The 5 reasons why 96% of CEOs cannot achieve top performer results
Why CEOs fail to achieve top performer results is different from why they fail or are forced to step down, resign, or retire.
by Douglas Swallow on December 16, 2020
Why CEOs are unable to achieve top performer results?
The highest CEO performance classification is top-performer. This category is for CEOs who consistently achieve net income percentages 40% above their industry and size of company average. Based on the current all industry NYU Sloan Business School database’s average of 8.1%, a top-performing CEO is anyone that achieves a 11.34% or higher net income percentage. Today, less than 1% of Fortune 500 company and 4% of all CEOs achieve this threshold.
In 2019, according to Christmas, Gray, and Challenger, U.S. companies had their highest level of turnover in the top spot in history at 1,640, a 12.9% increase over the previous record set in 2018. On top of this, according to the Harvard Business Review, 40% of CEOs fail within the first 18 months.
Why CEOs fail has been the focus of countless articles, books, and Q&As with CEOs and the world’s leading executive recruiters. Why they fail is an important question, but maybe an even more important question is why are 96% of our smartest, most experienced, technically competent, and highest-paid leaders unable to achieve top performer results?
The real answer to why they fail lies not in why they fail but rather in what inhibits them from delivering top-performer results. So, let’s take a look at what inhibits CEOs from achieving net income percentages 30% above their industry and size of company average.
The five reasons
For over four decades, I have been working closely with CEOs of all sizes of companies. All be it, the cowboys of CEO world – developers, like Donald Trump to the biggest names in production homebuilding. The ones who aren’t playing with the house’s money like most CEOs. No, these guys and gals have to sign personally for every dime their company borrows. When these lose, as they did in 2010, they don’t walk out with tens or even hundreds of millions of dollars in severance – they walk out with nothing, literally nothing.
At the start of the great recession, I had nine CEOs who had spent decades creating wealth for the equity partners and themselves. Every one of them had their bank accounts liquidated, which ranged from 4 million to 64 million dollars. Needless to say, it can get a little intense at times.
I have seen everyone one of the character flaws discussed in the leading periodicals and books. And with those flaws, I have seen CEOs achieve net income percentages in excess of 30% above the industry average, time and time again.
Twenty- five years ago I developed a strategy mapping system based on the discovery that all organizational strategy maps are identical in form an function to human DNA. The development of the supporting DNA profiling technology revealed companies don’t need to be born with great DNA to be a top performing company. Organizational DNA can be engineered.
This body of work also led to the five reasons why 96% of CEOs are unable to achieve top performer results in highly competitive industries. They are:
1. Use of a non- to moderately competitive market oriented strategic platform
2. Inappropriate prioritization of their seven core responsibilities
3. Unaligned strategic, tactical, and operational time allocation strategy
4. Incomplete CEO dashboard and suite of business navigational systems
5. Inadequate workforce performance capability index
Use of a non- to moderately competitive market-oriented strategic platform
There are five degrees of market competitiveness: non-, low, moderate, high, and trauma. The optimal performing strategic platform for each is different. The number one reason 96% of CEOs are unable to achieve top performer results is their strategic platform, i.e., their DNA is internally and or externally unaligned with the degree of market competitiveness in which the company is operating.
An unbalanced focus on the 7 responsibilities of a CEO
1. Achieving commitments, i.e., the business plan
2. Protecting shareholder value and equity
3. Optimizing growth
4. Maximizing net income
5. Being fiscally responsible
6. Decreasing risk
7. Increasing organizational performance capability
The order in which they are stacked ranked dictates a company’s focus, actions, and outcomes. Owners, Boards of Directors, Wall Street, Lenders, and CEOs tend to stack rank them differently. How top-performing CEOs rank them is different than non-top performing CEOs.
How would you stack rank them? I’ve asked this question countless times. Regardless of the person ranking them in order of importance, all but one category of those surveyed consistently ranked increasing organizational performance capability dead last. The one category that did not was top-performing CEOs. They consistently ranked it in the top three.
Why? Because ironically, if a company increases its performance capability, all of the other core responsibilities elevate. It is the only one of the seven core responsibilities that has this capability.
One of the most notable CEOs to place increasing organizational performance capability in the top three was none other than the late Jack Welch. The former CEO of the G.E. and considered by many to be the #1 CEO in the world in the 1980s and 1990s. He understood the primary driver of success in highly competitive environments is an organization’s human elements’ performance capability.
