Mette Norgaard is an expert on strategic leadership and learning. Among her many activities, she serves on the faculty of the Center’s Higher Ambition Leadership Initiative. The following are Mette’s reflections on the recent Center for Higher Ambition Leadership CEO Summit. The post has been translated and adapted, with her assistance, from an article she published in Danish in Dagbladet Børsen, a leading financial newspaper.
“How do you adapt the (organization’s) culture to absorb aggressive growth?” asked the CEO of a Fortune 100 company perched to increase its revenues by several billion dollars. We are seven people in the room, four CEOs and three experts. The most senior has been at the helm of a Fortune 500 company for more than 20 years while the “youngest” has been in a similar position for less than a year.
Culture is a common theme in our discussion. Another participant shares that when choosing the key players for the executive team, “Nothing says more about your values than the first person you hire and the first person you fire.” Another adds, “If the board is interfering too much in your strategic process, you have to tell them to look for another CEO.” None of us remarks on the modest facilities at this small New England college. We are absorbed in sparring on real-time challenges and sharing hard-earned lessons.
The setting is a breakout session at the Center for Higher Ambition Leadership’s annual CEO summit, a day-and-a-half gathering of more than 30 chief executives, two chairmen of major company boards, a governor, and selected academics, private equity investors, and expert advisors (my contribution being leadership). This year’s topic is how to deal with the tension between meeting short-term demands and building long-term success. As is true each year, participants are looking to advance a research-based understanding of what it means to be a higher ambition company, one that seeks to do well and do good.
While many executives complain about “quarterly capitalism,” research presented by Harvard Business School Associate Professor George Serafeim suggests that executives themselves may be the cause. Serafeim and his team probed for the roots of the commonly expressed frustration about a perceived need to focus on short-term earnings to raise share price even when it comes at the cost of long-term growth.
They analyzed four different sectors by looking at annual reports and examining transcripts of sell-side analyst calls. They found that it is more often analysts who are seeking a compelling and credible vision of a corporation’s long-term strategy and goals than CEOs offering one. A surprising number of top executives did not speak about strategic direction in their prepared remarks on analyst calls. Rather these issues would come up in the Q&A, usually brought up by analysts.
As they dug deeper, Serafeim and his team found a small subset of analysts—the top-ranked analysts by industry—were responsible for the long-term conversation. In one industry, for example, these top analysts comprised 13% of the total yet asked 44% of the long-term oriented questions. And it turns out that the CEOs who do address long-term strategy are the ones whose firms attract long-term investors.
Superior Operations Lead to Superior Results
A second big hit at the summit was Zeynep Ton of MIT who presented her research on the “good jobs strategy.” This tested and proven approach delivers good wages and treatment for workers, strong margins for investors, and low prices as well as excellent service for customers. The strategy begins with superior operations and a mindset that people are not a cost that must be cut.
Retail is a particular area of interest for Ton. Retailers suffer from myriad operational problems such as 25-30% phantom stock-outs (“according to the system, we should have it”). There is a 50-50 chance that customers know more about limited time promotions than then employees. Up to 65% of SKU (stock keeping units) have errors such as the wrong price. All of these frustrate customers.
Ton’s research interestingly reveals that the low-cost retailers with the highest customer loyalty do not give customers everything that they want. They beat the competition with fewer products by offering stores that are well-staffed with well-trained people who know the stock and how to serve customers. They maximize efficiencies and adapt to customer needs. They are actually able to invest more in employees and still achieve lower costs.
How can we use this knowledge to better steward both the short- and long-term needs of the business? Focus on a higher ambition. Understand the value of a strong culture. Dare to make counter-intuitive strategic decisions – and tell the story. Before we said our goodbyes, George Serafeim said that we get the investors we deserve. For higher ambition companies, this is good news.
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