How New CEOs Can Balance Strategy and Execution

Every CEO must simultaneously develop strategy and drive execution — and the need to do both at once has never been more urgent.  As we emerge from the Covid-19 crisis, companies will need to drive short-term results while also rethinking strategy amid seismic shifts in competitive environments and ways of working. It’s not strategy vs. execution; it’s strategy and execution with the right balance in the right timeframes.

While all leaders need to do this, research shows that few are good at it. This problem can be particularly acute for newly appointed CEOs, who must rapidly diagnose and address current business challenges while also laying a foundation for the future. We see many next-gen leaders who are competent at crafting strategy; they are global digital natives who rose to the top primarily by taking those big-picture roles in organizations that already run like clocks. But they lack deep operational experience and fail to realize that boards first want to see that they can run the existing business before turning to future questions.

The result can be a dangerous lack of alignment. Boards assume that CEOs understand that short-term goals and execution are vital priorities, while new CEOs instead focus on vision and strategy.

Consider the case of a newly appointed, first-time CEO recruited from a general manager role in a fast-growing multinational into a smaller national company in a different industry. He aspired to expand his new organization in size and geographical coverage substantially and, with a small team of new reports and external consultants, jumped into defining a new strategy. But in a year, the company’s P&L was burdened by unresolved operating problems, making it impossible to raise the funds necessary to make those long-term changes. The CEO lost the board’s trust and soon departed.

Avoiding Some Dangerous Biases

We have seen leaders fall into four traps:

1. Failing to diagnose the execution weaknesses of their businesses. New CEOs might also fail to understand the extent to which their new organization’s culture can absorb needed changes, which often implies letting go of yesterday’s values and beliefs that keep the company stuck in the past. As a result, they build a strategy that is not grounded in the competitive, customer, and cultural realities.
2. Making decisions about their teams too quickly. New CEOs naturally look for people like themselves, and when they don’t see sufficient strategic thinking ability or openness to change, they rush to judgment. They can also underestimate the importance of having a team with strong execution skills, especially early on.
3. Neglecting relationships with the execution side of the business. There is a tendency to delegate responsibility for ongoing operations and focus on “the real work” of developing the future. In doing so, new CEOs can miss out on enlisting key drivers of execution, e.g., sales managers, customers, suppliers, and country managers, who may dismiss the new leader as being out of touch with work at the front lines.
4. Failing to develop a coherent, efficient strategy deployment process while maintaining execution excellence.  Many organizations have some sort of strategy implementation process. But it doesn’t work because it’s complex, time-consuming, and lacks buy-in from lower-level leaders who believe it’s not built to help them do their jobs. As a result, the strategy remains conceptual not operational.

Balancing Strategy and Execution Through the Transition

The solution is to have a framework that provides a clear view of key phases of transition activity and the associated imperatives for new CEOs to develop strategy and drive execution. We have developed such a framework consisting of three distinct phases that unfold during the first year of a leader’s tenure: defending, extending, and transcending the core. They roughly correspond to the first 90 days, following 90 days, and final six months of a CEO’s first 12 months.

Phase 1. Defend the Core

In the first 90 days, the focus should mostly be on understanding and defending the company’s existing core businesses. On the strategy side, this often means resetting priorities for core units and aligning with the board on short-term goals.  On the execution side, the new CEO should focus the team on stopping non-value-add activities, implementing a strong operating model, and securing some early wins to maximize short-term profit and cash flow. This phase is also an opportunity for the CEO to model the right behaviors, such as being decisive but judicious and focused but flexible, and so shape the company culture to support change and growth.

Phase 2. Extend the Core

In the next 90 days, the new CEO’s strategy/execution priorities should shift to identifying ways to extend the core business by expanding the portfolio and/or entering promising adjacent markets. On the strategy side, this typically means refining or replacing the corporate vision, mission, goals, and strategic priorities and securing buy-in from the board for supporting investments. On the execution side, the leader should work with the team to develop an effective strategy deployment plan that drives execution, for example, by adopting a process such as the OKR (Objectives and Key Results) pioneered at Google.

Phase 3. Transcend the Core

In the final six months of the first year, the new CEO should lay the groundwork for transcending the core business to support sustainable growth. On the strategy side, this means adopting the best methodologies to define the company’s main bets and experiments, including new research projects, pilot programs, and minority stakes in new businesses. On the execution side, the goal is to stimulate innovation and strengthen a high-performance organization internally principally by selecting the right people to lead key initiatives and, if necessary, transforming the culture to be more open to experimentation and have a bias to action.

At the end of phase three, the corporate strategy should be well defined, communicated, and in the process of being deployed, and the core business under control and growing.

The three-phase process is summarized in the figure below.

We have tested this framework with our clients with good results. One of us recently worked with a new, first-time CEO helping him preparing his strategy and business review for presentation to the board. In his initial draft, he mainly focused on forming a vision and longer-term strategy and left business diagnosis and execution priorities to the last few slides.

When we asked why he did it this way, he told us that he thought the board would evaluate him primarily on the quality of his strategic thinking. We introduced the Defend, Extend, Transcend framework, highlighting that at this early stage of the transition, the board first wanted reassurance that he had thoroughly evaluated the company’s position, identified key short-term priorities, and focused resources on addressing them.

The CEO’s revised presentation started with a deep dive into these issues, then focused on future strategy. The board was reassured that he was on top of execution and, critically, concluded that he could spend time and resources on the new strategy while still maximizing short-term revenue and earnings. They gave him the green light to move forward on both.