The Seven Surprises is a business framework described by Michael Porter, Jay Lorsch, and Nitin Nohria. It describes surprises or unexpected challenges for new CEOs. This concept was introduced in an HBR article titled “Seven Surprises for New CEOs.”
As a newly appointed CEO, one may think to finally have the power to set strategy. The authority to make things happen, and full access to the finer points of your business. But if you expect that this job is so simple, you’d better wake up now. You bear full responsibility for your company’s well-being. But you are a few steps away from many important business factors. You have more power than anybody in the corporation, but you need to use it with extreme caution. Porter, Lorsch and Nohria have discovered that nothing – not even leading a large business within the company – fully prepares a person to be the chief executive.
Bearing full responsibility for a company’s success or failure, but being unable to control most of what will determine it. Having more authority than anyone else in the organization, but being unable to wield it without unhappy consequences. Sound like a tough job? It is—ask a CEO. Surprised by the description? So are CEOs who are new to the role. Just when an executive feels he has reached the pinnacle of his career, capturing the coveted goal for which he has so long been striving, he begins to realize that the CEO’s job is different and more complicated than he imagined.
Some of the surprises for new CEOs arise from time and knowledge limitations—there is so much to do in complex new areas, with imperfect information and never enough time. Others stem from unexpected and unfamiliar new roles and altered professional relationships. Still others crop up because of the paradox that the more power you have, the harder it is to use. While several of the challenges may appear familiar, we have discovered that nothing in a leader’s background, even running a large business within his company, fully prepares him to be CEO.
Through our work with new chief executives of major companies, we have found seven surprises to be the most common. (See the sidebar “Learning the Ropes.”) How well and how quickly new CEOs understand, accept, and confront them will have a lot to do with the executives’ eventual success or failure. The seven surprises highlight realities about the nature of leadership that are important not just for CEOs but for executives at any level and in any size organization.
The seven most common “Surprises” for new CEOs:
- You can’t run the company. As demands from external constituencies (shareholders, board members, politicians) mount, your control over internal operations recedes. Shift from direct to indirect means of influence—articulating a clear strategy, establishing guiding structures and processes, and setting values and tone. And select the right senior management team to help you run the company.
- Giving orders is costly. Overruling thoughtful decisions made at lower organizational levels erodes senior managers’ confidence. Decision making grinds to a halt as managers begin checking with you before proceeding on anything. Instead, promote agreement about decision-making criteria, share power, and trust others to make key decisions.
- It’s hard to know what’s really going on. Once you’re CEO, others withhold bad news, fearing you’ll shoot the messenger. How to get solid information? Consult customers, other CEOs, and industry associations. Ask independent advisers to criticize your thinking. And have weekly lunches with employees from all levels, to hear their ideas and opinions.
- You’re always sending a message. Your every move—inside and outside the organization—is scrutinized and interpreted. To minimize misinterpretation, learn what signals you’re sending. Carefully consider how different audiences might interpret your actions and communications. Use simple, clear, and oft-repeated messages illustrated with memorable stories.
- You’re not the boss. You have ten or twelve bosses: the board of directors. They can set your compensation, evaluate your performance, overturn your strategy, and fire you. Yet many directors have limited knowledge of your industry and scant time to acquire it. Educate them through one-on-one contacts, e-mail updates of corporate progress, and distribution of background material. Collaborate with them to gain their trust.
- Pleasing shareholders is not the goal. With their short-term focus, shareholders may favor actions that don’t always strengthen your company’s long-term competitive position. Shape their perceptions of your company through constant explanations and reminders of your strategy. Develop and articulate a sound strategy, even if it’s unpopular with Wall Street.
- You’re still only human. The rewards and adulation that come with being CEO can tempt you into acts of hubris. Make a disciplined effort to stay humble. Revisit your decisions. Find forthright people—and listen to them. Maintain connections to family, friends, your community, and hobbies to avoid being consumed by your job.
These Seven Surprises for new CEOs carry some important lessons:
- First, as a new CEO you must learn to manage organizational context rather than focus on daily operations.
- Second, you must recognize that your position does not confer the right to lead, nor your position guarantees the loyalty of the organization.
- Finally, you must remember that you are subject to a range of limitations, even though others might treat you as if you were omnipotent.
Source: Seven Surprises for New CEOs, HBR, Porter (2004)Business frameworks like Seven Surprises are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.