The Role of a CEO

A CEO is always the focal point of an organization, be it for employees, shareholders, customers, suppliers, economic and financial analysts, and so on. The CEOs are at times regarded as corporate saviors and sometimes loathed as corporate crooks. How many CEOs really understand their role and the unique work they are expected to perform in the organization?

Management guru Peter Drucker feels that most CEOs wrongly view their role as that of coaches and facilitators who jump into solve problems as needed. Drucker further states that CEOs indeed have work that is their own and that the CEO is the link between the Inside that is ‘the organization’ and the Outside of society, economy, technology, markets, and customers. Inside, there are only costs. Results are only on the outside. On his death, in November 2005, Drucker left behind an outline of his emerging thoughts on the role of a CEO. The Wall Street Journal had published a portion of it as “The American CEO” in January 2005. Most of the quotations in this article come from Drucker’s notes, as published in the above article.

So what is the unique work of the CEOs – work that only they can do and that they must do? Let’s try to understand and accentuate the power in Drucker’s words about linking the outside to the inside. The CEO alone can experience the meaningful outside at an enterprise level, responsible for understanding it, interpreting it, advocating for it, and presenting it so that the company can respond in a way that enables sustainable sales, profit, and growth in returns to the shareholders.

It’s a job that only CEOs can do because everybody else in the organization is focused much more narrowly and, for the most part, in one direction. Salespeople are focused towards the markets and everyone else in the organization has an internal focus in their own domain. The CEO can see opportunities that others don’t see. He is the only person whose boss isn’t another company employee and hence has to make judgments and the tough calls which others can’t make. The CEO is the only one held accountable for the performance and results of the company which he has to achieve in a complex environment of diverse and often competing external stakeholders.

The sustainable growth of the organization is the CEO’s responsibility and legacy, and inward focus is the enemy of growth. A CEO must have a deep understanding of external stakeholders and their competing interests, and how those interests correspond with the capabilities and limitations of the organization. But if linking the outside to the inside is the role of the CEO, what is his actual work? It comes down to the four fundamental tasks, drawn from Drucker’s observations:

Defining and interpreting the meaningful outside.
Answering, time and again, the two part question, what business are we in and what business are we not in.
Balancing sufficient yield in the present with necessary investment in the future.
Shaping the values and standards of the organization.

The simplicity and clarity of these tasks is their strength. But this simplicity is also deceptive because the work is more demanding than what it seems. The challenge is to resist getting pulled into other work that is not the unique responsibility of the CEO. Given below are some intriguing aspects of a CEOs job.

Defining and interpreting the meaningful outside:

Many companies show the tendency to get internally drawn during periods of successes or of failures. They fail to acknowledge the existence of external stakeholders, be it suppliers or consumers. Markets are very dynamic and never static. The consumers’ tastes and preferences are constantly changing. A CEO must acknowledge the dynamic nature of the markets and the ever changing external environment. Failure to do so might spell doom for the company which is evident from the example of Bajaj Auto Limited, in India.

Bajaj Auto Limited, for years together, had a near monopoly in two wheeler market in India. The company was so internally involved and became product centric, that it failed to acknowledge the changing external environment, as well as the tastes and preferences of the consumers. The period 1983-84 saw a sea change in automobile – two wheeler industry, when for the first time, foreign collaborations were allowed by the government. The domestic companies started negotiating with some foreign players for joint ventures. BAL failed to acknowledge this threat from technologically superior and financially sound JVs. At the same time, BAL failed to understand that Indian cities were expanding and the commuting distance was increasing. Fuel prices were hitting the roof due to hostilities in the Gulf. The younger generation was having a wide exposure to western culture due to extensive and rapid growth of TV industry. Due to all these prevailing conditions, the consumers were looking for a trendy, technologically superior and fuel efficient two wheeler. But BAL failed to understand and acknowledge the rapid changes in the external environment and the changing needs of the consumers. End result, a cycle manufacturer, Hero, who understood all these changes, acted upon them rapidly, tied up with Honda- Japan, and came up with a stylish, fuel efficient and technologically superior two wheeler – Hero Honda. What happened after that is history and known to all. Hero Honda is the number one brand in two wheeler industry of India till date. Had BAL been sensitive to the external environment, it would have invested more in R & D and come up with better and better two wheelers, which meet the consumers’ requirements and maintained its numero uno position.



