Leading from the numbers

Editor’s note: This is the most recent in a series of articles. Be sure to read:

• Why every CEO needs an executive coach
• Focus is a superpower
• Why people are critical to a CEO’s success

Every CEO knows that it takes blood, sweat, tears, and treasure to build a successful business. Too often, growth may slow, margins may narrow, and expenses may mount. The company may hit a ceiling, unable to get to the next level with the team and resources available. “What, exactly, are we striving to achieve?” your people silently ask themselves before embarking on their daily activities, most of which have no connection to end results.

“We need more hard work, more hours, more people. More! More! More!” a CEO might say to himself or to his leadership team, secretly hoping that working twice as hard will produce results.

Success depends upon a solid team working together toward common objectives. Yet, it’s rare when everyone pulls in the same direction. Why? Because the clarity of your goals is lacking.

A CEO must not only articulate and track the key performance indicators that everyone in the business must be pursuing at all times, but he must also use those numbers to instill in his people a sense of ownership thinking. In other words, the numbers are a springboard for helping your people see the impact of their work and a means for helping them to take more proactive roles in moving those numbers in the right direction.

As the company finds success with this approach to numbers, you then have the opportunity to utilize the results to reinforce the sense of teamwork and collaboration that made those results possible. Where your people once asked, “Why am I doing this?” they can now begin to understand why it matters to the business. When you frame it in the right way, you help them to see why it matters to them as individuals; how reaching that goal is not only good for the business but good for them.

Articulating key performance indicators

Leading from the numbers begins with identifying which numbers have the most impact on your business. A CEO must articulate the key performance indicators (KPIs) that everyone in the business should pursue. He must teach his people to track those KPIs down to the level of daily work. He must publish and review those results within an appropriate timeframe to make meaningful course corrections. Your numbers are your guideposts as you venture into deeper waters. If you don’t know where you are, you can’t expect your people to know either.

According to a survey by the American Psychological Association, fully one quarter of employees don’t trust their employer. Even worse, the survey finds that only about half believe that their employer is open and upfront with them. A lack of trust is often due to a lack of transparency in the workplace. Transparency can remedy the problem by fostering a common bond between CEOs and their employees. People who understand their role in helping the organization achieve its goals are more likely to trust their employer and embrace the endgame. Those who are brought into the light, know well in advance the challenges the company faces.

The Entrepreneur’s Organization (EO) is famous for telling the story about the head of a large mortgage sales organization. In a talk on the importance of numbers in business, he tells his audience: “Everyone has a number… everyone down to the receptionist who says: Three rings bad, Two rings good!”

While this may capture the essence of the idea, in today’s organizations, employees want more than goals and measurements. They want to be informed about the rationale behind those measurements; they want to understand the why behind the what.

Meaningful numbers

To be an effective CEO, you need to take ownership of the big picture. The big picture view is important because it will inform how you define, track and share KPIs. The philosophy behind your KPIs provides crucial context about how you use those numbers to make choices, to lead, and to inspire your people. Your goal is not reductionist. You are not aiming to simplify the whole of your business into cold numbers. Your intent is actually more human. With the right numbers and the right approach, you can better understand your people and the customers you ultimately serve.

Most CEOs do not come from accounting or financial backgrounds, which is where a CEO blind spot often begins to take shape. Heidrick & Struggles, the largest executive search firm in the world, found that only 30 percent of CEOs at Fortune 500 companies had prior experience in the financial world. For smaller companies, that number is even lower. Accordingly, CEOs often delegate oversight of company finances to someone better versed in the world of numbers: a CFO, Controller, VP of Finance, or even a bookkeeper, depending on the size of the organization.

Engaging someone with the domain expertise you lack is good business, but when it comes to numbers, you should maintain final ownership and responsibility for those numbers.

As the CEO, you are the primary steward of company resources. As such, it is imperative that you never allow execution on vision and strategy to overshadow your financial responsibilities. You must keep enough cash on hand to fund the next move. In business, it’s a cardinal sin of leadership to put yourself in a corner without any options. A CEO who does not stay in tune with the financial realities is like a general who does not guard his supply lines. Generals understand that the strongest, most skilled army in the world is still vulnerable to starvation.

How does a CEO avoid this kind of disaster? By becoming the master of those numbers that reveal the truth about your business in stark and unbending terms. Math is the language of business. Numbers never lie.

The numbers we measure, the importance we assign to those measurements, the action plans derived from the interpretation of those numbers — all of these are examples of the executive function. While you can delegate some of the systems and processes surrounding how and when data is gathered and reported, deciding what ultimately gets measured is the domain of the CEO.

The individual who determines what gets measured is the individual in control of the business. Why was James Madison the first person to arrive in Philadelphia for the Constitutional Convention? Because he wanted to set the agenda of what would be debated. As a result, history remembers him as the “Father of the Constitution.”

Just as James Madison set the agenda for the Constitutional Convention, you can set the agenda for your business by defining its most important KPIs, then articulating the reasoning behind those KPIs to every person in the organization. Transparency is key.   By giving your people a clear understanding of the why behind the numbers, you not only engender trust but also the shared vision critical to your ongoing success.