Unaligned strategic, tactical, and operational personal time allocation strategy
In the 2010 movie “A-Team,” the lead character Colonel Hannibal Smith, played by Liam Neeson, said this about time, “give me a minute I’m good, if I have an hour, I’m great, you give me six months, I’m unbeatable.” Time is one of the CEO’s most important assets, how they allocate it, even more so.
A CEO’s time allocation strategy is not a factor in the achievement of the highest category of results in non- to low-competitive environments and somewhat in moderately competitive ones. However, in a highly competitive environment, a CEO’s time distribution strategy, i.e., the percentage of their time they spend between strategic, tactical, and operational issues, is critical.
In highly competitive environments, a CEO’s time allocation distribution strategy dictates the level of success they will achieve and where issues will arise. Spend too much time on strategic issues, growth slows, and operational issues arise, as was the case with Apple’s third CEO, John Scully, whose board cited this very issue as the reason for his termination. According to Albert Eisenstat, an inside director at the time, in a lawsuit said, he “was not focused on the day-to-day operations of Apple, other than on its technology.”
Spend too much time on tactical issues, such as acquiring companies, entering new markets, expanding existing markets, positioning the company to be acquired, raising equity, driving new product and service innovations, securing better raw material provider relationships, developing more favorable legislative positions, and strategic platform alignment drift and operational issues emerge. Spend too much time on operational issues, and opportunities in the strategic and tactical realms get missed.
Of all the indicators that reveal the path an organization is on, the most revealing is the CEO’s percentage time distribution strategy. Although variations occur due to unforeseen circumstances, optimal CEO time distribution strategies vary by degree of market competitiveness.
Non-competitive: 5% strategic, 75% tactical, and 20% operational
Low competitive: 5% strategic, 70% tactical, and 25% operational
Moderately competitive: 20% strategic, 50% tactical, and 30% operational
Highly competitive: 35% strategic, 35% tactical, and 30% operational
Trauma: 60% strategic, 5% tactical, and 35% operational
What is your typical time allocation distribution?
Strategic: _____% Tactical: _____% Operational _____%
Each degree of market competitiveness requires a specific amount of strategic, tactical, and operational time to produce top-performing results. In highly competitive and trauma environments, the amount of time in each typically exceeds the number of available hours, thereby prohibiting the best and brightest CEOs from achieving top performer results.
CEO dashboard and business navigational systems
A CEO’s dashboard and business navigational systems are to a CEO what a carpenter’s toolbox is to a carpenter. In the right hands, the better toolbox, the better the results.
The fourth reason why 96% of CEOs fail to achieve top performer results is their use of a non-highly competitive, market-oriented CEO dashboard and set of navigational systems. They simply do not have the tools and technology necessary to identify emerging shifts in the market, make the right tactical moves, or identify and resolve operational issues before it’s too late.
In particular, there are three elements of a CEO’s dashboard and business navigational system the inhibit their ability to perform optimally:
1. Absence of top-performing CEO dashboard
2. CEO business plan-based workgroup performance status reports
3. Non-highly competitive, market-oriented strategy map
CEO dashboard and business navigational systems are comprised of four elements: reports, meetings, manuals, and employee performance management systems. Collectively, they dictate the clarity with which boards of directors and CEOs see what is going on or not going on in their company and externally in the markets they operate.
Organizational strategy map development and analysis found the number of instruments on the dashboards of top-performing CEOs was very different from the number of non-top performing company dashboards. Top-performing CEOs dashboards had over 50% more instruments and tools.
