October 2019

The DNA of a modern CEO

Posted on October 11, 2019February 14, 2020 by Francisco

The 10 key attributes of a modern CEO

COMMUNICATION: The ability to convey often complex ideas quickly and simply
EMPATHY: The ability to care about people and their place in the organization
CURIOSITY: The ability to ask why and seek out new sources of information
TEAM-FOCUS: The ability to build teams from often disparate groups of individuals
STRATEGIC: The ability to plan and build bespoke not ‘off-the-shelf’ strategies
TECHNOLOGY-FLUENT: The willingness to embrace technology, its challenges and opportunities
EMBRACING: The ability to champion new ways of thinking
BROAD-MINDED: The ability to take the ‘helicopter’ or big-picture view
ENERGETIC: The ability to energize, inspire and motivate

The visible communicator

When we speak to those responsible for securing senior hires, it is striking how often they say, “we don’t want somebody who just sits in their office all day looking at spreadsheets.” More and more, the role of the CEO is being seen out of the office, on the frontline engaging with employees and customers. In recent years, I have seen a real shift in the requirement for CEOs to get out of the boardroom and spend time with customers – sharing plans and being collaborative and inclusive.

Equally as important is being seen and approachability. The perception of the CEO as some sort of heroic or demonic figure with the power of life and death has gone. The modern CEO has to be a ‘people-person’ willing to break out of their own ‘bubbles’ and engage with all of their company’s stakeholders. Crucially, the ability to communicate will become their number one asset. My own view is that technical competence, such as financial literacy or engineering qualifications, will increasingly become a secondary rather than primary asset.

“Being internally focused is a big part of my job, more than ever before. No matter how big your business is, everyone must feel included. I try to do three things – hold large group meetings for big messages, have smaller groups where you can have more intimate conversations and then just bumping into people.“

The Empathiser

Forbes magazine recently identified caring, or the ability to persuade everyone to believe in you and that you care about the business, as one of the key attributes of a modern CEO. Our experience is that authenticity, empathy and caring are key CEO attributes. Those who appear to be transparently ‘out for themselves’ and fail to take people with them are unlikely to succeed in any walk of life. When that individual is the head of an organization, the impact of a lack of empathy is magnified.

Does this all sound a bit wishy-washy? Maybe, but a lot of millennials are purpose and morally-driven, demanding to work for employers who do the right thing and they are willing to move on if it doesn’t.

It is a cliché but, if you look after your employees, it is more likely that those employees will look after your customers. Caring, empathy, authenticity, call it what you will, are values that more and more Chairmen, Non-Executive Directors and those responsible for senior-level hires are looking for.

“If you don’t care for the people that you manage, whose livelihoods depend on you, then why are you there in the first place and who put you there?“

The Listener

Forbes identified three Cs (credibility, competence and caring) but I would identify a fourth, namely curiosity. Whether you are in a rapidly-changing business or a very mature one, curiosity, to try and look into the future and see what you should be doing next, is critical. The CEO has to be curious about the parts of a customer’s business that their company does not already touch, or those areas where a customer is having difficulty.

The key aid to curiosity is the ability to really listen to others. It may sound strange, but for me a good CEO is like a sponge, absorbing knowledge, data ,and opinions: in other words, actively listening, before making decisions. It was the late Mark McCormack who said: “Talk less – you will automatically learn more, hear more, see more – and make fewer blunders.” His words have never been truer.

“You’ve got to be interested and beyond interested, curious. That’s a big thing for us at the moment in terms of trying to map out how we can help customers have a better experience.”

The Team-builder

I’ve lost count of the number of times a CEO has said to me, “I’ve got a great FD who frees up so much time for me.” That is a sign of a teambuilder. CEOs face enormous challenges when they take on a new role and the ability to build and nurture a management team is one of them. That doesn’t mean just importing new people. The best CEOs try and work with the tools they are given, encouraging and nurturing senior managers to work with them by instilling a clear vision of where the organization is going.

