The CEO Agenda: Full Potential Plan

Read the transcript below.

JAMES ALLEN: When I see the CEOs that have really transformed their company, they just bring to the job this full-potential mindset. Everything they do is about where to play. They know how to focus the organization on the right markets, the right products, the right channels, and get the resources to them.

And they know how to think about how to win. How do they mobilize the right capabilities? How did they get people excited about the mission?

And they don't think about full potential as strategy only. They recognize that it's about pulling organization levers, operating excellence leavers, etc. It's all the levers all the time.

ROB MARKEY: Setting aggressive revenue targets can be a tremendous motivator for an organization, but it's important to remember that revenue does not materialize out of thin air. It comes from customers. So the only organizations that grow sustainably and profitably—that gain market share, that grow faster than the competition—are the ones that understand their customers better than competitors do, develop products and services that meet their needs better than competitors do, and deliver better than competitors do. Only that way do they outgrow the competition and outearn the competition.

Sustaining profitable growth over long periods of time requires not only a one-time push, but it requires a continuous nurturing of relationships with your core customers that allows you not only to earn their loyalty once, but to solicit feedback from them in ways that you can bring a deeper understanding of their needs into the organization. Adapt, change, continuously improve, and ultimately serve them better than competitors can possibly do.

MANNY MACEDA: The great transformational CEOs understand the key to a full-potential plan is the choreography. Identifying the piece's parts is often easy. But sequencing them—putting them in a cadence [that accounts for] the interdependencies [of those parts] so that the organization can get it done—and finding a way to have the organization follow, be motivated, and work through a sometimes constrained bandwidth—the great CEOs figure that out. It's a little bit of art on top of a complex set of analytics and science.

JULIE COFFMAN: Once we have aligned what we think the full-potential plan is, one of the things that's most important for you to do is to spend that time with the talent that matters, to ensure that they have the right mindset and the right understanding of how their actions and behaviors are going to really allow us to achieve that full potential. We've got to be ruthlessly focused on creating the right culture and the right opportunities for that talent group to go out and lead the change.

PATRICK LITRE: One of the biggest challenges for a CEO in achieving the full potential of the plan is managing internal risk. Out of the 12% who succeed in achieving or exceeding the goals of the full-potential plan, we now know that the single most correlated action a CEO can take to achieve success is anticipating and mitigating risk. There are two reasons for that. One is, [given] high stakes and [under] high pressure, as human beings, leaders are subject to blind spots and cognitive biases that distort decision making. And the second is, we're dealing with people who are highly disrupted and experienced loss of control in the middle of the execution of this plan.

The best way to deal with this issue is what we call a pre-mortem. It's anticipating what might go wrong and creating a very precise mitigation plan to deal with it. It's a little bit like a pilot going through the preflight checklist every time. Even if they're the most experienced pilots, they are the most committed to that preflight checklist.

LAURA MILES: The CEOs that we know who achieve their full-potential plans think in parallel about the plans and the actions that need to happen in the plans, and in parallel, they think about the risks and how to mitigate those risks. When we think about full potential, we put M&A squarely on the agenda as part of the full-potential plan. Many CEOs think about full potential as only an internal set of initiatives—things like productivity or talent initiatives. But without M&A you're unlikely to achieve top quartile returns.

Why do I say that? Because many of the best acquirers are the ones that achieve top quartile returns, and in fact, those companies that don't participate in M&A are usually the bottom quartile performers. Those that do it well do three things incredibly well.

They have a very strong M&A strategy, so they know who they're buying and what value they bring to the portfolio. They do very strong diligence; not just financial diligence, but commercial diligence. And they have a very strong integration plan. So when this company comes on board, they know how they fit together. And if you do those things, M&A does not have to be any more risky than other internal actions.

RAJ PHERWANI: When you think about the full potential of your company, one often thinks about the strategy you might want to adopt, acquisitions you might want to make. No matter which way you look, you will discover that you need to do a few things. One is, you probably need to get more efficient at doing what you're doing. You probably need to learn some new things, some new tricks, some new capabilities, and you need to make investments. Where all of that logically leads you to is understanding the cost structure of your company and how you can optimize it, how you can make it more efficient.

People think about costs in a very narrow manner. They think about it as purely cost cutting. I like to frame it as a way to fuel your growth, a way to create a pool of investment resources to build the next iteration of your company.

In my experience, I've never seen anybody achieve full potential without addressing costs. But addressing it purely as a lever to take costs out of your business is not going to get you to full potential. You need to think about it as a way to fuel your growth, as a way to invest back in your company and your organization to take it to the next level.

MICHAEL MANKINS: Many companies focus a disproportionate amount of their time on how to right-size the income statement. They want to shrink the cost budget in order to free up funds for reinvestment or to deploy elsewhere. The best CEOs I've worked with actually spend just as much time right-sizing the balance sheet, figuring out where assets are invested in ways that are either unnecessary or where they're overinvesting in assets.

So just like the private equity funds determined in the '90s and early 2000s that you could squeeze working capital by getting your suppliers to pay more of your bills, that would allow you as a CEO to determine where those funds could be redeployed in order to generate more wealth for shareholders. The same thing can be done on the capital side by zero-basing the capital budget, asking yourself exactly how much capital you need to hold in order to support your strategy. By shrinking that, by doing more leasing as opposed to ownership, you can actually free up funds that can be channeled into new investments in growth and further profitability.

HENRIK POPPE: What we see in many high-performing companies is that they pay as much attention to the balance sheet as they do to the P&L. The benefits of that are that the balance sheet is really a fantastic strategic vehicle to de facto make sure that you not only use your cash in the most effective way, but also invest, and have sufficient capital available to invest, in those areas that will give you a higher long-term return, benefit your P&L, and thereby create more value for your shareholders.

When you make sure that your capital is deployed in those areas where it can make the best return over time for your shareholders, that is a fantastic foundation for really building up the company for further growth. The most inspiring and most successful CEOs that I have the pleasure of working with have been extremely good at identifying and getting through to the organization those areas where that capital can be most effectively deployed. And doing that not only creates opportunities for substantial value creation for the company, but also creates quite a lot of energy in the organization.

DAVID HARDING: 90% of all strategy studies focus on the income statement and the classic sort of ambition—where to play, how to win. But that has to be translated into a set of resources that are supported by the balance sheet, the capital assets to make things happen, and a financial structure that is going to give management the flexibility to do what it is that they need to do. The ultimate measure of success of any company, arguably, is total shareholder return—TSR, in our vernacular.

In the short term, there is financial engineering, buying back shares, special dividends that you can use to boost your TSR, but in the long term there is only one thing that drives TSR. And that is growth in operating earnings, full stop. Those operating earnings can come from organic growth. They can come from wise M&A, but if you're not growing your operating earnings, you're ultimately not going to reward your shareholders.