To really understand a business, don’t talk to the CEO

“I long ago realised that to understand a business I would learn much more by talking to people involved in day-to-day operations than the chief executive. They represented “what is really going on here?””

JOHN KAY, Financial Times (January 3, 2011)

The excerpt shown, from Professor John Kay’s regular FT column, caught my eye. I agree wholeheartedly. To truly understand a business don’t talk to its CEO. At least, not at first.

I have spent the better part of my life looking at and into businesses, and trying to figure them out. And it is true: most CEOs are not equipped to tell you the truth about their businesses.

Years ago, when I was still an active management consultant, I was asked to come and offer advice to a very successful, rapidly growing business. My response was simple: “Fine, but I won’t come to head office first. Please arrange for me to tour customer-facing facilities, talk to customers, talk to front-line staff. Only then, much later, will I come for discussions with the CEO.”

The CEO agreed, and we have had a mutually interesting relationship for years.

Most CEOs, by their nature, operate on feel-good statements. They are required to be optimists exuding positivity. They spend most of their time persuading shareholders, investors, regulators and the media to believe in their mission. They operate at the level of the vision statement and the list of corporate values. They talk loftily and aim for the stars. Don’t mock them for this – inspiring others is part of the deal in leadership.

Anyone wishing to get a true understanding of how a business works and a clear picture of its position in its industry, however, must seek out other voices. The most important of these is the voice of the customer, the person who spends money on the product and feels the value, or not, of what is being produced most acutely. Equally important is the potential customer – the person who could buy the company’s product but currently doesn’t. “Why not?” is a crucial question to put to this party.

And then we take our enquiries to employees, big and small. Especially small. Many CEOs think their staff resemble a happy-clappy church where employees are imbued with overwhelming belief in their boss and his vision, and would rather work in his organization than any other. A few candid minutes with junior employees usually explodes that notion.

Lastly, don’t ever forget to talk to competitors. If you are an acute observer, talking to a company’s rivals will reveal a great deal about its true strengths and weaknesses.

Customers, staff, competitors – and then the CEO. It’s a good rule for consultants, analysts, investors, students and business journalists. It’s almost never followed. Most allow themselves to be swept up in the boss-man’s hubris and buy the story wholesale. Remember, most chief executives are seasoned charmers and missionaries: they can spin the tale. They often even believe it, wholesale. It is part of their role to marshall the troops, generate energy and inspiration in others. Unfortunately, they often do this at the expanse of reality.

If you really want to understand a business, work backwards. Look at what it produces, and what value it adds to the lives of its users and consumers. Look at those who don’t buy the product, and study what they buy instead. Look at the people who do the producing, and study their engagement and commitment to their work. Look at competitors, and study the differences and similarities. If you find truly distinctive elements in the business model, and gauge unusual levels of satisfaction in the workplace and the shopfront, then you may be on to something good.

Then, by all means, have coffee with the chief executive.

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