CEO Logic

How to Think and Act Like a Chief Executive

C Ray Johnson

• Publisher: Career Press
• Year: 1998
• ISBN:
  9781632658395
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

This book starts with the foundations of business success: the development of a business philosophy that works for you, and the strategic application of that philosophy in all areas of your endeavor.

Part 1

The Foundations

CEO Logic begins with clear thinking, based on the disciplined application of fundamental business principles. Part 1: The Foundations teaches these fundamentals, the essential groundwork required for constructing success in any business: how to develop a valid business philosophy and how to apply that philosophy strategically.

Chapter 1 offers insights into fundamental business principles, catalysts for developing individual personal management philosophies, and guidance for preparing core operating values for a specific business. Chapter 2 addresses the critical and strategic issues of core competencies and competitive edge.

Together, these chapters lay the groundwork for the clear thinking that is the hallmark of CEO Logic. Begin here to build the foundation for your own success.

Chapter 1

Thinking Like a Chief Executive Officer

Out of intense complexities, intense simplicities emerge.

—Winston Churchill

CEOs are the proclaimed heroes of the business world. They make the big decisions, they make the big saves, they earn the million-dollar salaries. Everyone tries to learn their secrets in order to replicate their success in the game of business. But too often the focus is on what they are doing—how they are reengineering a company in trouble, leading a successful reinvention of a company's image or executing a daring acquisition. Doing, of course, is essential—the ability to take the right risks and follow through on strategy is part of what all successful top managers do. But something else is missing, the something that is the real secret to all those CEOs’ impressive accomplishments. That something is the thought that drives the action. No one leading an organization can do it well unless the fundamentals have been thought through—only then can he move ahead to implement them in creative, innovative, and effective ways.

This systematic clear thinking about the fundamentals is what CEO Logic is all about. Top managers, of course, immediately see the value in learning to think like a CEO. But ambitious businesspeople at all levels are also realizing that their own success depends on their ability to think strategically and incisively, the way the best CEOs do. For most of the past century, business success has been driven by manufacturing productivity. As a new century approaches, however, the business environment is rapidly and radically changing. In the future, business success will depend more and more on the capacity to acquire and leverage knowledge. And it is the clear thinking of the CEO that is defining the new standards of what we need to know to remain competitive in the world of business.

The Philosophical Foundations of CEO Logic

What, then, are the challenges facing CEOs that force them to a higher level of thinking? The key issues that CEOs and senior managers confront every day are often very different in scope and consequence from those they faced in lesser assignments. Instead of having the middle manager's responsibility for playing by established rules and meeting predetermined targets, the CEO has both the opportunity and the obligation to determine the nature of fundamental operating systems, company culture, parameters of the business, and the structure of the organization. This freedom to increase the scope and risk of decisions forces top management to think differently about business. Operating without the safeguards that come with lower positions and largely determining their own authority levels and operating parameters, CEOs have to develop for themselves the concepts and principles that will be reliable foundations for their management decisions. If they fail to do this, so will their businesses fail. But even those at different levels of responsibility in an organization will find that a well-thought-out philosophical foundation will guide their decisions and actions to new levels of success.

For anyone, at any level, a comprehensive and valid business philosophy begins with at least three primary elements:

1. Mastery of Fundamental Business Principles: Market realities regarding management, competition, and economics that determine the general business environment.
2. Personal Management Philosophy: Your own core ideology that reflects your beliefs and values regarding management style, organizational structure and goals, policy, people, character, and operating methodology.
3. Core Operating Values: A defined set of operating practices, consistent with your personal management philosophy and the fundamental business principles that you believe are necessary to be successful in a specific business in a specific industry.

The goal of developing a valid business philosophy is to take the theoretical and practical elements of fundamental business principles (inescapable market realities that govern and drive all businesses) and your personal management philosophy (your own core ideology) and apply them to a specific business opportunity in order to arrive at a set of core operating values (practical company guidelines). In effect, by establishing core operating values, you are developing a “mini-business philosophy” that applies to the opportunities, problems, resources, and competition in your specific business.

Articulating your business philosophy helps to clarify the road to success, regardless of your position. Experienced CEOs know there is no packaged “best way to manage,” and so should you. There are only valid operating principles that can serve as a foundation to guide a company and its management team. During these times of change and uncertainty, business is always complex, difficult, unpredictable, challenging, and competitive. A CEO soon learns that there are no secrets or shortcuts to effective management. The trendy management programs with catchy names developed by clever consultants are often good ideas, but they are developed for the specific circumstances of one company and cannot be converted into a general theory for all companies. Good management of any particular company must be based on clear thinking about the fundamentals of that business.

Developing a valid business philosophy is not a be-all and end-all guarantee of success in the face of all challenges, but it can provide the foundation for skill, talent, instinct, experience, training, education, and even luck to play their roles in developing a vision and strategy that will pay off in the long run. Michael Thornton*’s story provides a useful illustration of the role of the persistent and successful development and application of his business philosophy in running his $14-million retail appliance company.

Michael Thornton: A business philosophy in action

Michael began in 1974 with one appliance store in a strip shopping center in downtown Los Angeles. As the anchor tenant of the small development, he had the largest store and was therefore the primary draw for all the other stores in the center. He purchased his products at competitive costs, priced them fairly, and ran a low-overhead operation. He developed a selling system that moved products but also allowed his customers to feel comfortable during the process. Michael and his company became known for honesty, value, and hometown service.

