Change is difficult — and managing through it might even be more challenging. Yet, with today’s pace of change, CEOs have no choice but to be even more aggressive with their change efforts in order to stay competitive. To successfully lead their companies through change, today’s CEOs must take four actions: 1) Prioritize what matters most; 2) Invest in building trust with your stakeholders; 3) Simplify your portfolio; and 4) Prepare for shareholder activism.
Every year I have the privilege to meet with hundreds of CEOs and leadership teams to discuss their business. In the past year, nearly every leadership team I’ve sat down with is grappling with the need to make changes and drive transformation.
Inflation, geopolitics, supply-chain issues, labor costs, divisiveness, unsettled equity markets, and stakeholder expectations seem to “change the game” daily. These factors all make for uncertain times. Leaders are looking at their initiatives and broader business plans and exploring where adjustments and even larger changes are needed. In recent months, many CEOs I’ve spoken with feel as if they are focusing more on “downside risks” than “upside opportunities.” And leaders seem a little less confident and more skeptical about where the economy is headed.
The CEO as Chief Change Officer
Leaders are right to observe the changes afoot and recognize the need to manage through them. While the upside opportunity may not always be clear, it is definitely time to lean into change. Today’s pace and complexities will not wane; in fact, I predict they will only intensify. The leader of the (near) future must focus on how to change ahead of pace and how to bring their people along with them.
However, that is much easier said than done. Change is difficult, even when you’ve invested in large initiatives and put in the time and resources to align your operations and communicate to your people. The types of changes we see right now run the gamut and include: integration and breaking down silos; changing operating models to drive revenue growth and efficiencies; automating for efficiencies; and moving to the cloud to drive new revenue streams.
To be successful in this evolving environment, a CEO not only has to change their organization, they also need to be highly skilled in leading people through change. This requires four actions:
1. Prioritize, prioritize, prioritize.
Agility is key in the shifting landscape. Engaging in scenario planning around key issues (think: China, Covid-19, supply chain, price elasticity, inventory levels, and other common boardroom topics from the first half of 2022) can help leaders position their organization to pivot quickly in a new direction when needed. Too many priorities are the enemy of focus and run the risk of doing a lot of things poorly or “just okay.” Even if it means pulling back on initiatives or pivoting the mindset of the company to focus on the right things, leaders have to prioritize what matters most to their stakeholders and do it well.
2. Invest in trust.
Trust is one of the most valuable assets a company can have during these complex times, and businesses are being challenged again and again on their trustworthiness.
Today’s leaders may overestimate how much their businesses are trusted by employees and consumers. In our recent survey, Trust, the New Currency for Business, we found a trust perception gap with businesses among both their employees (15-percentage-point gap) and, to a larger degree, consumers (a 57-percentage-point gap).
Leaders may also overestimate what actually drives trust. While businesses are investing in training, controls, policies, and disclosures, with the intent of staying compliant with laws and regulations, this is only the beginning of maintaining trust. Stakeholders are also looking to businesses’ answers to questions like “Are we doing the right thing on diversity, equity, and inclusion?” or “Are we doing everything we said we would do surrounding the environment?” Businesses also have to look at the appropriateness of their algorithms, as well as their privacy and data policies, and other topics that will drive both value and improve trust. It’s on those deeper questions where companies’ processes often fall short, but expectations will only continue to rise.
3. Simplify portfolios.
During disruptive times, it’s often good to take a step back and ask whether the businesses in the portfolio make sense or whether some businesses are better owned by someone else. A more streamlined portfolio underpins an organization’s ability to stay agile and increases the likelihood of successful transformation.
4. Prepare for shareholder activism.
Another reason for objective portfolio analysis is the rise of activist investors. Some CEOs and boards are objectively “looking themselves in the mirror” to challenge established strategies and execution results to ensure that they are not prone to an activist’s target. Companies benefit from aggressive role playing and analyzing what activist investors would be looking for. Sharp and direct questions such as “Are our results as strong as our peers?” or “Are our transformation efforts paying off?” can help leaders ward off activists.
CEOs are also talking with their boards more about alternative strategies or perspectives on results to avoid surprises. The discipline of the discussion, as well as the objectivity of the process and judgments, are an area of improvement for many companies — and absolutely a skill to refine before an activist shows up.
Asking the difficult questions
It takes time, intentionality, and focus for a CEO and leadership team to become highly skilled in leading change and creating differentiation. It also takes a willingness to objectively, substantively, and persistently ask basic, but important, questions. For instance, leaders must ask themselves, “Is the executive team truly aligned around the change effort and outcomes?” and “Have we confirmed that our people and line management understand how their role will change after the change?” Today’s pace underscores the importance of continuously mining for this data to help refine efforts and confirm your team is well supported.
Again, change is difficult — managing through it might even be more challenging. Yet, CEOs have no choice but to be even more aggressive with change efforts in their companies to simply stay competitive. This is the time to lean into change to drive more differentiation and thrive.