Four Ways CEOs Can Spur Innovation amid Turbulence

Video Summary: Bain Partner James Allen discusses why CEOs need to become masters of business building in order to thrive amid turbulence.

A version of this article appeared in Fortune as part of our Breakthrough series.

Covid-19 rendered every CEO’s agenda irrelevant. Immediately pivoting, they focused on guiding more adaptable organizations that could thrive in a more turbulent world.

Now, as we all reflect and reassemble in the aftermath, CEOs have a chance to redefine their agenda. And there’s never been a more critical time to do so: As inflation rages and a downturn looms, executives will once again need to determine how their firms can emerge from a period of instability stronger than before. Through roughly 300 virtual forums, we’ve met with executives from around 1,200 companies across 40 markets to identify the imperatives that will shape their new agendas.

One theme has become clear: CEOs need to restore equilibrium in their priorities. They must shift their time toward vertical moves, or working directly with customers and the front line, and away from horizontal moves, or working with corporate headquarters. They must shift their time toward “development,” by transforming their business or building new businesses, and away from “delivery,” or running the current business. Balancing the agenda will demand a new mindset and capabilities.

So how can CEOs rediscover this lost art of business building? Four steps can help leaders tip the scales back toward developing future businesses for their customers and front line.

1. Sponsor business building, rather than viewing it as a distraction.

Scale insurgents,” or firms that have succeeded at becoming both big and fast, are leading the way into a new era of business. Their CEOs master both delivery and development. Delivery includes those initiatives where customers benefit from the flawless execution of a known routine. Functions are designed to deliver. Development consists of testing and learning your way to new solutions and building new businesses, with an appetite for risk. Customers benefit from the speed and quality of your adaptation to their feedback. Functions aren’t designed for business building—in fact, they often see it as a distraction from delivery.

To become winning scale insurgents, CEOs’ mindshare must shift toward a 50:50 split between delivery and development. Sure, the share for their meetings will more likely be 75:25, as running a business requires far more activities. And communication share should be closer to 90:10, lest CEOs give off the wrong impression that the “next new thing” matters more than their delivery heroes who meet customer promises. But for the purpose of the CEO agenda, it’s time for an equal balance.

Historically, CEOs have overmanaged delivery. Christina Zhu, president and CEO of Walmart China, notes, “The pandemic has reminded us of the need to trust our front line more. All of us have been inspired by what our people did—and continue to do—to protect each other, to protect our customers. We can make their work easier by simplifying procedures and ‘stepping out the way.’ We must rediscover joyful routines, making the core jobs of our most important people fun and rewarding again.”

As they shift to development, leading CEOs are making it clear to their leadership teams that business building is not a distraction, but rather, 50% of the day job. This requires a profound change in values and behaviors. “The big challenge is mindset change because the processes are old, and there are a lot of people that are locked in the past. So, cultural transformation is critical to business building,” says Tania Cosentino, general manager of Microsoft Brazil.

2. Rediscover the insurgent mission and spikey capabilities.

Almost every great company starts with a goal to disrupt its industry on behalf of underserved customers. For instance, at Audible, the founding idea is about unlocking the power of the human voice. Founder Don Katz says, “The power of the human voice can be achieved with audio books, but that is only the beginning of what is possible for us. When we focus on our mission, our world expands. It doesn’t narrow.”

Great companies don’t win on purpose alone. The best CEOs also reconfirm their “spikey capabilities”—the three or four competitive advantages that ensure they win repeatedly in the market. For De Beers, that includes extraordinary insight into why consumers buy diamonds, or the power of the “gift of love.” For Nike, it includes the ability to work with sports icons to cocreate high-performance shoes, or the power of sponsorship.

The insurgent mission and spikey capabilities are often lost in the daily grind of delivering the current business. The tyranny of functional excellence programs takes over. Leaders believe their job is to make their function “excellent” through hundreds of initiatives, even if they don’t benefit customers. These programs overwhelm the agenda.

Thus, when leaders move into business building, they don’t build on a solid foundation. New things feel like a distraction. Paradoxically, then, business expansion starts with focus.

3. Wear your CEO and your chair hats.

CEOs wear two hats. A lot can go wrong when leaders don’t understand this.

First, they serve as the CEO of a portfolio of delivery and development options. They’re responsible for the firm’s strategy, identifying and pursuing options to run the existing business and build new businesses.

In business building, CEOs need to manage several investment themes—bold beliefs about the world that guide a sustained investment. On the one hand, leaders should dream big. The themes should target a large and growing future profit pool. And they should have a differentiated competitive advantage.

