CEOs Tips To Success

The success of CEOs is deeply linked to the success of the companies they lead, but the vast body of popular literature on the topic explores this relationship largely in qualitative terms. The dangers of these approaches are well known: it’s easy to be misled by outliers or to conclude, mistakenly, that prominent actions which seem correlated with success were responsible for it.

We tried to sidestep some of these difficulties by systematically reviewing the major strategic moves (from management reshuffles to cost-reduction efforts to new-business launches to geographic expansion) that nearly 600 CEOs made during their first two years in office. Using annualized total returns to shareholders (TRS), we assessed their companies’ performance over the CEOs’ tenure in office. Finally, we analyzed how the moves they made—at least those visible to external observers1—and the health of their companies when they joined them influenced the performance of those companies.2

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The results of this analysis, bolstered by nearly 250 case studies, show that the number and nature of the strategic moves made by CEOs who join well- and poorly performing companies are surprisingly similar. The efficacy of certain moves appears

CEO transition story

Moving fast, infusing the right culture and values, and targeting performance and skills—these were among the early priorities for the former CEOs of Aetna and Covidien. In a pair of video interviews with McKinsey’s Simon London, former Aetna CEO Ron Williams speaks to the importance of building a leadership team with the right values, and former Covidien CEO Jose Almedia (currently the CEO of Baxter International) reflects on divestitures and acquisitions and the moves he and his team made to reallocate capital. What follows are edited transcripts of their conversations.

Aetna’s Ron Williams on making critical moves

Moving at the right pace

Our pace of change always had to be rapid but measured. Our business is truly a technology business, and one of the things you learn is to never take apart anything you do not fully understand. Because when you snip the wires, you may never get them back together, and our customers will suffer. So we have to be in control of the inputs and outputs and customer-service levels. We often made very dramatic changes and important strategic moves, such as when we built our own pharmacy-benefits-management company up from nothing and later

Success Business Tips

How does a new CEO get off to a great start? The best leaders move boldly and swiftly to transform their companies as they are transitioning into the new role. In this episode of the McKinsey Podcast, partner Michael Birshan and associate partner Thomas Meakin talk with McKinsey Quarterly editor in chief Allen Webb about their research into the strategic moves of nearly 600 CEOs, as well as how those moves influenced company returns and the CEOs’ tenure. An edited transcript of their conversation follows.

Podcast transcript

Hi, I’m Allen Webb, editor in chief of McKinsey Quarterly. I’m in Seattle today, and I’m delighted to be speaking with Michael Birshan, a partner and leader of the firm’s Strategy & Corporate Finance Practice in London, and Thomas Meakin, who is in Cologne today, but is an associate principal located normally in the London office. Michael and Thomas, along with their colleague, Kurt Strovink, were the coauthors of a recent McKinsey Quarterly article called “How new CEOs can boost their odds of success.” It’s a data-driven look at the strategic moves that new CEOs can make. Michael, Thomas, thank you very much for spending some time with us

A guide to digital disruption

ecade ago, Norwegian media group Schibsted made a courageous decision: to offer classifieds—the main revenue source of its newspaper businesses online for free. The company had already made significant Internet investments but realized that to establish a pan-European digital stronghold it had to raise the stakes. During a presentation to a prospective French partner, Schibsted executives pointed out that existing European classifieds sites had limited traffic. “The market is up for grabs,” they said, “and we intend to get it.”1Today, more than 80 percent of their earnings come from online classifieds.2

About that same time, the boards of other leading newspapers were also weighing the prospect of a digital future. No doubt, like Schibsted, they even developed and debated hypothetical scenarios in which Internet start-ups siphoned off the lucrative print classified ads the industry called its “rivers of gold.” Maybe these scenarios appeared insufficiently alarming—or maybe they were too dangerous to even entertain. But very few newspapers followed Schibsted’s path.

From the vantage point of 2016, when print media lie shattered by a tsunami of digital disruption, it’s easy to talk about who made the “right” decision and who the “wrong.” Things are far murkier when

Lessons from past downturns

Mergers and acquisitions in the oil and gas sector may be coming into fashion again. In the current era of low prices, a confluence of events makes acquiring more attractive. Pricing hedges that had locked buyers into higher prices are rolling off. Debt levels are high, particularly among independent exploration and production companies with exposure to US shale production—at nearly ten times earnings before interest, taxes, depreciation, and amortization. And like most commodities industries, the oil and gas sector is prone to consolidation during the downside of its business cycle (Exhibit 1). This raises the likelihood that some companies will be available at distressed prices. Healthy companies may have been slow to start deals, but they’ll clearly want to be on the lookout to strengthen their competitive positions as new opportunities emerge.

