I proposed that management innovation requires seven keys to unlock at the same time. Let me discuss the first key in some detail.
To proceed with management innovation, CEOs must first look squarely at the reality of the situation and re-examine company’s vision and strategy based on the state of the customers, the company and the competition. It’s painful to recognize things you rather ignore.
What changed in the business foundations that were key to success in the past? What must we now do from scratch? It requires thinking and rebuilding from ground zero to change the direction and speed of the company.
The CEO must organize thoughts and map out powerful ways to increase profits and regain growth. While you are setting happy with industry leading position, cash cow market segment may rapidly decline, new competition may be on the rise, and many threats emerge.
The CEO oneself must defy conventional paradigm to show and lead all employees the new direction to win back competitive advantage and shift strategies.
Facing and Understanding the New Realities
When profit levels you have become accustomed to over the years take a deep dive, CEOs feel strong sense of crisis. However, often CEOs do not have accurate grasp of the web of factors that caused the deep dive such as revenue decrease due to exchange rate, rising materials cost, industry wide slump, customers’ business decline, lack of hit products, growth of alternative products, and so on. Especially when it comes to exactly when and what specific factors deteriorated, things are often in the dark.
For any CEO, it is most frightening for the problems to creep without recognition until it is too late to do something about it. The problem may have been hidden by temporary growth of other businesses causing the fundamental declines in key customer segments to go unnoticed for months, sometimes years.
In such a case, it may be all too late and everything is a negative start. For CEOs of medium to large companies with diversified business, more often then not, accurate information that is particularly relevant to steering the company may have been intentionally hidden, or overlooked and unreported. Similar problems occur even in smaller companies because CEOs often become the king of the mountain.
Regardless of the size of the company, CEOs who want to lead management innovation must first see for oneself 5-year history of business profitability breakdowns, analysis to clarify specific segments that deteriorated, and whether or not important changes were covered by temporary improvements of other numbers.
CEOs unwilling to look at this and don’t want to be bothered by such details are in suspect. One should make a habit of suspecting that areas considered in good shape have creeping problems, and that complacent minds always make mistakes.
The worst-case scenario is when CEOs with history of stellar performance remain in the position for a long time and directors and executives that do not say exactly what the CEO wants to hear have been displaced. There is no one who reports the home truths to the CEO. There may have been, but they were either fired by the CEO or resigned in frustration. Even if the existing executives or managers gather the courage to bring attention to painful issues, there is organizational resistance to report it to the CEO because over the years, the CEO has lost tolerance to home truths and does not want to hear it.
The Business Foundation for Past Successes and How It Changed
Long-lived companies have occasionally experienced big successes. One should start by asking, “What constituted the business foundation for these successes and how have they changed in the last 5 to 10 years?” Often the ‘ himself was the driving forces for the successes and this can make critical analysis more difficult.
Analysis of past successes and advantages require a level head. What factors are still valid and what has diminished? It is a very demanding task for the present CEO, but one must carry it through. Delegating to finance or planning groups may dilute the most important information.
Sony with long history of successes—transistor radio, Walkman, Trinitron TV, video recorder, video camera—was arguably the most valuable brand in the world. However, with digitization of everything, the analog advantages of their household and consumer electronics faded and soon Samsung and LG in Korea or Taiwan and Chinese companies were making comparable products.
The problem was exacerbated by the growth and profitability of their new financial and entertainment businesses that covered up the ailing consumer electronics business upon which the company was founded. The success in the new areas undeniably and critically delayed taking drastic action in the mainline business.
What is Our Strength and That of the Competitors?
Next, scrutinize what is our strength today and how has the competition changed.
One should suspect that in many cases there is a gap between CEOs’ understanding or the general belief within the company of past strength and the reality. For example, high quality was believed to be the strength when in fact the most responsive customer service was the key to customer royalty. The results of the very strong sales force on the ground are sometimes misconstrued as super product advantage.
When the environment changes drastically, the gap tends to be even bigger.
You never know the real truth until you hear the authentic voices of the customers and the sales people in the front lines. I encourage CEOs not to be satisfied with self-serving understanding and maneuver the company to create more opportunities to hear their voices. One must be careful to avoid some pitfalls with the effort, however.
First is talking to the wrong people such as customers who have nothing but good things to say. They are hand picked by subordinates to avoid the wrath of the CEO. The interviews may even be rehearsed.
Second, even if the people you talk to are appropriate, they become nervous especially in front of the CEO and they hesitate to tell the truth. To think, “customers should feel free to talk about problems and complaints,” is wishful logic. More respectable the company, more intimidated the customer will feel to convey exactly what they think in an interview.
One must understand that it takes substantial courtesy, time, and patience to get the customers to tell you the truth. One must continue to doubt that they are holding back their true opinion in respect for your position.
Third pitfall is having a strong hypothesis in approaching the dialog. You hear only what you want to hear no matter what they say. It will be very obvious and the customer will quickly lose their motivation to talk. As a result, you falsely assume to have heard the true voice of the customer.