The modern CEO will also be an alliance-builder, generating close working and productive relationships with key areas of the business, not just those at Board or exec-level. In recent times, with increased digitization, the relationship between the CEO and the CMO (Chief Marketing Officer) or CIO (Chief Information Officer) has become increasingly important. Similarly, the ‘talent war’, that most organizations are engaged in, demands a close and collaborative working relationship with HR.

The key point is, the modern CEO cannot just restrict his or her interactions to the traditional ‘exec’ team if they are to succeed. They need to work hard to build teams with talent from within and without.

“I still think there is a lot of cronyism in UK management. I hear them say “I will bring my team, because they will do what I want” People bring two or three others with them. I never support that“

The strategist

We’ve talked a lot about the softer skills, such as communication and empathy, but the modern CEO still needs to be able to develop a strategy and then deliver it. The transition to CEO is very much one of developing bespoke strategies based upon the different issues that an organization is facing. In other words, not trying the same thing just because it worked before, but assessing the current issues and then developing a strategy to solve them. According to McKinsey research, exceptional CEOs are more likely to order a ‘strategic review’ in the first six months of their reign than less successful leaders. The modern CEO must embrace, and cannot be afraid of, challenging convention and developing new strategies that can open up new markets, protect existing positions and, crucially, energize the company.

“There are some very basic rules, in my view, to making a transition into a CEO or senior leadership role. Matching strategy to situation is one of the first I look for.”

The Technologist

Technology and a new generation of workers are influencing businesses massively, specifically how they communicate both internally and externally. Modern CEOs have to understand, adapt and evolve with technology, comprehending the new technological landscape and how it is affecting their businesses and their teams. In a recent survey by Forbes magazine, over 90 percent of CEOs agreed that IT-led innovation is essential for business growth and that they were willing to devote substantial new capital investment to deliver their goals. Leveraging new technological advancements is no longer optional. The speed of disruption will only increase: who would have thought as little as five years ago that the world’s largest taxi company, Uber, would own no vehicles. The modern CEO must embrace technology and technological change.

“Digital skills are absolutely key. I don’t think you can, as a leader, use the excuse of “I’m not up to date with these things” or “I don’t do social media”. These excuses are for CEOs of the past.”

The Diversity Enabler

One of the big themes of the last two decades has been the drive to get more women into senior positions. In the future, enabling organizational diversity, in its fullest sense, will be the task of the CEO. Only three percent of women holds CEO positions and only 17 percent of FTSE 100 boards are women. Positive change that brings greater diversity will only come from the highest levels of an organization and modern CEOs need to be leading from the front. If you look at the likely demographic of the UK in ten years’ time, the proportion of white males in the electorate will change significantly, with people of different ethnic backgrounds becoming more prominent. These changes to the workforce and their different expectations will challenge the existing norms of all businesses, and it will be the job of the CEO to deal with it and map a route forward for their organization. Diverse teams that more closely reflect the customer base or local population of the organization is patently good for business, so this is not about tokenism, it means putting strategies in place to recruit talented people from different backgrounds at all levels of the organization.

“I was lucky around my exec team because I 7 had two roles [to fill], the HR Director and the Marketing Director. I was determined that one of those two, at a minimum, would bring diversity to the team.”

The Outsider

“We recruit from within” is an old maxim that we hear a lot, but our experience is that sometimes it takes an outsider to affect real change. This is particularly true in turnaround situations, that require a specific skillset from potential CEOs. In my experience, a fresh approach provides perspective. Those who have been in place too long often do not have the breadth of experiences that provide perspective. In other words, they ‘can’t see the wood for the trees’ or are restricted by ‘group-think’ or personal relationships built up over many years and maybe set in their ways. Can long-servers take on the role of the outsider? Yes, but it’s always more difficult and requires, from the new CEO, a fresh look at the cultural norms and a balance between experience and a new perspective.