They may find that the strategies that worked when prices were rising won’t work as well when prices are low. Our analysis of the value-creation performance of deals during a previous period of low prices, from 1986 to 1998, and the period from 1998 to 2015, which was characterized mostly by a risingoil-price trend,1bears this out (Exhibit 2). Of all these deals when prices were

Tips for reinvent the external function

Engaging with external stakeholders is more important than ever to company leaders, according to the fifth McKinsey Global Survey on external affairs.1Yet while most executives believe outside stakeholders will be increasingly involved in their industries in coming years, few say their companies have taken an active approach to engaging with stakeholders or that they have found success in their external-affairs efforts. The results suggest that to step up their game, companies should start by strengthening their capabilities—many of which aren’t any stronger now than they were a few years ago. The companies that, according to respondents, are most successful at external affairs not only have better overall capabilities than their peers but they also are particularly skilled at organizing their external-affairs functions.

A rising role for stakeholder engagement and the business value at stake

After several years of surveys on engaging external stakeholders, respondents now say the topic is a higher priority than ever before for their companies’ leaders (Exhibit 1). External affairs now ranks as a top or top three priority for more than half of CEOs, and boards also are paying more attention than they have in past years.

We used to have

How to understanding the economics

Amid digital disruption, companies must evaluate the most effective ways to create value, rather than trying to guess which disruptors are going to be the next big start-up. In this episode of the McKinsey Podcast, directors Angus Dawson and Martin Hirt talk with McKinsey Quarterly editor in chief Allen Webb about the value of companies focusing on the fundamentals of supply, demand, and the ways they might be disrupted by digitization.

Allen Webb: Hi, I’m Allen Webb, editor in chief of the McKinsey Quarterly. I’m in Seattle today, and I’m delighted to be speaking with Angus Dawson, a McKinsey director and leader of the firm’s Strategy Practice, based in Sydney, and Martin Hirt, a Taipei-based director of the firm who is responsible for the Strategy Practice’s global knowledge-development efforts.

Angus and Martin, along with their colleague Jay Scanlan, were the coauthors of a recent McKinsey Quarterly article on digital strategy, which lays out how to identify opportunities, respond to threats, and navigate disruptive change.1Angus and Martin, thank you very much for spending some time with us today.

Angus Dawson: Very happy to. Hi, Allen.

Martin Hirt: It’s a pleasure.

Allen Webb: There is

Education for Digital Leaders Tips

Chief information officers (CIOs), of course, should regularly brief the management team and the board on new developments, demoing exciting new technology, bringing in external speakers and vendors, and using other tactics that promote tech learning and engagement. But keeping up on technology trends is also the responsibility of every executive. And while that can be daunting given the vast tech landscape and seemingly limitless avenues for learning, it’s also incredibly exciting.

So, if your job title doesn’t include the words information, technology, ordigital, how do you stay current? And how do you ensure your organization isn’t falling behind? Consulting digitally literate kids, grandkids, or Millennial staff for help, as many chief executives tell us they do, won’t cut it. Here are three easy ways to begin boosting your digital acumen:

1. Get hands-on with new technology. Firsthand experience is a great way to better understand how your organization can apply technology to improve processes, better engage with customers, or create new lines of business.Personal exploration with emerging technologies not only adds to your knowledge base, it also puts you in the shoes of customers and employees. This forces you to think about the human experience, which

How to leading in the digital age

The automation of work and the digital disruption of business models place a premium on leaders who can create a vision of change and frame it positively.

How disruptive will accelerating workplace automation be for organizations in the future? For decades, businesses have deployed technology to reduce costs and complexity, make better products, and develop new business models. But the new potential of artificial intelligence and advanced robotics poses major new challenges for leaders as they seek to reset their strategies for a digital age.

Last November, Bloomberg chairman Peter Grauer and Nadir Mohamed, the recently retired CEO of Rogers Communications, sat down with Manfred Kets de Vries, a professor at INSEAD, and Harvard professor Robert Kegan to debate some of the issues with Claudio Feser, head of McKinsey’s leadership development initiative. Their conversation started at the movies . . .

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Peter Grauer: Recently, I was watching Spencer Tracy and Katharine Hepburn in a 1957 movie called Desk Set, about the early stages of computerization in offices. The workforce was petrified that it was going to end up out of work. In the end, the employees learned

Tech unicorn creates value Says

Niklas Östberg, an energetic 35-year-old Swede, is the CEO and cofounder of Delivery Hero. Based in Berlin and financed with venture-capital money, the company is built around an online platform that matches restaurants with hungry customers. Delivery Hero has grown to operate today in 33 markets across five continents, processing 14 million takeout orders each month and offering customers recommendations, as well as peer reviews of restaurants.

With a valuation of $3 billion, Delivery Hero is also one of about 170 “unicorns”: start-ups with valuations above $1 billion. Given the number of new companies that crashed when the turnoftheentury tech bubble burst, many executives and investors have cast a skeptical eye on the unicorn phenomenon. Östberg recently discussed with McKinsey’s Thomas Schumacher and Dennis Swinford the startup landscape, the importance of innovation grounded in data, and his company’s role as a “disruptor of an inefficient restaurant industry.”

The Quarterly: Valuations of pre-IPO tech companies have come under scrutiny lately, particularly the emergence of so-called unicorns. What’s going on, in your perception?

