The High Growth Curse
CEOs of high-growth companies rate their performance lowest among their peers
As a certified Line-of-SightSM partner, EmFluent helps mid-market companies and large enterprises execute better by measuring and managing five critical capabilities necessary for successful execution (or KSEs): strategic understanding, leadership, balanced metrics, activities & structure, and human capital; it also assesses market discipline – the ability to execute in a way that remains true to the strategic intent. These factors are aggregated to form an overall Organizational Health index measured on a scale from 0 to 100.
In the first quarter of 2021, Line-of-Sight conducted research to measure how CEOs evaluate their organizations’ execution performance. In particular, the research compared the CEO ratings for high-growth companies (growing 50% or more year-over-year) against their peers growing at a slower clip.
This data is critical to understand how to lead companies in an unprecedented period of economic recovery: indeed, as the health of the economy improves, we see a concentration of economic activity in specific sectors: for example, spending on recreational goods increased 26% compared to what we could expect if the pandemic had not hit; computers and electronics are higher than normal by 23%; spending on cars and trucks higher by 16%. Therefore, many companies in those sectors are experiencing unusually high growth.
How are their leaders managing such fast growth? Line-of-Sight research, based on over 100 CEO self-assessments gathered in Q1 2021, shows that high growth is taxing: CEOs experiencing highest growth (more than 50% year-over-year) gave themselves a score of 63 in the Overall Organizational Health Index compared to an overall average score of 71 for all CEOs.
Their execution self-assessment is lower than their peers across KSEs; biggest gaps are in Leadership (6 points lower) and Activities and Structure (9 points lower). Both gaps are understandable: high-growth demands greater mindshare from leaders, more issues to solve, more employees to hire, and more efforts to maintain the integrity of culture. In effect, high-growth is akin to crisis management, when risk is high, data is scarce, and leaders have to step up.
The gap in Activities and Structure is even less surprising: when growth is fast, employees are challenged to stay focused on priorities; reporting lags behind operations, leaving employees flying blind without accurate or timely data to confirm that they are executing the most critical tasks.
The data highlights another paradox: it is not growth that taxes companies’ execution; it is high growth. When comparing execution self-evaluations for high-growth CEOs vs. CEO experiencing moderate growth (between 5% and 50% year-over-year), data show even larger gaps:
- There is a 10-point gap in leadership self-assessment
- There is a 12-point gap in Balanced Metrics
- There is a whooping 13-point gap in Activities and Structure
In fact, CEOs of moderate-growth companies rate their execution higher than the average across all CEOs; but the gap is highest compared to their high-growth peers.
We may think of moderate growth as a sweet spot for execution, if only one KSE was not lagging for growing companies, and that is Human Capital. CEOs of both high-growth and moderate-growth companies rate their execution lower than average when it comes to managing talent. When you grow, finding the right people to fit the right roles is difficult, as is onboarding then, coaching them and developing them while the organization scrambles to allocate resources where they have the most impact. In fact, human capital is a challenge for all CEOs, as CEOs on average give themselves the lowest evaluation on this particular execution capability.
The Line-of-Sight CEO data is a reminder for leaders to be constantly mindful of what it takes to execute well. And this is particularly critical for companies experiencing high growth. Data suggests that high-growth CEOs can improve their execution by:
- Being a self-aware leader, constantly communicating the strategy to keep the organization focused
- Giving employees the right data and reporting to measure their performance and how it ties to the strategy
- Relentlessly helping employees focus on strategic priorities and let go of secondary activities.
Upcoming blogs will focus on other insights from the CEO execution self-assessment data and continue to provide fact-based recommendations to improve execution in the post-pandemic environment.