“It is important to have perspective, be able to apply it and put it into the context of what you are dealing with. If you haven’t got perspective, and you haven’t got experiences, it is difficult to apply them.“

The Energiser

In modern organizations, decisions will not be driven from the top-down, but rather more organically, pulled from the edges of an organization, particularly where team members are closest to customers and, increasingly, working directly in partnership with them. The most effective leaders will be those who embrace and are not threatened by this empowerment, which will be less hierarchical and will require open and humble approach to leadership. The traditional ‘topdown’ command and control structure is redundant for many reasons, but perhaps, most importantly, because it rarely energizes an organization and certainly does not listen to the voice of customers.

The modern CEO must embrace new structures that empower middle, lower management and customer service staff to make decisions and take responsibility – after all, the most important three feet in any organization is the space between front-line staff and your customers. People respond to this liberation and are energized by it. Many years ago, I worked closely with a very experienced senior manager at Barclays, who was in his role when Matt Barrett took over as CEO in the late 1990s. His words have always stayed with me: “I’ve never seen anybody energize an organization like this.”

“It is not just about the CEO’s role in the future. In B2C businesses, consumers will have more choice and will be more savvy. In B2B there will be more switching and less loyalty. Therefore, other roles in the organisation will become more important in the future.”

The Decision-maker

The ability to make decisions is a time-honored attribute of the CEO, but that ability, to take in information, think quickly and act, or not act, decisively, is becoming more and more important. The pace of the modern business world, the opportunities that become available, the threats that are unseen but can suddenly become existential all demand clear decisive information gathering, thinking and action.

There is often no time for obfuscation or over-deliberation – seeking the perfect answer is the enemy of getting to a timely, reasonable outcome. I’ll close with a quote that perfectly sums up the ability to be decisive. “Decisiveness is a characteristic of high-performing men and women. Almost any decision is better than no decision at all.”

“We are entering into a world, particularly with digitalisation and the increased pace of things, where even if you get things wrong, making the wrong decision fast is better than making the right decision extremely slowly.“

Can the Defence Sector Innovate?

Posted on October 10, 2019January 16, 2020 by Francisco

Barriers to innovation

Rules and Regulations

The defence sector is competitive, but it is not a free-market. It is a regulated market in terms of approved bidders, sole source regulation and export restrictions. For example, the UK’s only submarine supplier is BAE Systems and the only supplier of nuclear-related products is Rolls Royce. This situation automatically reduces competition.

By way of illustration, the 1958 US-UK Mutual Defence Agreement allows the United States and the UK to exchange nuclear materials, technology and information, with Rolls Royce now holding all of the intellectual property shared by the United States. This has now provided Rolls Royce with an unassailable sole source position.

Whilst this situation has clear security advantages, it also has the potential to stifle innovation, not due to complacency, but rather the inability to collaborate.

Procurement rules were also a concern for our round-table attendees, particularly in relation to stifling innovation.

All-too-often an innovative idea was rejected because it was outside of the procurement brief or those responsible for tenders did not know how to evaluate it.

Roundtable Participant Testimonial:

“Some years ago, I tendered for an opportunity as an incumbent supplier, but we had a threat from the United States and were worried about their ability to beat us on cost due to their volumes.
The bid required a compliant bid but also encouraged innovative solutions to save money.
We gave them two options, the compliant solution and an innovative proposal to take the old inventory, product which had gone beyond its shelf-life, refurbish it, and give it another five-year warranty; in essence it would only cost a third of the price.
We won the contract, but it was the compliant option.
When we went to the winners debrief and asked why they didn’t go for the innovative solution, we were told “Because the other guy didn’t bid it”, which meant that they didn’t know how to judge it, hence it was rejected. An example of sticking to process to produce the wrong answer. “

Collaboration

The majority view of our panel is that collaboration is key to defence innovation in the future. The UK’s defence spending is not large enough to support a defence industrial base and therefore, collaboration between companies is vital, along with the ability to exploit export markets.

