The Two Biggest Risks for Every CEO

Avoid these missteps and you drastically increase your chances of success.

Every CEO has to deal with risk. It is ultimately their responsibility to manage any and all potential hazards to the business, whether internal or external.

In fact, you could easily call them the chief risk manager. That’s consistent with former Intel chief executive Andy Grove’s mantra that “only the paranoid survive.” In other words, CEOs should be constantly concerned about identifying and solving for material threats to the business.

While it’s very easy to come up with all kinds of exotic or unlikely dangers a company may face, I believe that most business failures can be attributed to one of two rather basic risks. By focusing their attention on these two fundamental risks, I believe CEOs can achieve huge returns.

Risk 1: Bad Execution

The first risk that threatens every CEO is the possibility that his or her strategy will not be executed effectively. Although some businesses do fail because they lack a good strategy, in my experience it’s much more common that the strategy is fine, while the execution is lacking.

As the sexy, intellectual area of business, strategy gets a lot of focus. My current favored definition of strategy is as follows (more on this definition in a coming post):

“Strategy is deciding why you’re in business, what to do to fulfill that purpose, and how to make it happen given your situation.”

While this is a big responsibility, most companies are capable of putting together a strategy that is capable, if executed, of delivering solid business performance. Within those two little words — “if executed” — is where the problem tends to lie.

Execution, I would suggest, is not nearly as well understood as strategy. The tools and best practices in this area have not kept pace with the changing nature of work. When manufacturing was the primary industry, a set of best practices developed and were widely adopted to optimize production. The work of business legends like Deming and Drucker formed a core set of knowledge that drove execution forward in the manufacturing space. Unfortunately, as more and more of the economy shifted to knowledge and services work, the tools and theory around execution failed to keep up.

Knowledge work is fundamentally different from manufacturing and tends to impede execution in ways many CEOs don’t anticipate. In a manufacturing operation, I don’t need to ask the guy with a wrench how many cars we are going to build today. I can watch the cars come off the end of the line and know that execution is proceeding.

But knowledge work—whether software development, marketing, consulting, or any other kind—is much harder to measure and project. I can’t watch someone work and know when the project will be completed. I can’t readily ensure that execution is aligned with the strategy we set for the organization. I have to trust that the employee has internalized the strategy, and I have to ask them to communicate clearly about their progress, utilizing their own perspective and expertise to tell me what I need to know: Are we going to deliver what we planned to as a company?

The execution risk has another component: CEOs also have to ensure that different parts of the organization are working together during the execution phase. While there are certainly best practices and tools around functional execution (sales processes, development processes, etc.), these functional areas cannot operate independently; they must cooperate.

The challenge for the CEO is getting all of his or her disparate groups aligned. It does no good for everyone in a rowboat to be rowing quickly unless they’re all rowing in the same direction. Yet it’s quite common to see companies where everyone is working really hard without much getting done. People are executing something, but they’re not executing the CEO’s strategy.

What it looks like to manage the execution risk effectively: