CEOs have final accountability for the value of their organisation and – in the private sector at least – they lose their job for failing to keep value matched to expectations. In the public sector measures of value are more complex and varied. At one end of the spectrum CEO’s lose their jobs as a totem to show that personal accountability does exist and at the other it’s about surviving by managing the process of agreeing how value is measured.

The danger for CEOs is that once they have dedicated 25 to 30 percent of their time to the corporate calendar. Formal meetings are driven by the requirement for compliance and governance and then probably a further 30 percent of time is given to managing key external stakeholders. This leaves less than half their time to dedicate to working with colleagues on what the business actually does – the products or services it delivers, the processes by which it manages itself and the people who do the work.

The result is that many CEOs are too reliant on making judgments on information
provided in the shape which suits the provider and which reflects their view of the drivers and focus of the business. However, one of the key inputs and values of leadership is to be able to rise above the partisan, to create alignment among the executive team that forges agreement on the common goals of the business and the key measures by which these will be achieved.

The danger is that the CEO becomes the externally facing accountable officer who does not have a clear hand on the levers of control and change internally. At the heart of this issue is a moment of unfashionable truth about control and knowledge, about real line management and about deciding which facts you want to know and getting to have them.

CEOs need to be clear that when something happens that does have a bad, or good impact on the value of their organisation that they know what drove that and how they might react or change.

There are two important benefits to consider. One is the joy of being properly connected with your business, knowing what it does, what it makes and how it does it. The other is that having forged some clarity around who does what, why they are doing it and how it will be measured. It’s certainly easier to prioritise internally and there is more to say externally. Organisations are like mini societies that thrive on the rules that bind it and the roles that people play are framed by those rules.

The first thing that an effective organisation needs to know is how much it costs to run the place. For many organisations the answer is a big surprise. The measurement of costs in organisations is fraught with difficulty and argument over comparisons and ownership and there are two approached that can be adopted to reducing cost. The first is a very straightforward generalised “haircut” that simply dishes out targets to individual business areas and functional owners and asks for the run rate baseline to be reduced by a percentage. The great advantage of this approach is that it is cheap to manage and allows business and functional owners to feel in control of the process.

There are however dangers to this approach. It’s easy, for teams to adopt a strategy of “special pleading”. This generally takes the form of arguments about the consequences of savings being unknown and therefore an additional special project being required to examine these. Without an overall framework or agreement about the role of the organisation vis a vis the core elements of the things it does – the processes by which it makes decisions – this type of project will always find a reason not to change.

The CEO’s access to and use of organisa- tional data is driving the management of costs is critical in this type of situation. At the heart of the matter is the alignment of financial and HR information to create a useful schedule that shows how much it costs to get things done and to be able to measure that against how important it is to you to have those things happen. In many organisations this means having to tread on the niceties of organisational frameworks to create a total top to bottom and side-to-side picture.

In one recent example this meant having to suggest to an operations director that the cost of his regional functions was relevant to the cost of the whole, despite their P&L accountability. In another it meant making it clear to a headquarters that running three centralised marketing functions in a customer-facing, highly market-segmented business was not only probably delivering the wrong answer but a very costly one too. In a third the exercise of matching up the roles and activities of the HR function with their associated costs and then matching them against the Divisional Business plan showed that the words that said “HR must be aligned with business objectives” was just a theory and not a practice.

So, while a straightforward cost-saving exercise can be useful it does not truly add to organisational effectiveness, adding short term to the CEO’s room for manoeuvre but not adding in the long term to his/her extent of knowledge or control. Greater impact can be achieved by CEOs who decide to tackle the issue of cost by immediately associating it with a change to the overall operating model.

The challenge for CEOs therefore is at what point it is worth considering creating a more valuable organisation through a change to the organisation rather than by continuing to press for performance out of the one you currently have. Of all the factors to be considered the key ones internally are about the relationship between information and accountability.

In trying to create the right balance between the products, the people and the processes, CEOs need to ask themselves whether the processes are there to support the people in what they want to do or to develop and sustain the products and services on behalf of the customers.

The main truth behind all of this is that when it comes down to it most of us would prefer to embark on a simple cost savings exercise or a process review without tackling the issues of accountability and agreement amongst the executive team because a process doesn’t answer back. The real enemy of organisational effectiveness is in this circumstance not lack of knowledge – though that doesn’t help – but a fear of getting the team into the room and hearing what they think and having to forge an agreement with them. Its hard work and involves facing up to both their view of you as a leader and their own talents and limits. Sometimes people don’t make it; both executives and CEOs simply because they can’t stay focused and be decisive. In other circumstances of leadership; an unruly classroom, a battlefield or in an operating theatre there isn’t time for mulling things over.

In too many businesses mulling leads to another strategy paper justifying the mulling and eventually only the shareholders can see the wood for the trees.

So, CEOs look your people in the eye and say – are we together and do I have the dynamism to lead you – that’s effective.