1: “Who are your top twenty most talented leaders?”
That was the question McKinsey consultants Carolyn Dewar, Scott Keller, and Vikram Malhotra asked the CEO of an average-performing healthcare company.
The CEO shared his list.
Next, they asked: “What are the twenty most important roles in the company?”
Once again, he shared his list, but “with a speed that suggested he hadn’t given that answer nearly as much thought,” Carolyn, Scott, and Vik write in their book CEO Excellence.
Their third and final question? “How many people on the first list are filling roles on the second list?”
“He went pale,” the authors recall. “He didn’t have to do the math to know that the answer wasn’t one that the board or shareholders would be happy to hear.”
2: The best CEOs know that building a great organization doesn’t start with people. They begin by defining the key roles that drive success.
“They first ask themselves what the most important jobs are and define the knowledge, skills, attributes, and experiences needed to get those jobs done,” Carolyn, Scott, and Vik write.
Stephen Schwarzman, CEO of private-equity giant Blackstone, looks “with microscopic precision for what leadership roles in the firm’s portfolio of investments drive the most value in terms of revenue, operating margin, capital efficiency, and so on,” the authors note.
“At one of its companies, for example,” Carolyn, Scott, and Vik note, “the goal was to increase earnings by 60 percent while boosting its price-to-earnings ratio from eight to ten.
The “analysis showed there were thirty-seven positions among the company’s twelve thousand employees that drove 80 percent of the value,” they write.
“One role actually had the potential to single-handedly swing earnings by 10 percent! Stephen and his team then made sure those jobs were filled with leaders fit for the task.”
3: Step one is to define the high-value roles clearly.
Carolyn, Scott, and Vik note: “We’ve helped numerous CEOs work with their CHROs and CFOs to develop a more rigorous understanding of the roles that drive their company’s strategy. In virtually every case, the results have surprised these executives, who soon came to realize that—contrary to conventional wisdom—hierarchy and the roles that create the most value don’t always have that much in common.
“Of the fifty most valuable roles in a typical corporation, we found that only 10 percent are positions that report directly to a CEO; 60 percent exist at the next level down; and 20 percent are at the level below that.”
What about the last 10 percent?
Those are typically roles that “don’t exist but should,” they write. “The people in these positions work across existing organizational boundaries and/or aim to capitalize on new industry trends.”
One example? At the Cleveland Clinic, CEO Toby Cosgrove set forth a patient-centric strategy. To be successful, he realized he needed a new role, a Chief Experience Officer (CXO), to improve the experience of all of the Clinic’s patients.
“That role looked after all the things that went into the emotional aspect of a patient’s care,” the authors share.
“There’s HR to look after all of the needs of the employees,” Toby said. “But somebody has to look after the needs of all of our patients and the intricacies of patient care.”
One area of focus for the new CXO was to increase transparency across the organization.
“One of the things that I’d learned in cardiac surgery,” says Toby, a doctor, “is we always looked at the numbers and were totally transparent about it, whether it was your mortality rate, or whatever.”
He used the same principle by publicly sharing the hospital’s quality-of-care metrics results.
Another tactic involved having the CXO grade and rank each doctor in the hospital–a controversial move.
“I was trying to make people realize,” Toby says, “that some people did really well, they were well-thought of by their patients, and some weren’t. And the doctors could find out how to do better.”
Other examples of the strategic significance of adding a new position include Duke Energy’s Lynn Good, who “added a generation and transmission market transformation officer,” Carolyn, Scott, and Vik write, “to ensure successful transition of generation resources from existing technologies to new ones as the company pursues a net zero emissions target.”
“It was necessary to separate this responsibility from the challenges of day-to-day operations to allow the right strategic focus on this massive transition of energy infrastructure,” Lynn says.
Under Dick Boer’s leadership, Ahold Delhaize took a significant step towards addressing sustainability concerns by appointing a chief sustainability officer to the executive team.
Large-scale technology initiatives often benefit from the addition of a new role. “At financial services group TIAA, Roger Ferguson created a new chief digital officer role, recognizing that every facet of the company, from interacting with clients to engaging employees, must be approached with a digital lens to be successful,” the authors observe.
And, “Jamie Dimon recognized that cloud technology would be key to cutting costs and boosting efficiencies,” they write, “so he created an executive role to run JPMC’s cloud services.”
More tomorrow.
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Reflection: As a leader, do I begin with the right person or the right role?
Action: Discuss with my team.