The CEO dashboard and business navigational systems taught in most MBA programs are comprised of 20 instruments and systems. They include:
1. Business plan
2. Financial reports
3. Economic and industry status reports
4. Sales reports
5. Compensation and risk management studies
6. Primary resources acquisition reports
7. New project schedules and variance reports
8. Logistics, production, and inventory reports
9. Customer satisfaction reports
10. Market and competitor reports
11. Quality control and warranty reports
12. Legal issues perspective
13. Standard meetings schedules and summaries
14. Marketing reports
15. Public affairs reports
16. Procurement reports
17. Product positioning reports
18. Organizational charts, job descriptions, and headcount reports
19. Manager and employee performance and development evaluation reports
20. Policies and procedures manuals
Top-performing company CEO dashboards and business navigational systems include the original 20 plus the following:
1. Advanced market analytics and value orientation positioning
2. Political and local knowledge reports
3. Environment and supply chain reports
4. Customer analytics
5. Written business models
6. Color-coded key performance measures (KPM) reports
7. 3rd and 4th generation staffing platforms
8. Company and departmental playbooks and “sandbox” rules
9. Process maps and related performance reports
10. Published code of ethics, diversity, and harassment programs
11. Workforce and vendor fit and performance capability charts
12. Best practices report
There are three categories CEO dashboards and business navigational systems. Each is based on a comparison to an aviation dashboard. The first is the Cessna level CEO dashboard. It is comprised of the essential instruments.
The second is the 737 based CEO dashboard.
The third is the space shuttle flight deck.
The first is designed to equip a pilot with the information they need to know to fly at 125 mph, the second 550 mph, and the third 17,500 mph. Flying a Fortune 500 company in a highly competitive environment has been compared to flying the space shuttle.
The level of CEO dashboard and navigational systems a company needs are based on two factors: the company size and the degree of market competitiveness. The larger the company and the more competitive the environment, the more comprehensive its CEO dashboard and the navigational system it needs to achieve top performer results.
The level of CEO dashboard and business navigational system a company employs are determined through an instrument checklist. A contributing reason why Fortune 500 company’s CEOs are unable to achieve top performer results is because of the absence of a highly competitive market-oriented CEO dashboard and business navigational systems checklist.
By the way, the insertion of a CEO dashboard and navigational systems module into the CEO selection process is profoundly revealing. It reveals a candidate’s understanding of the information they need to achieve top performer results in a highly competitive environment, and to the candidate, it shows the degree to which they will have the ability to achieve top performer results or be prohibited from doing so.
The second element is the absence of the instrument that equips selection committees with the ability to determine the depth of strategic, tactical, and operational knowledge and the “naturals” key performance measures within each discipline. The instrument is called The “Naturals” Benchmark Report.
Most workgroup status reports and dashboards are derivative business model-based. They are largely comprised of key performance measures as defined by the CEO and or executives who are not top performers in the department, discipline, or craft in setting performance standards. These dashboards equip CEOs with the ability to monitor business model derivative data and determine the macro level at which each group is performing. However, they fail to reveal what’s really going on in a workgroup.
Top-performing company workgroup performance status reports are different. They are based on what I call, The fifteen most embarrassing questions. The fifteen most embarrassing questions orientation focuses on the questions, and key performance measures the top 1% in a discipline track. The “real” measures reveal how each element of their discipline is performing and what is going well and what is not.
Virtually any CEO candidate can recite the generally accepted key performance measures for each discipline. However, very few know the “real” key performance measures that consistently delivery of top performer results by discipline.
Employing top performer-oriented workgroup status reports provide boards of directors and their CEOs with benefits. The first is they equip CEOs with the ability to navigate the company more effectively and achieve their business plan. Secondly, they equip selection committees with the ability to determine a CEO candidate’s depth of knowledge and understanding of the primary drivers of top performer results by discipline. The third element is the absence of a degree of the market competitiveness-oriented strategy map. These maps list every major strategy a company employs and graphically display them to reveal how an organization thinks systematically. The absence of such a map prohibits a board of director’s selection committee from determining the strategies a CEO candidate embraces, would change, and feel are critical to the company’s success.
A walkthrough of a company’s organizational strategy map with a candidate reveals countless insights into how they think. The two most important of which are the degree to which their thinking aligns with the primary shareholders. The second is their depth of knowledge about the strategies that lead to superior results in highly competitive environments.
Inadequate workforce performance capability index
The fifth reason is an inadequate workforce performance capability index (PCI). Every company and business plan has one. The reason many CEOs are unable to achieve top performer results is these two don’t match.
Jim Collins’ in his book, Good to Great, said the secret to becoming a great company lies in “getting the right people on the bus, wrong ones off, and the right ones in the right seats.” Arguably, more than any other factor that inhibits 96% of CEOs from achieving top performer results is their inability to put a workforce on the floor that can execute their business plan and consistently achieve top performer results.
