A few years ago a friend of mine asked me if I had any thoughts about a leadership team restructure he was contemplating. Instinctively I knew that I must have thoughts, after all, I’ve dedicated a big chunk of my 15-year professional career to helping executives set their strategies. Surely I must have some pithy advice on how to put those executives together into some kind of coherent order?
But I was stumped. And it turned out that I wasn’t alone. A magical mystery tour through my smartest colleagues turned up a few rules of thumb, but little in the way of theory. So I did what all management consultants do and turned to Google and HBR. Here again, I drew a blank. Although I found many interesting articles and opinions about aspects of executive leadership and governance, I failed to turn up anything seminal about structure and practices. Hell, I failed to turn up anything conceptual, let alone Executive Team Configuration For Dummies.
That was late 2018. After a short intermission brought about the birth of my first child I got down to researching this topic, talking to executives in a wide range of industries about how they think about configuration and, more recently, trying out some of the things I found out on some unsuspecting clients. In this post I’ll write in brief about the constituent ingredients of executive teams and the types of decisions they have to take. Future articles will look in more detail at how those decisions are made, where teams go wrong and how their structure and processes can be improved based on empirical evidence from case studies. My purpose here is to provide a framework to think about the function of the team, rather than to dictate a complete ‘by the numbers’ solution. My book, The Point Of Maximum Uncertainty, covers all of these topics in detail.
Executives teams exist to make three main types of decisions. For the most part, executives earn their keep making medium-term resource allocation decisions. These are for the most part subtle shifts of emphasis or direction that hope to improve performance over a three-to-five year period. Analysing corporate decision-making failures shows that executives are relatively expert in making this type of decision. If they are going to fail, they are most likely to do so in one of two modes: inadequate pattern recognition or failure to make meaningful trade offs with their peers.
Ascending to the executive table naturally requires great self-confidence and acute awareness of power dynamics. Executives are often astute at manoeuvring to gain advantage in the complex political environment of a major corporation. Giving up personal or divisional agendas for the greater good is typically a last resort as it reduces peer-to-peer and executive-subordinate power in a lasting manner. This natural resistance to meaningful trade-offs in matters of resource allocation leads to one of two worlds. Either every executive gets a relatively even share of resources in an average year and thus the organisation fails to create any real areas of advantage; or a particularly politically powerful or difficult executive receives an excess, which takes the organisation in an arbitrary direction.
The second area in which executives struggle with medium term resource allocation is in the area of prioritising their own agenda. Like all of us, executives have standout skills and experiences that shape their approach to problem solving. These qualities are what are being sought by those making hiring and promotion decisions. The challenge that comes out time and time again in my research is that those hiring are excessively shaped by the immediate problem that a particular function or division is facing rather than longer-term strategic issues. Most often this takes the form of managing a cost reduction process and a restructure. The reason for this is simple: it is unlikely that the previous incumbent of any particular role left it in rude health. People don’t move on when their mandate has been fulfilled and the task complete, they jump ship for a better offer, to change direction in life or because they are being pushed out. Fixing the mess and stabilising things often seems most important, leading to managerial, political and authoritarian skills being over-valued. Once the short term fix is implemented, those executives find themselves having to tip into an imaginative growth mode, with little support from the people they are leading. This is how ‘problem divisions’ form in organisations with performance spiralling down until they are shuttered or restarted.
Medium-term resource allocation sets an organisation up to respond to two other types of scenario: immediate crises, which play out in realtime and imaginative challenges that fundamentally alter the organisation’s long term ability to compete. Failure of imagination almost inevitably leads to immediate crises emerging.
The pandemic is the current elephant in the room of immediate crises. Without wanting to downplay how hard leadership teams have worked in this period and how well some have done against their peers, the pandemic has been a relatively easy crisis to deal with. Everyone has been in it together. Although some businesses have been better equipped than others either due to superior imagination and resource allocation in the run up or just old fashioned dumb luck, response has often been a shared endeavour. Governments have intervened, trade groups and traditional competitors have worked together against a backdrop of lightened regulation.
This leaves executives in a place where they can operate their businesses with a lightened load of strategic manoeuvre and even inter-divisional infighting. Some of the leaders I spoke to even found it a fun time. Hierarchy was stripped away, improving their understanding of the reality on the ground. Better still, they could immediately see the results of their actions without filtration. Horrible though the pandemic has been for us all, the worst crises, the ones that really kill shareholder value and even entire organisations are the ones that are exclusive. In these cases, the evidence from studying the death of organisations in the last decade and work by luminaries such as William Starbuck and Irving Janis shows us that when such crises present, the vast majority of executive teams fail.
The reason for this is rooted in the difficulties that executive teams face in dealing with imaginative challenges. These are problems for which the team has no obvious precedent to draw on in designing a response. A particularly classic example is the ‘memory crisis’ faced by Intel in the 1980s, in which competition with new Japanese enterprises, with wildly different cost points, sales tactics and end goals severely damaged Intel. The seasoned executives at Intel couldn’t accept the information they were getting about the new market reality because it differed from their worldview. It took a leap of imagination to accept what they were seeing and build a suitable response: to double down on microprocessors.