When the business performance tank, one must assume nothing and calmly figure out if the strength of the past has been undermined and what is really happening. For corporate staff, the strategic moves of the conventional competitors are important. However, one must pay particular attention to unconventional competition from lower priced products and companies in adjacent markets under the radar. Or, a known competitor may be focused to dominate an unconventional user segment.
One must look out for “the revenge of success.” It’s when you are stuck in the legacy of winning ways and unable to adapt to big changes in the environment. The people of the most dominant successful companies can stop thinking and fall into this trap. Some people may see the light, but, as a Japanese saying goes, “A nail that stands will be hammered down” and the CEO will not take notice. CEO could very well be the one hammering the nails.
Markets, Customers, Technology, Regulations: Where is it Headed?
Levelheaded trend analysis of markets, customers, technology, and regulations that is not biased by optimism is critical.
It’s rare to find a CEO who develops and illustrates company’s vision and strategy on their own. More often, the CEO will first completely delegate it to planning or some corporate group. One cannot be careful enough of the very common pitfall where the staff will bend the truth and present what the CEO wants to see.
This trend will be stronger for CEOs who make all sorts of complaints and demands based on numbers. This type of CEO may believe numbers are everything, but, there is great range of choice in collation, analysis, and interpretation of numbers. You can call a spade a spade, but it’s possible to play with numbers and turn it into a heart.
There are no malicious intentions. It’s natural for subordinates to analyze the state of the company and the environment the way the boss desires. Investigation and analysis to back-up a pre-determined conclusion does not allow you to break away from conventional thinking.
If CEOs just ask for something, the subordinates will only give them what they asked. Here, extra effort by the CEO is essential. For example, participate together in focus customer group interviews, discussion with executives of leading edge companies, or trips to key world markets to see and experience the new realities first hand. It is essential to develop common base of understanding to drive change.
How to Re-examine the Vision and the Strategy?
When the business environment changes drastically, the vision must adapt to the change. The CEO must clearly spell out what direction to head and where we want to be and accomplish 3 years from now, 5 years from now.
CEOs cannot develop a real sense of the situation only by discussing reports and plans developed by their subordinates. This leads to long meetings of disapproval and arguments. It does not lead to reviving the company. It is good enough for the CEO to initiate the effort and summarize the vision in a page or two using one’s own words.
To achieve this vision, one must re-examine the strategy to get there. The CEO must own this most important task. The vision can’t be just a dreamy idea. Only when how to execute on the vision is very clear, is it meaningful and will the people empathically embrace it. So stating in CEO’s own words both the new vision and the execution strategy to hand in hand.
If the CEO cannot describe the execution strategy to the new vision, adjust the vision and try again. With number of iterations, the vision and the execution strategy will become more coherent and together will shape a viable big picture.
In a few weeks, maximum one to two months, the CEO must develop the vision and the execution strategy that one completely owns and cannot stop thinking about around the clock. This task needs to be short and decisive as taking longer typically deteriorates and diverges ones thinking. Of course, this requires high sensitivity to information and acumen for analysis. Moreover, the CEO must take this challenge in ones own hands for it to be fruitful.
I am always helping CEOs with this challenge—re-examining, developing, and putting CEO’s soul into a clear vision and strategy in CEO’s own words. It takes 4 to 5 meetings with the CEO. This is because no matter how great a business leader, it’s rare to find a CEO, regardless of the size of the company, who can simply express their vision and strategy in a coherent way.
How Do You Let Everyone Know the New Vision and Strategy?
Once the CEO puts together the vision and strategy to which one can totally commit, it is shared with the management team for a few focused discussions. Time is of the essence and this should be completed in 2 or 3 overnight offsite meetings, for example, rather than taking weeks or even months to discuss.
Many CEOs would want to work with the management team from the beginning, but this will hinder the CEO from deepening their original thought process. Depending on subordinates may dilute CEOs commitment to the vision and strategy as if it were an experiment.
In some countries more than in others, CEOs tend to delegate such central management task—in Japan for example. Winning in this digital age where everything is globally connected demands CEOs to think on their own feet and act at the speed of thought to lead the business.
When the CEO exerts this kind of leadership, management team will imitate and follow. This in itself is important for the growth of the management team.
When the management directly reporting to the CEO agrees with the vision and strategy, then it’s shared with their subordinates and ask for their inputs. After that to the next level and so on throughout the organization. The CEO should lead this process down to the direct reports to business unit general managers. At that point, you may delegate to the GMs the responsibility to ensure that everyone in their organization embraces the new vision and strategy.
Management Innovation does not happen bottom up. The CEO must demonstrate ironclad commitment, override objections, and deal with pain to change the company in a short period. There is no other way to breathe new life into the company.
▼ 7keys to accelerate Management Innovation
The Seven Keys to Accelerate Management Innovation
Need to Unlock Seven Keys to Start and Accelerate Management Innovation
The First Key：Change Vision and Strategy, and Let Everybody Know
The Second Key：Rapid Improvement of Existing Businesses
The Third Key：Developing Multiple New Businesses
The Fourth Key：Management Innovation Team
The Fifth Key：Human Resource Development Committee
The Sixth Key：Innovation in Boss-subordinate Relationship
The Seventh Key：Positive Feedback and Active Listening