CEOs Want to Know “What Just Happened?”

CEOs Want to Know “What Just Happened?”

STAX INC  |  

This is a question that management teams are asking more frequently. As information systems proliferate, senior managers have greater visibility into changes occurring within the business, and that visibility is becoming more timely. Instead of waiting for backward-looking quarterly reporting, management sees and feels changes in near real-time. Examples include decelerating growth in an important division or product or customer segment, or spikes in customer churn, or declines in win rates, or unexpected growth in a segment. The problem is much of this incoming information is noise, and often there is little translation to better management decisions. The missing element is understanding why the change occurred, and what can be done to either mitigate or accelerate the change. Sure, there are usually plenty of theories, often conflicting, amongst the management team, with most support anecdotal. But there is seldom a definitive answer, much less an ability to communicate with the broader team and take action.

There is a solution. In our experience working with hundreds of management teams across a range of “what just happened” situations, we’ve identified a set of common principles that successful management teams and advisors follow to drive value by understanding why what just happened, happened. When leadership can understand and explain the sources of change to the company and to investors, the odds of effective action increase dramatically.

Prioritize by Value

Usually, there is a not a single point of responsibility for prioritizing the issues and understanding the relative value of mitigating or accelerating the changes observed. What’s important is that there is a focus on quantified value and clear responsibility for making this happen. We’ve seen that responsibility successfully resident in differing functions, there is not one answer. Often it is finance, marketing, or strategic planning, but not always. Identify the individual or organization or outside partner that has the capability to rapidly assess the potential value of observed change. Then put changes into three categories: those with highest potential value that need to be understood and acted upon quickly, those with lower potential value that bear continued observation, and those that can be de-prioritized. Be disciplined about asking yourself and your team what it is worth to answer a particular question, and prioritize accordingly.

Integrate streams of information

Often many of the building blocks of understanding exist within the organization already, but they have not been integrated into a coherent perspective. Comparing multiple sources of information is almost always more insightful than reliance on a single source. Multiple sources often provide for derived insights. While there might be an apparently definitive industry report or expert that is on point for explaining the observed trend, there is value in triangulating and pressure testing. Source integration can be done outside of current company systems, and often must be done in this way, with multiple systems that do not allow ready linking and integration.

Be creative in sourcing information

New sources of information and insight emerge all the time, even in mature industries. The standard sources of industry insight are always valuable to understand, if for no other reason than to understand the conventional wisdom. However, the answer to “what just happened” is often found outside the usual sources, because by definition the question arises from something unexpected, something often running counter to conventional wisdom. We’ve seen multiple examples of emerging sources that provide new insights, from social media data aggregation, to unstructured data (mining of service notes and comments for example), to more easily accessible public government source data (availability of IRS benefits filings for example) to purchased data aggregations. And finally, direct, proprietary, primary research often provides information that simply can’t be had anywhere else. And primary research (customer telephone or online or in-person interviews for example), has become faster and more efficient than ever before, if correctly designed and staged. Often it’s the incremental insight from additional and creatively sourced information that makes all the difference in understanding.

Design the process for multiple, rapid cycles

In general, faster and more incremental is better. A process for understanding change that is built on a series of defined and rapid steps, with incremental course correction and adjustment, will produce better insights faster than ever before, and more efficiently than a highly centralized, top-down, ponderous, long-term strategy project. Unfortunately, this does not align with the business model or desires of many advisors, who live and profit off of a long-term, ponderous approach.

That is not to say your process shouldn’t be strategic. It should be strategic and efficient: focused on what is highest value, driving to a prioritized set of actions based on real understanding, and having the flexibility to adjust to unforeseen changes.

Be comfortable with uncertainty

Related to the idea of incremental and repeated insight generation is the concept of comfort with uncertainty. While there is an answer to “what just happened” and more importantly why did it happen, insight into both of those questions is at best imperfect. The best outcome is informed decision making through a fact-based understanding of risks and returns. You must evaluate the confidence level of each element of understanding, and weigh the risks and alternatives of each implied action. This is another reason that the incremental and iterative approach works best. Force your team and your advisors to come to conclusions relatively quickly, and force them to evaluate the level of confidence around those conclusions, and then determine whether additional study is warranted, and at what point the returns to additional study are not justified. That is the point at which you must act. And then equally critically, you must measure the results of your action and adjust accordingly. This is the role of leadership.

Companies that master this process reap multiple benefits. Most important is better performance as measured by profitable growth. But also important is an ongoing, and nuanced understanding of the business, and of the risks and rewards of action within a particular space. With time, the decision of study v. act becomes faster and easier to make, and drives additional control and even enjoyment in decision making and management of the business. When deep understanding of the why underpins communication to the broader team and to investors, the effectiveness of leadership is significantly enhanced.