Does the CEO Hear the Truth?

I just started reading Competing on Analytics, because analysis of data is a huge competitive advantage in the Trial and Error Economy.

The preface, by Harrah’s CEO Gary Loveman (who has a Ph.D. in economics!) has a telling point:

"… all organizations seek to please the leader, so there is constant pressure to give my otherwise lame and ill-considered view far more gravitas than they deserve."

First, let’s praise Gary for recognizing the problem.  Many CEOs say that their people will speak up to them–but they only promote people who never speak up.

Second, let’s help the business leader deal with this problem.  Scientists with a hypothesis are trained to ask, "How could this hypothesis be disproved?"  The CEO with an idea should ask what might disprove the idea.  Then the boss should ask for data.

As an example, I posted a while back about Starbucks CEO Howard Schultz’s thoughts about his company’s strategy.  This gist of his thoughts, apparently, were that Starbucks had to return to its roots regarding roasting beans on premises and letting customers see the baristas work.  The danger to Starbucks is that the vice presidents begin a "back to our roots" campaign without offering the CEO any pushback.  Schultz could ask, "How would I know if I’m wrong?"  Simple answer: we test the approach on a random sample of stores and see how they do relative to a control group.  Then a staff member doesn’t have to say, "Howard, you’re wrong."  The staffer simply says, "Here are the results from the test that you requested."

A third approach surprised me a while back.  A corporate CEO asked me to come up with some ideas for implementing a particular strategy.  After nosing around the company, I suggested that this strategy was not a good idea.  The CEO asked me to present my findings to the board.  Turns out the CEO wanted me to validate his own disbelief in the strategy; so he gave me the assignment just to see if I would push back.  The use of consultants isn’t perfect here–we have an incentive to tell the client what he wants to hear, just as employees do.  However, if we take the risk and lose, we’ve lost one client, worth maybe 5% to 20% of annual revenue.  If an employee loses a job, that’s 100% of revenue.

The important takeaway message for CEOs:  give some thought to how you can get employees to tell you when you’re wrong.