Top executives practicing Elitership® take advantage of the industry effect during good times, exploring and experimenting with everything everywhere. In bad times, they use the industry effect as a blessing and challenge everyone everywhere.
Tell leaders that not making profit and adding economic value to shareholders is foolish, and they will laugh, for who does not know it?
They might be right, but a McKinsey study (Oct. 2013) tells a different story. The study compiles 3,000 of the western world’s largest nonfinancial companies. The 1,800 companies in the middle, did not make a notable profit or loss. The bottom 600 companies failed completely, adding up historical losses of 411 BUSD combined. The top 600 companies added an impressive 674 BUSD combined to the Gross Global Product.
This means that one in five made it, whilst four out of five failed, some more miserable than others. The top-executive teams of the large 2,400 companies implemented a plan they probably had not planned for!
Why? I don’t know, maybe top executive teams can be divided into three groups. The team are either good, and consistent exceed last year’s profit consistently, or the team are striving to be catch-up, not making any significant profit +-, or the team might make it really bad by realizing a large deficit year after year.
Come on. Yes, I agree, the credit crunch, and so what? As CEO you cannot influence the credit crunch, that is correct, but as CEO you are hired to influence the company’s results – right? If the credit crunch is the CEO’s best explanation for the company’s lausy result, what are the top executives then doing when at work?
As many of the top executives hold an MBA, it must mean that the bad results can hardly be caused by lack of business acumen. On the other side, because it is 4 out of 5 companies that fail, statistically it must be a systemic flaw of business thinking that gets repeated time and again. If it had been the result of a random flaw of thinking, it would have followed a normal distribution – a bell curve. But in this study, it apparently is a 80/20 distribution – a Pareto distribution, and not a Bell Curve.
The conclusion from that is, that the state of the business that counts for the 80 % of the companies in the study, this Pareto distribution is influence as a willed development created by the top-20 % performers of the companies, in the study. Maybe the cause is a dramatic lack of leadership. I don’t know, it just came to my mind, that the top executives in these 80 % of the companies are padding each other’s back, believing they are good, never having an open dialog.
The industry effect is a relative measure of a company’s competitive intensiveness in a given industry. This is very tough for executives who do not have a precise insight of the competitive intensiveness in the industry, and how this affects their company. Whilst an industry effect of 30 % or less, is good, an industry effect of 55% or higher, is really an all-time high challenge. Furthermore, the study uncovers that the weak executives make it worse when executing their decisions. They would have been able to deliver a better result if they had flipped a coin – 50% accuracy -, instead of executing their own ideas.
Industry effect is defined as; the market’s average Economic Profit – EP, plus the difference between the average EP of the company’s industry peers and the market average. The company effect, is defined as the difference between the company’s EP and the industry-average EP.
LEADERS WITH AN IDEALISTIC PRACTICE
Leaders practicing elitership don’t destroy jobs, they create jobs, they don’t destroy economic value, they consistently create economic value, they increase wealth for all stakeholders, welfare for the society, and create a sustainable an admirable future for everyone everywhere.
Elitership is the practice of leadership aiming at an elite standard of leading an organization. Elite leaders lead the organization in cohesion “singing from the same hymn sheet”. The consequence of their engagement is, that they create a company effect of 70 %, and tirelessly engage themselves to increase that figure to 75-80 %, leaving the industry effect at 20 – 25 %. They are seekers, looking for answers to “What will be the right thing to do”? This team-of-teams business culture explores any possibility to improve everything, everyone everywhere, and they challenge the status quo of their own knowledge and insight regarding the dynamic in the industry their people and their organization, and try to exceed any past performance with an attitude of a divine dissatisfaction.
With an uncluttered intelligence, responsible top teams are practicing elitership, and thereby consistently demonstrate the ability to respond with great precision towards events and situations that inevitably occurs a time pass. That illustrate a high-quality perceptual acuity, and the ability to extend attention and consciousness infinitely gaining new insight and knowledge, acting on changing circumstances, enacting on opportunities, and follow through, passionately and deeply involved.
When a company experience an industry effect of 55 % it means that the competitive force of the company has lost its effect, which leaves the company effect to may be 45 %. Surely this is, one of out of several directions toward the abyss, because whether the market is growing or shrinking, it is an uphill battle just to prevent sliding further downhill. If you’re in the elite, you cannot rest on your laurels, as the odds are 1 to 5 that you will slide down into the abyss. Stagnation is in fact a decline.
THE TRAIN HAS GONE
Only idiosyncratic factors might explain the performance differences from the top 600 compared to the bottom 600 companies, McKinsey concludes, which is in alignment with our observations. An outdated top executive team consist, more often than not, of people with big egos. They are usually divided into 2-3 clicks where everybody, at any given time, defends their own pompous identity, as an executive, playing a political game “Who is right” instead of “What is right”, suffering of fear from losing face, or to see themselves on the looser side of the game. Therefore, these executives spend their efforts on playing safe, which is not the winners game. The consequence – everything stagnates.
Whatever ideas outdated executives comes up with, they will only be recycling their old knowledge, whilst the idea, thinking out of the box is a practically impossibility. What is needed is new insight, from exploring and experimenting, but that is too late, whilst there is no flexibility, when the outlook predicts that profit is decreasing. It quickly becomes a fight for survival not to run out of cash. Which means that any significant decision becomes centered around the CFO and the financial situation. The train has gone.
The knowledge of how to turn the company around, is probably to find somewhere in the organization. But with the profit in a painful situation, nobody at the top listens to anybody at the bottom. Add to this mistrust, from the fact that middle management over too long time worked as a block for even the most incremental and obvious innovations.
Industry effect make no sense to executives who believe that they are right. They feel that bad business conditions are caused by forces out of their influence – despite the CEO has a seat in a very famous industry councel. The discussions arond the tabel at the counsel, just cemented their faith of that they were doing the right thing. That did not help. They took unfair external circumstances created by others, as excuses for bad results – the credit crunch, oil prices, exchange rate to the dollar, unfair subsidies from foreign governments etc.
Please, allow me to mention a quote by Leo Tolstoy (1828 – 1910), which shines light on the essentials. “Good families, are good for their own reasons, whilst bad families, are bad for a hundred of reasons, they do not try to influence.”
Let me make it short: If your company face competition, you are doing something wrong. The individual top executives in a top team practicing Elitership, do not tolerate competition. They want to create a monopoly, they raise the bar – to make the company incomparable, and to create results that are unparalleled.
DO YOU WANT TO CREATE A MONOPOLY?
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Siegfried W. Andersen – Founder & CEO