When Michael expanded his operation, he attempted to duplicate his original concept. Eventually he opened 11 stores in mostly urban locations. Business was good for a while. But his success brought competitive challenges. First, other appliance chains expanded into his territory. That hurt margins. Then he faced competitive challenges from specialists who competed in only one or two facets of his business. That hurt volume. At this point, Michael realized that just being an honest, fair, and somewhat crafty businessman was not enough. He needed to improve his competitive strategy.

Michael's first competitive move was to increase his advertising in order to generate more and better-qualified store traffic. His competitors countered by increasing their own advertising or by moving to malls. His second move was to further improve his advertising by touting independent product tests and using celebrity testimonials. His competitors mirrored his actions. Then he relocated from urban strip centers to suburban malls and concentrated his locations to get the most out of his advertising efforts. His competitors followed him to suburban malls, eliminated their own advertising, and used their window and store displays to convert general mall traffic to appliance store traffic. The elimination of advertising costs actually gave them a cost advantage over Michael's stores, and his margins deteriorated further. Michael's next move—to narrow his focus by specializing in TVs and stereos—worked for a while, but soon a number of his competitors followed. He realized once again that something was missing from his operating strategy.

What had gone wrong? Michael Thornton was still honest, still gave value, still ran a low-overhead organization, and was working harder than ever. He blamed his problems primarily on his inability to accurately predict his competitors’ counter moves. To some degree, that was correct. But his main mistake was in failing to recognize that he was violating a fundamental business principle: Unique or distinctive customer benefits must be generated and supported by hard-to-copy core competencies.

Michael's original concept for his business worked until it was copied. His improved advertising had the potential to become a core competency, but it was never fully developed. In addition, his move to suburban mall locations was inconsistent with his increased advertising strategy. Higher square-footage costs of suburban mall store leases only make sense when the store can take full advantage of the mall-generated traffic. Michael's increased advertising probably helped his in-mall competitors as much as it helped his own stores. Concentrating on TVs and stereos, likewise, was not grounded in a core competency, and was therefore easily countered.

Michael finally realized that he needed to develop a valid business philosophy. To guide his business decisions, he needed a set of core operating values that was consistent with market-dictated fundamental business principles as well as his own personal management philosophy. His old strategy was consistent with his personal ideology and view of the industry, but violated certain undeniable business truths. Without core competencies and high entry barriers, his competitors could (and therefore would) easily copy his strategic moves.

After rethinking his core operating values, Michael's final move was to abandon his mall locations for large single-point destination stores. He kept his focus on TVs and stereos, as well as his hometown, friendly selling system and his strategy of concentrated locations. In addition, he put more effort into improving his advertising. These strategies worked. Because Michael had first pick of the few available sites for his large destination stores, it was difficult for his competitors to copy that move. The relocation from malls lowered his facility costs as a percent of sales, so he could use the additional margin to fund his increased advertising. Michael's in-mall competitors either could not find similar destination locations or could not afford to respond. His stores became known for large-store competitive prices with hometown friendly service. He had established a competitive strategy that would allow him to fully leverage his core competencies of “hometown selling” and “advertising for cost-effective store traffic.” His competitive moves were consistent with his valid business philosophy. And by creating high entry barriers for competitors, he was developing and leveraging his core competencies while protecting his strategic position.

The moral of Michael's story is not about a specific successful strategy. In fact, my guess is that Michael will face additional challenges from the superstore chains that compete in his product lines. The lesson to be learned is about the importance of developing a valid business philosophy to guide fundamental management decisions.

Element 1: Identifying fundamental business principles

There are certain inescapable market realities that dictate the parameters of both the general business environment and the particular competitive environment of your business. Learning to keep these always in your sights will be your starting task.

The seven steps that follow will guide you as you begin to apply the fundamental principles of business management to the particulars of your own business challenges. Clarify your thinking about these fundamentals and you will be on sound footing for the mastery of CEO Logic.

7 Steps to Thinking Like a CEO

In its most fundamental form, thinking like a CEO means having the perspective to step back, analyze, and understand the business you're in, your core competencies, the wise and selective use of resources, the critical issues you face, the ways you'll measure the performance of individuals and the organization, and the role of key managers. Using the seven steps that follow will guide you in thinking about these fundamentals of the management process in a way that will help you excel in your role and achieve the business results you desire.

Step 1: Have you selected the right business?

Your first responsibility as CEO or senior manager is to make sure you're in the “right business.” The right business:

• Has a sustainable competitive edge supported by one or more core competencies in a stable or growing market.
• Is in an industry that protects its participants from casual competition through high entry and exit barriers.
• Neither concentrates too much business with any one customer nor is limited to too few suppliers for critical purchases.
• Has built in defenses against competitive forces or has positioned itself in a niche where it is strong and competitors are vulnerable.

These elements allow a company to satisfy its customers at a price that creates an acceptable return on investment. In today's successful businesses, great people, good strategies, guaranteed customer satisfaction, and even some of the off-the-shelf management programs such as re-engineering, are important elements. But if you pick the wrong business, good companies and great people will fail. Select an industry in decline and even the best strategies will be meaningless. Target customers who cannot afford to buy, and customer satisfaction will be irrelevant. Pick a business where suppliers or buyers have too much power and your re-engineering ...

Table of contents

• Cover Page
• Title Page
• Copyright
• Acknowledgments
• Contents
• Preface: The Foundations and Disciplines of Management
• Introduction
• Part 1: The Foundations
• Part 2: Management Organization and Execution: Disciplines
• Part 3: Cash, Crisis, and Opportunity
• Part 4: Character, Ethics, Communication, and Wisdom
• Bibliography
• Index