The competitive worlds of Olympic, collegiate, and professional sports have been using analytics to predict outcomes for decades. Their use in business, due in large part to the number of companies in an industry, the number of participants, position bundling, and good individual rating systems their use in business has been limited. However, through the unraveling of the mysteries of what enables top performers to produce results over two times their average performing colleagues and organizational DNA profiling, a good and valid rating system has been developed. CEOs can now accurately determine their workforce’s performance capability index. As well as decide whether it is sufficient to execute their business plan and achieve the results they have committed to their board of directors, shareholders, and lenders they will achieve.
Decades of workforce and strategic platform profiling has led to four types of performance capability indexes: Company, senior leadership, management team, and workforce.
Company performance capability indexes – are comprised of seven weighted performance capability indexes:
1. Market (15%)
2. Product (15%)
3. Financial resources (10%)
4. Leadership (20%)
5. Management team (15%)
6. Workforce (15%)
7. Strategic platform (10%)
A company’s total performance capability index accurately predicts the level to which it will perform in non-, low, moderate, and highly competitive environments.
Senior leadership performance capability indexes – This index is comprised of five weighted sub-indexes: Leadership (Chairman, CEO, and President), Board of Directors, Chief Financial Officer, Senior Legal Counsel, and Advisory Council.
Management team performance capability indexes – This index is comprised of the collective average of the managers performance capability indexes. Manager PCI’s are based on four variables: fit, think, lead, and achieve.
Fit is made up of five variables: value orientation alignment, integrity profile alignment, innate ability profile, and position alignment, level of life skill and emotional competency set development, and company values, customs, ethos, and etiquette alignment.
The “think” variable is comprised of three indexes: general operating strategies, workgroup domain knowledge, and controls and performance feedback.
The “lead” sub-index is made-up of eight variables: senior leadership structure, presence and intellect, level of leader development, natural leadership style, 4 E’s of leadership, employee development platform, leadership toolbox, and natural leadership position profile.
The “achieve” index is made up of the manager’s personal employee performance capability indexes.
Workforce performance capability indexes – This index is comprised of the collective average of all the employees’ personal PCI’s. Employee PCI’s include four sub-indexes: Core process, task, and technology competency index, natural performance system profile alignment index, academic and experiential index, “red flags index, and workplace performance capability index.
In non- to low, competitive environments, CEOs, under the single senior leadership structure, individually account for less than 20% of a company’s success or failure. But in highly competitive industries, they can individually account for up 65%.
In highly competitive industries CEOs determine the markets in which a company will operate. Its product and services platform, positioning, and pricing strategy. They have ostensible authority over its strategic platform, i.e., its DNA, financial structure, and performance commitments. They determine their senior leadership teams structure and performance capability and the staffing platform on which it will operate. Which, in turn, determines the performance capability level of their management team and workforce. And in the end, one of the top five things that inhibit 96% of CEOs from executing at the top performer level is an inadequate human element performance capability index.
Human element performance capability profiling
The following is an example of a company’s human element performance capability profile summary. Every company has four human element performance capability indexes, one for each degree of market competitiveness.
Conclusion
The secret for a CEO to consistently achieve net income percentages 30% above their industry and size of company average lies in five factors:
1. Using a highly competitive market-oriented strategic platform and leadership structure
2. Appropriately prioritizing their seven responsibilities
3. Employing a highly competitive market-oriented aligned strategic, tactical, and operational time allocation strategy
4. Having a complete CEO dashboard and suite of business navigational systems
5. Having a workforce performance capability index equal to or greater than the one required to execute the companies business plan
Before you show your next CEO the door, consider providing them organizational design, tools, staff, funding, and leadership to deliver you top performer results.
ABOUT THE AUTHOR
Douglas Swallow is an innovator, intellectual property developer, author, and speaker on CEO and enterprise performance optimization. For 40 years, he has been unraveling the mystery of what enables top-performing CEOs, managers, and employees to deliver results 1.3 to over five times their equally profiled colleagues. His work has led to the solution to this mystery. But more importantly, to the development of a body of knowledge and collection of technologies that equip enterprises with the ability to increase their net income percentages to 30% above their industry and size of company average. Cut their employee problems in half. Increase their percentage of top-performing managers and employees to over 60%, shattering today’s 16% ceiling. And maybe, most importantly, ensure they have a top-performing CEO today and tomorrow.