Saturday, November 22, 2008

Core Competencies of the CEO

What is required in a CEO in order to be successful? What enables the CEO to lead their company and drive profitability and company value in times of economic downturn?

CEO turnover continues to rise dramatically and this is especially apparent in times of market slowdown. CEOs are in office for a shorter and shorter time. A Booze Allen study in the 2,500 largest market cap companies has shown that in a decade, the average tenure has been cut by more than 2/3rds from 9.5 years to 3 years and the turnover is less and less at the CEO’s choosing. The non voluntary reasons for leaving have skyrocketed from 27% in 1995 to 70% in 2006. Now in 2008 with the crisis in our economy, the rates have grown even higher.

The reasons that CEOs are forced to leave are typically because they are weak at some of the necessary competencies and often have not been evaluated on them when they assumed the job. The difficulty in the CEO position is that a CEO needs to be fairly well rounded in a wide range of competencies. Flat spots will show up and can be disastrous.

What does a well rounded CEO look like? It goes without saying that leadership is a core competency and here are 10 additional best practice core competencies for CEOs:

1. Vision - The CEO, possibly with the help of his executive team, creates and communicates a compelling and inspired sense of core purpose. This is based on the vision of the future, not the reality of today.

2. Strategic thinking- Once the vision is created and understood, it is essential to put together a workable plan to get from current to the desired goal. The effective CEO can see ahead clearly and anticipate consequences and trends accurately, has broad knowledge and perspective and can translate this into a plan based on key strategies that will provide long lasting progress for the company.

3. Culture – The CEO is responsible for creating and maintaining the desired culture and environment. If vision is where the company is going, culture and values tell how the company gets there. Values outline acceptable behavior. Work gets done through people, and people are profoundly affected by culture. Culture is built in many ways, and the CEO sets the tone. His every action—or inaction—sends cultural messages.

4. Communication. This skill goes further than being able to articulate the company's values and vision. It is about aligning people to the right direction and the specifics of their role in driving the business forward.

The CEO must communicate effectively not only internally but externally too with the Board, the financial community, customers, suppliers and the community. Some may argue that effective communication with the Board is the primary core competency. Weakness here is certainly going to be trouble.

5. Building an effective executive team - Getting a management team and different functional areas in concert and working together is an important skill. The CEO's responsibility is to manage the business in such a way that departments and individuals work together to fulfill the vision. That requires putting the right team together, motivating them and providing development opportunities so that they grow as the business grows and they can handle increased responsibility. A CEO needs to be focused on how to optimize people.

6. Business acumen - The CEO must have the following attributes:
- Knowledge about trends, practices, and policies affecting the industry and business.
- A firm understanding of competitors and a good grasp of effective strategies and tactics that work in the marketplace.
- Continuous learning: A quick, relentless, and versatile learner. Can analyze both successes and failures and learn from the experience.
- Ability to sift through vast amounts of information, solicit opportunities and possibilities, and communicate effectively to others.
- Ability to blend intuition with analytical skills.

7. Flexibility and handling risk - The CEO has to embrace ambiguity and uncertainty, coping with and embracing change and using it to the advantage of the company. They are able to act without having the total picture and able to adapt to dynamic environments with ease and speed. CEOs take and manage appropriate risks and use them to the organization's advantage.

8. Customer focus - CEOs have a clear understanding of customers' needs, preferences, interests, timelines and decision-making criteria. Focusing on meeting those needs and doing so profitably means success for both the company and the customer. Long-term customer satisfaction builds loyal, repeat customers.

9. Financial acumen. While much of this often falls to the CFO, the CEO must have solid financial acumen, such that they understand the key leverage points in the Income Statement and the Balance Sheet as well as the critical aspects of ensuring short-term cash flow and long-term profitability. It is often said that cash is king and certainly cash flow is key to success.

10. Use of current Best Practices. This does not mean jumping on fads but rather the ability to capitalize on technology, outsourcing, managing the remote work force, and social networks for example. Included in this would be identifying and using resources such as specialists, consultants, etc. The great CEOs have always been able to bring in the right people at the right time to help drive profitability.

The CEO’s job is not an easy one. It is complex and calls for multiple skills. As you review the list above, how well do you meet the criteria? How does your CEO?

We can help. Contact us for best practice profit drivers from the above set of CEO Core Competencies. We can bring the earlier articles on this site to life and make the impact specific for you. See number 10 above again.



John Maver
Maver Management Group
(925) 648-7561
Maver Management

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