Talking with executives reveals a pattern: they typically wish they had more time to think expansively about how their market might change and dream up radical innovations, but they have too many other conflicting priorities. Executives are also reluctant to put half-formed or wild ideas in front of their peers. The executive calendar is already creaking under the strain of too many topics. Engaging in a creative discussion seems unprofessional - a waste of time.
Reprioritising the executive calendar to make time for creativity, to practice crisis response and learn to make trade offs is key to improving effectiveness in all three modes of decision-making. Where and how the team spends its time is almost as important a decision as their solutions to individual problems as it sets a long term strategic pattern. This pattern is both a clear example to the organisation about they should value and how they should actp
Drawing conclusions about the inherent effectiveness of the executive team that makes these decisions is complicated by the fact that there are many hundreds of role titles within S&P 500 and FTSE 100 executive teams, making comparison between teams tricky. As I read the role profiles of these executives (yes, I read the published job description of every designated executive officer in the S&P 500 and FTSE 100… now you see why this took three years) some common threads began to appear. Executive roles can be distilled down to four major archetypes.
The bulk of executives perform either Revenue Creation Roles, responsible for taking the organisation’s products and services to market; or Platform Operation Roles, which run the processes that enable those services to be delivered. Leaders of brand, segment and geography-based divisions fit into the former category, as do go-to-market leaders such as Chief Marketing Officers and Chief Sales Officers. The Chief Financial Officer, President, Chief Operating Officer, IT leadership and many, many other types of operational leader fit into the latter.
80% of executives on a typical leadership team fulfil either Revenue Creation or Platform Operation Roles. Around them are two other types of executive, those in Strategic Roles, who look ahead and plot a long term course in uncertainty and Protection & Mitigation Roles, which exist to defend the organisation against the consequences of egregious behaviour it perpetrates or is victim of. A good CEO, the Chief Strategy, Innovation and Digital Officers generally fill Strategic Roles. The General Counsel, Head of Communications and similar leaders are responsible for Protection & Mitigation.
My analysis suggests that the average corporate executive team has ten members. The mix of Revenue Creation and Platform Operation depends on the industry, but few organisations deviate far from having eight of these types of executive, supplemented by one strategically-focused leader (generally the CEO) and a Protection & Mitigation specialist (typically the General Counsel). Analysis of dozens of case studies of corporate failure from Nokia to Circuit City to Compaq to Lehman Brothers shows that their executive team structures were in fact broadly similar to peers who survived the same periods of crisis.
This leads many observers of corporate failure to single out individuals on those teams as incompetent. My research suggests otherwise. Even Nokia’s Stephen Elop, pilloried as ‘the World’s Worst CEO’, was very successful in his previous role with Microsoft. John Antioco, of Blockbuster fame, was a brilliant turnaround specialist whose hiring was regarded as a coup at the time he joined that ill-feted company. Likewise Carly Fiorina, who oversaw HP’s (initially) disastrous acquisition of Compaq was regarded as a high flyer with exactly the right skillset for a stale product business pivoting into services. Although the outcomes they achieved were poor in particular circumstances, that does not detract from their overall skills as executives. Only in a few cases did I see genuine incompetence.
What goes wrong for these executives is instead their suitability for the context of their new roles. In a 2011 essay, Ben Horowitz described the difference between organisation leadership in wartime - times of strategic crisis - and peacetime. In the latter, executives have the luxury of time to coach their direct reports and to work through them to achieve outcomes. They can be thoughtful about how they build capability for the future. In times of existential crisis leaders do not have these luxuries and must at times act like autocrats, making low level decisions and in some cases taking decisions that will cause long term problems for short term survival. Crisis requires decisive, even divisive leadership and abhors management. Peacetime is more accepting of vagueness and exploration of grey areas. Management is less obviously harmful in this environment.
Returning to the examples, Stephen Elop was a great steward of Microsoft’s Office division - the very definition of peacetime. Carly Fiorina was a brilliant sales leader with an incisive view of the and a brutal level of focus on getting there. But HP was a peacetime organisation with no evident burning platform and her failure to effectively delegate the many tasks required to integrate Compaq made that strategic play a failure. Mark Hurd, a more peacetime leader succeeded her, created stability and turned the acquisition into a success.
This leaves two axes for diagnosing the makeup and suitability of an executive team for its context. First, the balance of executives between identifying structural threats and opportunity (strategic roles), execution in market (revenue creation) and operational consolidation (platform operation). Second, the dominant ethos of the executives in each position - are they best suited to creating stability and developing long term capability or leading from the front and accepting imperfect solutions? Getting too comfortable with the status quo is clearly suboptimal, as is populating every position with change-crazed barbarians. Although the latter sounds like it might be fun for a while.
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