The defence industrial base needs to adopt modern supply chain management, but the industry perceives that it has more to lose than gain. The government’s competitive procurement and value-for-money policies inhibit companies working together.

In the future, the defence industry will have to engage with academia and civilian equipment developers at a much earlier stage in the design process and be more open to exchanging information between companies – all of which can ultimately reduce lead times for technology and potentially cost.

Speed and ROI

One of the arguments put forward during the discussion is that the defence sector is innovative, but the pace of innovation is slow because of the extra hurdles that defence contractors have to go through before orders can be placed. The result is that the potential Return on Investment is significantly delayed or minimised compared to the private sector. Typically, investors in the private sector are looking for circa 20-30 per cent ROI.

Roundtable Participant Testimonial:

“Defence is not like the commercial world where you develop an innovative world-leading product and roll it out to the market. In the defence world, if you develop an innovative world-leading product, the rules prevent you from exporting in order for our own armed forces to have sole access to the technology. “

Government Non-Intervention

The majority of the panel thought that British business has to get much better at working together to win defence contracts. All-too-often, companies are not able to put aside decades long competitive rivalry to take part in a bid that it is in the national interest, with each trying to be the lead contractor.

Due to this competitive nature in the industrial base, which has had positive outcomes in the domestic UK market, the government cannot be seen to be supporting one British company over another. So, by the time there is only one British company left it is often too late.

Significantly, the attendees all agreed that government leadership is vital in defence procurement. Very often, with export defence contracts, the buyer is purchasing from Britain because having the UK Government and the armed forces’ seal of approval tips the award in the UK’s favour. Take the recent examples of the Type 26 win in Australia and the Typhoon contract with Qatar. Both campaigns had significant effort from the Prime Minister down.

Roundtable Participant Testimonial:

“The French government is very interventionist. They organise their industrial base around the export opportunity.
They’ll say, “Company A, you’re going to be prime and everybody else is going to be a subcontractor. And they actually get behind who is best to win that export contract.
It becomes a France PLC bid rather than an individual company bid, with everyone from the government down working together.“

R&D Spend

The panel were in agreement that the lack of R&D expenditure in the UK had a detrimental effect on defence innovation.

Across the defence sector, R&D spending is circa 3-4 percent compared to circa 20 percent for the pharmaceutical sector. The graph opposite illustrates the relative paucity of UK defence expenditure on R&D compared with companies in the automotive, IT and aerospace sectors. Interestingly, Microsoft spends almost three times more on R&D than the entire UK defence sector. This means it is increasingly impractical for UK defence to keep up with technology through independent and bespoke development.

Why are these figures so low? It comes back to ROI – a number of panellists had direct experience of highly innovative defence solutions being barred from marketing because of its highly sensitive nature and then only being allowed a mid-single digit net margin.

In the pharmaceutical industry by contrast, companies are allowed to charge higher prices to the NHS to pay for R&D.

The Defence Skill-base

The UK’s defence sector is in a war, a talent war which is being waged against all the other sectors that need high quality people with the right skillsets.

Nowhere is this war more acute than in the area of cyber-security. Only last year, NATO officially reported an average of 500 cyber- incidents per month – an increase of around 60% over 20151. Our panel agreed almost unanimously that the UK and its defence contractors needs to attract and retain not only the best people, but also the best companies in the UK and under UK control.

Shareholders got a good deal with ARM Holdings, but why couldn’t the company continue to grow bigger and bigger and bigger in the UK? Margaret Thatcher got it right when she overturned the decision to give Boeing the utility helicopter contract, giving it to Westland instead. It was in the long-term interest of the country. No one in Parliament or the media questioned the decision. The bigger picture surpassed the parochial ‘value-for-money’ decision.

