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Two year manager

04/05/2015 08:24, autor Mateusz Chołaściński

In a corporate world, everybody has a boss. Not as in the ‘customer is our boss’, used so extensively by Corporate Affairs teams in internal communications, but rather the person who gives you the push if you don't deliver. In most cases where specialists and mid- managers are concerned, it's relatively easy to identify the boss – to spot that one specific individual - but even those untouchable spirits who fly self-confidently across the office to shed their wisdom on the team and end up with their name-plate across the door of their personal office (with a fabulous view of course) are subject to someone's judging eye. “I’m the CEO” should be followed by “well, to be more specific, I’m the CEO of this part of the empire.” From time to time, it may also happen that the decision is taken to let the CEO go. In many cases this significantly enhances the team’s motivation for it indicates that this wise guy was really one of us, he only acted like a god (and that sometime in the future we too could be fired from the CEO position!).

The ultimate question is this: what does 'to deliver' mean? Deliver what exactly? If only we knew what the boss of the boss of the boss would like to see when the performance review is due! The easy answer is cash profit, as this is what pays the dividend to the owners. But those same owners look for sustainable profit perspectives and try to judge whether to hang on to their shares for longer or perhaps look for other opportunities. So to deliver is to convince the stock market that the period of prosperity is to last for years, and that profits are definitely going to grow. There are some obvious cases where reality reflects the message sent to the owners – emerging markets hungry for new brands and even products, or innovative businesses that really identified (or better still – created) a consumer need and have a real offer value advantage. But most of us do not work in places like this. If we do – it's hardly likely to last forever, as emerging markets mature, innovative businesses grow extensively and lose their edge. Sooner or later, almost every business needs to admit that growth comes at a price and we really need to think hard about how best to deliver it. Strategic planning provides a good set of tools. It’s always the market (consumer/shopper) we should look at, create the products they need and outsell the competition. The method is straightforward – if we offer more value for money we win. The real value creation process takes time and roughly covers a strategic plan horizon, i.e. 3-5 years (in FMCG). We design the product or service, we launch, communicate and prove for a while that we're serious. And here the problem arises. If the CEO (this applies equally well to any other board function) were to remain in place for the entire strategic plan horizon – they would have the chance to inspire and sponsor development, ensure the right funding for communication support at launch and to sustain awareness, and let the idea be evaluated by the market. This long period would provide a unique answer – a good CEO or a bad CEO, since accountability is clear and linked with exactly the services/products that this particular CEO delivered.

In real life, CEOs stay in one place for 2 years and then leave to manage a different part of the empire. And the same general pattern is repeated everywhere.

The first month after arriving is the welcome drink – settling into the house/apartment, car, office, chatting with the management team. The second month is discovery and time to make the first decisions – almost all the things the company is doing were initiated by the former boss. A different view of the market, not fully understood by the executors left in the business, has no chance of success. Freshly launched innovations generate costs, not profit, so the new CEO thinks “at least we should make them hit the break-even point.” Let’s have a look then at the core offer – “Why are the prices so high? No wonder there is a double digit decline on it. The customers are so loaded with our product that there's sufficient stock for two months” (this statement mainly applies to manufacturers). “How do we expect to sell anything more if there is simply no consumer demand? We need to sacrifice next month's sales to get rid of it, and keep stock in the market at a safe level.” Cleaning done.

The third month is the ‘back to attack’ planning stage. After the issues have been identified and communicated to the corporate CEO (“...and by the way – this fiscal year is lost, we won’t deliver, our employees won't get their annual bonus, salaries will be frozen ”) the planning stage begins. The following year's results must be better than the current year's (“so you'd better get back to work you bunch of slackers.”)

The following quarter is the rapid learning and action phase. Run end-customer (consumer, shopper) research, strategic sessions with external consultants, an increased marketing budget is planned as the core products lose their appeal and innovations (“Yes! There will be innovations, but only the right ones.”) need advertising. It’s all running smoothly at the planning stage, trust increases, the new vision drives action. “The year ahead will deliver increased sales because we know how to do itThe same year will, however, deliver minimum profit growth (or none at all), but we need to re-launch the business. It costs, but we need to invest to gain momentum, profit growth will come the following year.”

The promises work for a while. Reduced prices boost the sales level, increased advertising supports it. But the new products do not strike the market as planned. The ones that entered do not grow as quickly as we had assumed. “But we keep profit neutral, and deliver some topline growth.”

The second year under the new management is the awakening. Usually the business learns (as it does every two years) a painful lesson that (a) the old products/services growth slows down. Awareness is high, the price now looks optimal, but it’s hard to feed an old elephant and hope it’s going to grow ; (b) new products, as they enter the market do not add up to the forecast (the consumers failed to respond, again?).

It’s quite amusing how the right approach at the beginning usually turns into bad decisions at the end. All the foundations are forgotten, and short-term goals are now what the company is looking at. Let’s call it the facelift phase. The real motivation behind the decisions for this phase is that the majority of the board are to remain in the business a while longer, and they feel the need to show some progress eventually. The CEO can already sense they are on their way out, but the next career step depends heavily on the final impression made. The official justification given to the company is that “we do serious business here”, meaning:

  • “We cannot afford to sell on negative profit.” Action: cut marketing
  • “We need to take hard decisions in hard times.” Action: increase prices on core products, assume competitors will follow
  • “We need to sell, without topline growth we cannot generate profit anyway!” Action: spend the money saved on advertising on trading with customers (discounting), to push as much volume onto the market as possible before the year is out

Not hard to guess that the next phase is the farewell party. And the welcome drink for the new CEO. So, where’s the company at now?

In reality, this bad pattern is rarely observable with all its morbid elements. But in each “two-year-manager” company it happens to some extent. I believe successful businesses are, well, successful because of their management cycle which covers the typical strategic planning horizon and the product lifetime much better. Personal accountability is taught as one of the basic leadership practices. No wonder the business fails if the basics are not applied to the top management. The ultimate question here is why this happens in some companies over and over again. No CEO should be appointed randomly, so there ought to be enough trust in this person to let them stay and consume the market's evaluation of their decisions. There should be sufficient patience to wait for the turnaround to happen. If there is no patience and the boss of the boss of the boss loses trust in the CEO too quickly, all the hard work is gone. So, who exactly is this ultimate boss anyway?