But on the other hand, investment themes must be tangible. CEOs should be able to assemble a team, find partners, and utilize key assets from the core businesses, without distracting from them. They’ll have to determine the right operating model and governance, potentially setting up a new growth engine, which we call an “Engine 2.”

With this first hat, again, the CEOs’ role is about balance—at one point, working with their “dreamers” to make the theme bigger; at another, working with their “doers” to make it more tangible.

The second hat is that of a “chair.” Too often, CEOs fail to designate a leader of the new business. This seldom works. Instead, leading CEOs appoint a CEO or founder for each investment theme, then become the chairperson of the new business.

Business building is not about luck and lightning strikes. It’s about applying the same rigor and discipline you would use in the existing business to new solutions. The only differences are the attitudes toward failure, values, and behaviors. That creates tensions—between perfecting a prototype and getting to market, between focusing on unit economics and pushing for ecosystem control, between going it alone and considering M&A or partnerships—the list goes on.

With their chair hat on, top CEOs help the new founder navigate these tensions as they systematically move the new businesses through the necessary phases: discovery, testing and learning, creating, and scaling. They don’t allow projects to become paralyzed in any one phase. To develop the partnerships and capabilities required to dominate a profit pool, firms must move beyond a prototype. Too many development projects get stuck in the ideation or incubation phase. It’s not a CEO’s job to cull through walls of sticky notes filled with ideas. Building new businesses requires new skills and a new mindset, particularly around scaling. The best leaders are focused on scaling a few ideas into sizeable businesses that rival the core.

As Katy Chen, the managing director of Kimberly-Clark China, notes, “With smaller projects, you are not very committed at the very beginning, as they don’t act as revenue centers from the start. We must view these projects as potential big businesses ready to scale, not just ideas that show we’re exploring new things.”

4. Close the talent gap with new lenses and renew your culture.

Most CEOs mention “gaps” when they discuss business building. Functional leaders, including those in HR, are typically focused on hiring talent for delivery, not development. The systems they manage have a delivery bias.

To combat this issue, some CEOs are discovering new lenses to apply to their existing talent. They’re uncovering hidden pools of talent with key development skills and achieving the full potential of their people. Rather than increase the talent gap, the reorientation toward business building reduces that gap.

“We have personagrams. Not organagrams. We start with people, not org boxes,” says Pedro Arnt, CFO of MercadoLibre. “The really successful businesses within the company are very tied to individuals. That’s what we have been good at. The more lenses we use, the more we uncover talent.”

When it comes to development lenses, for example, Simón Borrero of Rappi looks for “radical simplifiers.” These people apply a “do more with less” attitude. When scaling new businesses, they identify areas where employee growth is escalating and intervene to prevent burgeoning complexity. Borrero notes, “Every founder faces a growth trap when you inadvertently link your employee growth to your revenue growth. Leaders need more employees and ask for more layers as span of control increases. A radical simplifier is someone that works to break this link, asking, ‘What could we do with AI or SaaS to fundamentally change job specifications, so we don’t need to keep adding people?’”

David Fleck, founder of venture capital firm Freeflow, shares tips on how to find radical simplifiers: “On all our investments, we encourage founders to go through periods of organizational build, where they add talent as the business grows and then freeze the organization. Freeze periods put huge pressure on the organization to think in new ways. Growth is continuing, but you cannot throw people at it. Employee growth begins to look more like a staircase. In almost every start-up, there is a radical simplifier who steps forward to bring new thinking.”

But internal talent alone won’t fill all the gaps. And filling them through one-at-a-time hiring takes too long and doesn’t lead to real capability breakthroughs. One of the key benefits of business building is the access to new capabilities and ways of working that transfer to the entire business. “We build new businesses in part to stretch ourselves, to acquire new capabilities that we can bring back to our core. By design, we often lack the talent we need for business building, because we want to move into areas of cutting-edge technology,” says Karan Adani, CEO of Adani Ports and an executive of the Adani Group in India.

Acquisitions and partnerships can help. But fair warning: New teams will fundamentally challenge the existing culture. Leading CEOs use M&A as an opportunity to create a new culture that brings together the best of both organizations. They embrace the cultural turbulence of business building and role model the change.

Despite the choppy waters ahead, we’ve heard many CEOs say they feel they’re entering one of the most exciting phases of their careers. The shift to focusing on customers, the front line, and business building means learning new skills. It also means unlearning some habits and instincts that are no longer fit for purpose. But many CEOs are up for the challenge: They’re keen to build new solutions for customers and innovate to thrive in an increasingly turbulent world.    


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