Management Perspectives

In a recent survey by the consulting firm Alix Partners, 72 per cent of CEOs stated that they were worried about losing their job due to increased disruption in their industry. As the world is changing, evaluation of CEOs’ performance, and their fitness for the future have also come under scrutiny. And not just by the boards whose job it is to support and challenge the leadership at the top, but also by a wider range of stakeholders to which organisations have to respond to including society at large. Also, perhaps more surprisingly, by shareholders who are increasingly asking for performance evaluation with new metrics.

So, what has changed? Industries are being disrupted by technology, often forcing radical departures in the business model of established players. Take, for instance, the automotive industry. In the past, car companies were experts at developing highly sophisticated combustion engines and integrating a complex but mostly mechanical system, selling people the dream of owning a high-quality piece of engineering. Today, cars are becoming first and foremost electronicsand software-defined products and the need for car ownership itself is becoming less and less obvious, for example with car sharing business models. Companies are also faced with an everincreasing expectation to redefine their role in society. Where, in the past, financial numbers were all that mattered, today, more and more shareholders and other stakeholders expect from companies a positive impact on the big challenges such as climate change or redistribution of wealth, and overall, a more equal way of operating and performing.

For many CEOs, this creates a completely new situation. In the past, to get to the top job they have flown from success to success, typically by honing a very specific set of skills, fine-tuned to a well-established success recipe for their industry and organisation. But now the very definition of performance and what it means to be a capable leader are changing, and it is no longer clear what will be the success recipe of the future and the metrics along which they need to learn to excel.

What strategies enable CEOs to be successful in this new environment? In our research on high performing CEOs, we have observed two successful strategies to deal with this challenge of change:

1. Becoming a generalist with strong leadership skills, which focuses on driving change rather than being an expert in one technology, business model or even industry.

2. Becoming a forerunner of change in one’s industry and co-defining the very metrics that will determine what success will look like.

For the first strategy, take Benedetto Vigna at Ferrari as an example. Ferrari has been one of the most admired companies in the automotive industry with a devoted followership of enthusiasts who dream of owning their product. But even for Ferrari, the change to an electronics- and software-dominated product is unavoidable and forces radical changes in technology and possibly also business model. Against this background, its new CEO Benedetto Vigna, coming from ST Microelectronics outside the automotive industry, defines himself first and foremost as a change leader rather than a specialist in any specific industry. In times of change, those leaders like Vigna may be at an advantage in creating the future who do not define themselves through a technology or business model, because they carry less baggage of the past and can develop a new vision and enact change.

For the second, take Peter Vanacker at Neste, the Finnish regional oil refiner-turned-global leader in renewable fuels. He operates in an industry that has come under pressure to do its share for combating the global climate crisis. In response to the need to rethink its business and position in a world where CO2 neutrality is a major goal, Neste engaged in a transformation that refocused the company on sustainable fuels. Under Peter Vanacker, from 2018-2022, Neste achieved not only substantive impact on environment goals and has been consistently ranked among the top companies in global sustainability rankings but has also achieved a consistent growth in market capitalisation. By being an early mover, Neste has been able to define what being a sustainable company in its industry means, rather than following trends designed by others.

For CEOs, these two strategies to thrive in the changing business environment have very different implications.

The first strategy requires the CEO to focus less on industry specific skills and more on general leadership skills that transfer across environments. It also requires a leadership style that relies heavily on the expertise of the management team. A CEO that wants to be successful as a change leader needs to have the ability to attract top talents and give them authority, resources, and freedom to succeed rather than micromanaging the corporation or keeping it tied to old ways.

 

The second strategy requires the CEO to have credibility as a forerunner of the new business model, technology or trend, or that the CEO is a strong personality with a strong network. CEOs that want to succeed in this game need to be a step ahead of others, provide a compelling vision, and have the ability to engage their organisations to drive the necessary changes.

Neither of those strategies is without risks. The CEO, as change agent, may find it difficult to obtain the trust of their own organisation and other stakeholders given their lack of track record in the industry or specific organisation. In contrast, the CEO, as a forerunner, may find it difficult to adapt once further changes make their unique expertise less relevant. They may also be inclined to drive the organisation they lead too fast and too far into their domain of expertise and as a result may experience push back from both within and outside the organisation. That happened, for instance, to the CEOs of Danone and Unilever who following their moves into sustainability experienced a strong push back from investors.

As industries change more radically, there may be no silver bullets to stay relevant as a CEO. What is certain, however, is that CEOs need to rethink their skill set and possibly embrace very new ways of leading their organisations and looking for new talents to stay relevant.