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The Idea in Brief

From 1999 to 2006, the average tenure of departing chief executive officers in the United States declined from about 10 years to slightly more than eight. Although some CEOs stay a long time, a lot of them find that their stint in the corner office is remarkably brief. In 2006, for instance, about 40% of CEOs who left their jobs had lasted an average of just 1.8 years, according to the outplacement firm Challenger, Gray & Christmas. Tenure for the lower half of this group was only eight months. Some of these short-timers were simply a poor fit and left of their own accord, but many others were ushered out the door because they appeared unable to improve the business’s performance. Nobody these days gets much time to show what he or she can do.

So within a few months at most, incoming CEOs and general managers must identify ways to boost profitability, increase market share, overtake competitors—whatever the key tasks may be. But they can’t map out specific objectives and initiatives until they know where they are starting from. Every organization, after all, has its distinctive strengths and weaknesses and faces a unique combination of threats and opportunities. Accurately assessing all these is the only way to determine what goals are reasonable and where a management team should focus its performance improvement efforts.

Embarking on this kind of diagnosis, however, can be daunting because there are countless possible points of entry. Your company’s operations may span the globe and involve many thousands of employees and customers. Should you start by talking to those employees and customers or by examining your processes? Should you focus on the effectiveness of your procurement or analyze your product lines? Managers often begin with whatever they know best—customer segments, for example, or the supply chain. But that approach is not likely to produce either the thoroughness or the accuracy that the management team and the business situation require.

What’s needed instead is a systematic diagnostic template that can be tailored as necessary to an individual business’s situation. Such a template has to meet at least three criteria: It must reflect an understanding of the fundamentals of business performance—the basic constraints under which any company must operate. The template must be both comprehensive and focused—covering all the critical bases of the business, but only those bases, without requiring any waste of time or resources on less important matters. And it should lend itself to easy communication and action.

This article presents a template that we think meets these criteria. It is built on four widely accepted principles that define any successful performance-improvement program. First, costs and prices almost always decline; second, your competitive position determines your options; third, customers and profit pools don’t stand still; and fourth, simplicity gets results. Along with each principle, we offer question sets and analytic tools to help you determine your position and future actions.

Read the full article on Harvard Business Online.