Successful CEOs lead and grow by explaining “why” more than “what”


What is the CEO’s most overlooked task and underrated skill?

70 per cent of change programmes fail, and it’s often because the CEO failed to tell the right story.

Forbes magazine notes that while 65% of organizations have an agreed-upon corporate strategy, only 14 per cent of employees actually understand it. Gallup polls consistently report that only 30 per cent of employees are engaged in their work, and non-engaged employees sap productivity.

Why are top executives failing to motivate their employees, and what can they do about it? Venture capitalist Ben Horowitz helped answer this question during a Forbes interview with Carmine Gallo. Horowitz  noted that business books are full of advice on how to achieve objectives and goals, but they’re light on explaining why. Why are we doing this? Why does the problem need to be solved? The answer to “why” is the company’s story, says Horowitz. “The CEO must be the keeper of the story,” he says, but cautions that “the mistake people make is thinking the story is just about marketing. No, the story is the strategy. If you make your story better you make the strategy better.”

And that’s a critical point because the CEO’s primary duty is to set strategy and vision. So says executive coach and former Intuit employee Stever Robbins, who tells the story of how, back in 1991, Intuit CEO Scott Cook presented his vision at the company’s new employee orientation. Cook outlined a clear vision to his employees and positioned Intuit “as the center of computerized personal finance.” At the time, Intuit had only 120 employees and one product. Today, it’s a billion-dollar company with thousands of employees and dozens of products and its success, says Robbins, “is due in no small part to every Intuit employee knowing and sharing the company’s vision and strategy.” For this to happen, the right story must be presented. But what happens when the wrong story is told?

How a bank lost millions by failing to tell the right story

McKinsey & Company tells the story of a bank that couldn’t get its change story right and paid the price. After analyzing its credit exposure, the bank realized it needed to raise its pricing to reflect the credit risk they were taking on. All customer-facing employees were advised of the price increase, and sales incentives were adjusted to reward customer profitability. The unintended consequence: customer attrition and price over-rides went through the roof. What happened?

The bank failed to tell the right story to its employees. Because they weren’t told about, and thus didn’t understand the “why” of the change story (only the “what”) employees felt that the bank was being unfair to its customers by raising its pricing schedules. So they sided with the customer when it came time to make the transaction, sacrificing their sales incentives in the process. Many employees bad-mouthed the bank’s policies to customers while price over-rides were frequently used to show customers their (the employee’s) good faith. The bank paid a huge price for not getting its story right.

Many other banks have adjusted their pricing to reflect new risk-adjusted rate of return (RAROC) models, but they learned their predecessor’s lesson and made sure the stories they crafted took into account their employees’ perceptions of fairness. The training and communication stories surrounding the change were successful because they fully explained the ‘why’ of the change – that customers were simply being asked to pay commensurate with the risk the bank was taking on. Because employees understood the whole story, that the banks’ actions were inherently fair, they behaved appropriately.

Can storytelling’s impact be measured?

The answer is yes. CEOs who are good storytellers are not only better leaders, their storytelling can impact their organization’s bottom line. Story is strategy, as Horowitz points out. And the better the story the better the strategy. Employees who understand their company’s strategy are more engaged than those who don’t. And the more engaged an organization’s workforce is, the higher its productivity. A Harvard Business Review Analytics report, The Impact of Employee Engagement on Performance, confirms what is generally acknowledged, that is, that employee engagement is vital to the success of any organization. The Harvard study reported that 71% of the business leaders surveyed ranked employee engagement as “very important” to achieving overall organizational success.

Source: Harvard Business Review Analytics

For a look at the impact of employee engagement levels on operating margins, let’s examine a chart from Towers Watson’s 2012 Global Workforce Study. As you can see from the chart below, high sustainable engagement companies had much higher operating margins than lower or traditional employee engagement companies.

Putting two and two together, we see that leaders’ ability to tell the right story the right way to their employees leads to higher levels of engagement, which lead to higher productivity, which leads to higher operating margins.

Setting and selling the vision is everything to the most successful CEOs because, as Robbins points out, “a CEO’s job is not to get work done. It’s to get other people’s work done.” Forbes contributor and CEO Joel Trammell shows us how 7 business leaders grapple with this on a daily basis in a fascinating Forbes article entitled, “7 CEOs Weigh In: What Surprised You Most About The CEO Role?” I found all Trammell’s quotes interesting, but this one by Mark McClain, CEO & Founder of SailPoint was especially intriguing to me:

“[As a new CEO] it was stunning to wake up each morning and not have a clear set of tasks to accomplish. After over a decade in either a president or CEO role, I’ve decided that in spending time with my team settling on the most impactful strategy, most of what I do is associated with either counseling or cheerleading a team of the best and brightest that I and my leadership team have assembled.”

The CEO is both coach and general manager, to use an old sports analogy He or she not only picks the best team but coaches them as if they were his or her flesh and blood. Which, in a sense, they are — given the sheer number of hours they spend together every week. But unlike sports coaches and general managers, who typically manage a limited number of people, CEOs often work with hundreds and sometimes thousands of reports. And since the CEO must  “own the vision”, “deliver performance” and “build the culture” (three of the CEO’s five key responsibilities, according to Trammell) it is essential that they implement a “formal, written system to communicate strategy” and have “direct, regular input from all employees.”

We’ve now circled back to our opening discussion point — that only 14 per cent of employees actually understand their company’s strategy. Why is this the case? To answer, have you ever played an old parlour game called Whisper? You gather six or eight people at a table. One person starts the game by whispering a sentence to the next person, who whispers the sentence to the next person and so on around the table until it is whispered back to the originator. Inevitably, the message sounds nothing like the original, which leads to plenty of laughs. Well that’s what happens to messages in large organizations, without the laughs — unless communications are formalized. And this almost always means two-way communication.

A video clip from Simon Sinek’s TED Talk: the power of “why”.

In my next post, I’ll talk more about this, about how CEOs can become better storytellers, and why Towers Watson’s communications ROI study may lead to fundamental changes in the C-suite.

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