Niklas Östberg: I’m sure a number of those unicorns shouldn’t be unicorns. As always, earlier-stage businesses come at

Big data and analytics tips

Few dispute that organizations have more data than ever at their disposal. But actually deriving meaningful insights from that data—and converting knowledge into action—is easier said than done. We spoke with six senior leaders from major organizations and asked them about the challenges and opportunities involved in adopting advanced analytics: Murli Buluswar, chief science officer at AIG; Vince Campisi, chief information officer at GE Software; Ash Gupta, chief risk officer at American Express; Zoher Karu, vice president of global customer optimization and data at eBay; Victor Nilson, senior vice president of big data at AT&T; and Ruben Sigala, chief analytics officer at Caesars Entertainment. An edited transcript of their comments follows.

Challenges organizations face in adopting analytics

Murli Buluswar, chief science officer, AIG: The biggest challenge of making the evolution from a knowing culture to a learning culture—from a culture that largely depends on heuristics in decision making to a culture that is much more objective and data driven and embraces the power of data and technology—is really not the cost. Initially, it largely ends up being imagination and inertia.

What I have learned in my last few

Tips to repurchases boost earnings

All the measures of a company’s performance, its earnings per share (EPS) may be the most visible. It’s quite literally the “bottom line” on a company’s income statement. It’s the number that business journalists focus on more often than any other, and it’s usually the first or second item in any company press release about quarterly or annual performance. It’s also often a key factor in executive compensation.

But for all the attention EPS receives, it is highly overrated as a barometer of value creation. In fact, over the past ten years, 36 percent of large companies with higher-than-average EPS under-performed on average total return to shareholders (TRS). And while it’s true that EPS growth and shareholder returns are strongly correlated, executives and naïve investors sometimes take that relationship too seriously. If improving EPS is good, they assume, then companies should increase it by any means possible.

The fallacy is believing that anything that improves EPS will have the same effect on value creation and TRS. On the contrary, the factors that most influence EPS—revenue growth, margin improvement, and share repurchases—actually affect value creation differently. Revenue growth, for example, can increase TRS as long as the

Travel Business Tips

Travel agents provide a variety of services to clients that include purchasing airline tickets, making hotel and resort reservations, creating itineraries for tour or cruise packages and providing information about specific destinations. These days, travel agents may work from home or at an office as most travel arrangements are made online. To start a travel agent business, it is helpful to have a working knowledge of travel agent software, customer service experience and experience in traveling to different parts of the world.

Step 1Decide whether to become an independent travel consultant for a travel agency, franchise owner of an established travel agency or start your own agency. Independent travel consultants earn commissions for the work they do for a travel agency. Consultants may work from home or in an agency’s office. Start-up costs are usually minimal because computer software; IATA number, which is needed to book flights with airlines; and office space are typically provided by the travel agency. A client list may also be provided. As a consultant, you may be limited in the types of travel services you can provide clients. Purchasing a franchise allows you to build a

Culinary Business Tips

For those with a passion for food, opening a restaurant is the ultimate entrepreneurial dream. Perhaps you’ve already envisioned it: You start off in a tiny space with a couple of tables and a small kitchen. Before you know it, your eatery has become a beloved local dining establishment with a line out the door every weekend.

Running a restaurant is certainly rewarding, but it’s no easy task. Like any startup venture, restaurant ownership takes a lot of hard work, unwavering dedication and a willingness to overcome the obstacles you’re sure to come up against along the way. Six industry veterans shared their tips for navigating the business and launching a successful restaurant.

Do your homework

In any industry, doing your due diligence before starting up is critical for success. This is especially true for the restaurant business, where simply knowing good food isn’t enough. Even if you have worked in a restaurant, there are still many legal, managerial and marketing lessons to be learned.

One area that many would-be restaurateurs overlook is local licensing and health-department regulations. Michele Stumpe, a Georgia-based attorney specializing in alcohol licensing and hospitality litigation, stressed the importance

Legal Perspective on Wellness Programs Tips

In recent years, an increasing number of companies have begun to offer their employees a corporate wellness program — an employer-funded initiative designed to provide the type of preventive care and screening that can both ward off employees’ future health problems and improve their current fitness levels. Indeed, 98 percent of firms with more than 200 employees that responded to a Kaiser Family Foundationsurvey in 2014 offered their employees some form of wellness program. And PwC’s 2016 Health and Well-Being Touchstone Survey found that 76 percent of the companies it surveyed offered such programs. By implementing preventive programs, companies can try to keep their employees in fine fettle and reduce their future insurance outlays by having a healthier workforce.

But these programs, although seemingly well intentioned, must avoid violating any federal employment laws against discrimination. Specifically, companies walk a fine line when negotiating the Americans with Disabilities Act (ADA), which mandates that firms avoid any type of disability discrimination toward their employees. For example, wellness programs often emphasize the importance of exercise, but in certain cases, people with disabilities can struggle with physical movement.

Programs, while seemingly well intentioned, must avoid violating federal employment laws against