Roundtable Participant Testimonial:

“Shareholders got a good deal with ARM Holdings, but why couldn’t the company continue to grow bigger and bigger and bigger in the UK? Margaret Thatcher got it right when she overturned the decision to give Boeing the utility helicopter contract, giving it to Westland instead. It was in the long-term interest of the country. No one in Parliament or the media questioned the decision. The bigger picture surpassed the parochial ‘value-for-money’ decision.“

Solutions

1. Collaborative Mindset

Our first solution is for the UK’s defence industry to take on a more collaborative mindset. And that change in mindset needs to include both like-minded countries and defence contractors. Greater co-operation between countries will help nations bear the burden of the ever-escalating budgets for defence R&D, whilst greater co-operation between companies involved in defence work will enable the cross-fertilisation of ideas and a R&D cost.

The key to both of these is a change in mindset, one which embraces collaboration and mutual support, rather than the siloed, ultra-competitive approach which too often stands in the way of real progress.

“Although armed forces have realised that other military and non-military actors, public and private, can deliver certain tasks more effectively and efficiently than many defence organisations themselves, the process of further international integration of the armed forces and outsourcing has been slow. “
Boston Consulting Group,
Innovation in Defence, page 15

2. Does radical change require external appointments?

“We recruit from within” is an old maxim that we hear a lot. However, our experience has shown that sometimes it takes an outsider to effect real change. This is particularly true in turnaround situations that require a specific skillset from potential CEOs.

In our experience, a fresh approach provides perspective. Those who have been in place too long often do not have the breadth of experiences that provides innovative thought. In other words, they ‘can’t see the wood for the trees’ or are restricted by ‘group-think’ and personal relationships built up over many years and may potentially be set in their ways.

Can long-servers take on the role of the outsider? Yes, but it’s always more difficult and requires, from the new CEO, a fresh look at the cultural norms and a balance between experience and a new perspective.

3.We need more leadership from government

Our third solution is more government intervention and leadership. As explained earlier, in defence, governments want to buy from governments, with the state effectively underwriting the costs. The government also acts as a leader, organising and facilitating tender exercises, selecting the lead contractor and ensuring that competitors and other companies support the bid. The government have a crucial role in cultivating innovation in the sector as they have the ability to foster collaboration between contractors and encourage healthy competition.

This level of intervention and facilitation has consistently been missing from UK bids for major defence contracts and has almost certainly cost us over time. There needs to be a change in mindset within government towards a more proactive, interventionist stance, leading to UK PLC bids that will ultimately benefit all.

4.Government needs to become an ‘intelligent customer’

One of the key themes that came out of the discussion was the wastefulness of the defence sector, in terms of cancelled projects, overrunning timescales and out of control budgets.

The term ‘intelligent customer’ was used particularly in relation to project delivery. In the words of one participant, “There is no depth of knowledge to manage a programme to deliver a submarine or an aircraft carrier.” This includes looking at the long-term cost implications i.e. the whole life costs of projects, rather than the headline cost.

The intelligent customer approach would involve the government accurately defining what it needs from the defence sector, based on risk assessment and the nature of the threat, rather than the defence sector ‘hawking’ its wares to government in the hope of landing a fish.

“Armed forces have to leverage the often-superior industry expertise and efficiency. A proactive industry strategy should include building a supplier ecosystem of private-sector partners that is able to serve the armed forces need for innovation and that is based on strategic decisions and proactively managed. “
Boston Consulting Group,
Innovation in Defence, page 15

5.Better supplier relationships

The current tendering model for defence contracts is very transaction driven, in other words, “We need some of these can you tender for it?”. Inevitably, this approach leads to the cancellation of projects as priorities change, the nature of the threat evolves or even when individuals change jobs.

It was agreed that a new approach was needed based on long- term partnerships. The Boston Consulting Group describes this as a ‘supplier ecosystem’ in which relationships are proactively managed through strategic decision-making. Those involved in the ecosystem should be qualified, integrated early to avoid project delays and budgetary over-runs.

Michelle Carson-Williams – INAC United Kingdom