they take too many risks. They are blamed for over-concentrating on meeting short-term market expectations, and yet are sacked for failing to meet quarterly earnings targets.  

They are too hard, too soft, too technical, not technical enough, not people-oriented, not hands-on, too flamboyant, and uncharismatic. 

If the analyses are confusing and debatable, the final sad result, however, clearly is not: CEOs today are booted out from their plush corner offices at an unprecedented rate. 

In the year 2000 alone, close to 50 CEOs at the top 200 companies on the Fortune 500 list were fired or made to resign, according to the head of consulting firm Atos Origin Asia Pacific, K.C. Neoh.  

He added that the CEO failure statistics for 2001 and 2002 were not any more encouraging. “When 25% of the most powerful multinational business leaders lose their jobs, something is not right,” he said.  

Something surely isn’t, and these were sobering thoughts indeed for Malaysia’s top CEOs listening intently to the leaders on management expound their ideas on “Deepening Reform, Embracing Change” at the Business Week CEO Insight forum in Kuala Lumpur last week.  

Neoh, a discussion leader at the forum, said this was happening to CEOs because the companies they led failed to deliver the desired results. 

“This is not due to flawed thinking, but it’s because of failures in execution,” he said.  

A global survey found that 90% of those companies which claimed to have a formal strategy failed to execute their strategies successfully, he said. 

Neoh said that crafting a strategy was “the easy part” as it was a conceptual exercise which looked at the future “about which one can afford to make numerous, plausible assumptions.” 

The next step of transforming vision and strategy into reality, however, was not so easy. “Companies begin to run into trouble when they must translate strategy into concrete tactics, actions, resource allocation decisions, measurements and finally entrusting the right people to implement the plan, and relentlessly follow it until realisation.” 

According to Neoh, the successful implementation of what he called “Holistic Alignment” required companies to be strong in both strategy and execution. 

He said this could only be achieved with the right combination of People Alignment (right people, clear rewards, goals), Operational Alignment (synchronised various parts or organisation, sufficient resources for programme), Strategic Alignment (translating vision and strategy to causes and effects via strategy maps, key performance indicators and target, and easily understood by employees) and Leadership and Cultural Alignment (leaders must believe they have a role to play and are hands-on). 

Neoh however said far too many companies failed in execution because “it is difficult and people tend to take the path of least resistance.” 

Another speaker Dr J. Stewart Black, professor of business administration at University of Michigan, said resistance was main reason why seven out of every 10 corporate change initiatives failed. 

“In most cases, the harder we push for change, the greater the resistance to that change,” he said. 

Black said that the assumption by CEOs that if they changed the organisation, individuals would follow was fundamentally flawed. Instead, it was the individuals who needed to be changed, he said. 

“Unless you change the way individuals think, you cannot sustain the change effort,” said Black, adding that there were entrenched “mental maps” which needed to be overcome first. In order to break through these barriers, a CEO needed to both inspire as well as challenge their employees. 

“Old mental maps that used to work have to be thrown out, but it needs a CEO with high contrast and high confrontation to allow this change to happen,” he said. 

Although change can be tumultuous, the implications of not changing are even greater and much more damaging. 

Looking at the macroeconomic environment facing global companies, vice-president of consultants A.T. Kearney, Graeme Deans, said the competitive landscape of certain industries would be completely transformed by global industry consolidations within the next five years.  

Deans said mergers and acquisitions (M&A) would drastically transform many industries as they start facing the realities of global competition, resulting in larger and more powerful organisations than ever before. 

“We predict that banks will be 10 times the size of Citibank today,” he said, adding that there would be another round of mergers among banks and financial institutions.  

The financial services industry remains one of the least consolidated industries in the world today, he said. 

Deans said that in the face of intense global competition, companies which did not benchmark against their best global competitor or strive for world class operations, costs or financial position risked being left out in the race. 

According to Deans, CEOs should have a “dream list” of M&A candidates and work towards buying them.  

“The bigger and more powerful your business can get, the better,” he said. However, he added, merger strategy had to be handled well in order to achieve value creation.  

“It has to be balanced with other strategies,” he said, pointing out that there was a much higher incidence of mergers between companies of similar size as “the challenges are much higher”.  

Deans concluded that to be globally competitive, companies needed to work on the premise that all forms of protectionism, tariff barriers and foreign ownership restrictions disappeared. 

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