(By Ram Charan)
“As a rule, CEOs don’t give enough attention to setting goals. The greatest mistake they make is to look in the rearview mirror at what they did last year or at what their competition did. The brilliant decision-makers look at the runway ahead.“
CEOs face countless decisions. The best executives understand which ones they need to focus on and which ones they can delegate. While the obvious decisions that CEOs need to get right involve strategy and competitive advantage, too many executives delegate away three critical decisions that they need to own: decisions about goals, resource allocation, and people.
Goal setting: As a rule, CEOs don’t give enough attention to setting goals. The greatest mistake they make is to look in the rearview mirror at what they did last year or at what their competition did. The brilliant decision-makers look at the runway ahead.
Resource allocation: These decisions are big because some competitive moves need disproportionate resources. When resources are allocated from the bottom up instead of from the top down, they get out of sync with what the senior team is trying to accomplish. At many companies the total cash investment in acquisitions, R&D, and fixed assets has not earned back its cost of capital after adjusting for the time lag in realizing incremental benefits. That outcome reflects the wrong allocation and/or ineffective execution. Some activist shareholders are finding gaps in CEO performance by doing this calculation.
People and Organization: In late 2010, GE CEO Jeff Immelt decided to give country managers P&L responsibility for all of GE in their countries and have them report to vice chairman John Rice, who would be stationed in Hong Kong. It was the first time a vice chair would be based in an emerging market. It reflected the reality that a lot of GE’s growth will be coming from the developing world, and the leaders have to be there. As Keith Sherin, then GE’s CFO put it, “This is where the growth is. We are shifting our center of gravity.” Such decisions might be unpopular and break a lot of traditions, yet they set the future course of the company. Decisions to displace people are even tougher, yet when I studied 82 CEOs who failed, I saw that the most common reason for failure was putting the wrong person in a job and then not dealing with the mismatch. Most of the time CEOs know in their gut when someone is not fit for the job, but they don’t do anything about it. It’s hard to admit the error, or they have a psychological bond with the person or think they can coach him or her. Sometimes it’s a matter of misjudging performance because they don’t dig into the causes. Today most if not all industries are impacted by digitization—mobile technology, big data, and the like. It has a tremendous effect on which people are more critical than others.
One CEO of a large Indian company has been bringing a lot of younger people into senior jobs because of their digital experience. It’s been hard for him to bypass some long-serving executives, but he had the spine to make those decisions. Great decision-makers stay on top of these three areas, because these are the three areas that have the most impact on whether or not your strategy will be executed. Don’t delegate them away.
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