What business are we in and what business are we not in:

Drucker said “Equally important – and also the task only the CEO can fulfill – is to decide, What is our business? What should it be? What is not our business? And what it should not be?”

Where should a Company play to win and where should it not play at all? These are the difficult decisions that are to be taken by a CEO. The CEO must do thorough evaluation and discussion because only he has the enterprise wide perspective to make the tough choices involved. A.G. Lafley, CEO, Procter & Gamble, USA, in his article ‘What only the CEO can do’, published in Harvard Business Review, May 2009 issue, mentions about the difficult choices he had to make during tough times in the year 2000 and how he did it. He states “We decided to focus on P & G’s core businesses – laundry products, baby diapers, feminine care, and hair care – businesses in which P & G was clearly the industry leader, and businesses that fit strategically with P & G’s core strengths. As for industries where we wont compete, pruning isn’t as sexy as acquisition, but it’s just as important and perhaps more difficult. For instance, we let go of a sentimental favorite, Jiff, because it didn’t play to our strength of creating brands on a global scale. Only Americans eat peanut butter”.

To decide what to do and what not to do requires a lot of analysis on multiple factors influencing the business. The most important are the structural attractiveness of the business the company is in or considering to be in; and the strategic fit of various industries with the core competencies and strengths of the company. These may include consumer understanding, brand building, innovation, go-to-market capability, and scale. The other factors to be considered are the Leadership position relative to its competitors, demographic trends, and the growth potential.

Determining which business a company should not be in is a continuous process and requires continuous pruning and weeding. The job of disposing off assets is not as attractive as acquiring them, but its equally important.

Balancing the Present and Future:

The CEO has to strike a balance between short term and long term priorities. Drucker says “The CEO decides on the balance between yield from the present activities, and investment in an unknown, unknowable and highly uncertain future. It’s a judgment based on ability, knowledge and foresight rather than a decision based on ‘facts.’”

Determining the optimal balance between yield from present activities and investment in a highly uncertain future entails the riskiest choices a CEO can make. The pull will always be to the present, because the interests of most stakeholders are short term. In times of financial crisis and global recession, CEOs feel even more pressure to focus on short term goals as the stakeholders are closely watching weekly- monthly-quarterly performances. Such pressure can result in a significant reduction of investment in the middle and long terms, including the slashing of capital projects and R & D innovation which may be harmful for the company in the long run. A CEO has to make a few critical choices to manage this balance.

The first is to define realistic growth goals. Many CEOs are over-ambitious and tend to set unrealistic growth goals in the guise of accepting huge challenges and please the stakeholders. This takes away the rationale behind everything that goes into achieving such goals. Once a company starts pursuing unrealistic growth objectives, it will seldom create the potential and flexibility to invest in long term growth. Such companies borrow from the future to sustain the present. They either try to pull the volume from the next quarter to deliver in the current quarter or end up spending more in the current quarter leaving less for the next quarter. Unrealistic growth goals also result in making higher budgetary provisions. While the company might end up spending the budgeted amount, the expected growth might not be achieved. The result is fewer resources and increasingly limited scope to make investments in the future. Before establishing long term goals, a CEO must decide what is good enough to deliver in the short term.

Lafley says “We must work on the present to earn the right to invest in the future. It’s a balance that the CEO alone can strike, because he or she alone is exposed to all the external and internal interests – while being accountable for the long term.”

The second choice is to create a flexible budgeting process. The budge process should focus on the realistic short term goals and at the same time, sustainable long term goals. The short term achievements should expand to midterm growth and must contribute to the achievement of long term objectives. Short term budget forecasts must make provisions for the long term. This short term to long term approach towards budgeting can be highly effective because short term goals are relatively more realistic, deviations can be identified quickly and corrective measures can be taken in time.

The third choice is strategic allocation of human resources in a way that identifies and develops good people for today and tomorrow. This is a key aspect of the CEO’s role as it involves not only considering what we know today but also anticipating what skills and experiences leaders will need to run the new businesses that may come up tomorrow. People need to be groomed for the future. Drucker says “Effective CEO’s make sure that the performing people are allocated to opportunities rather than only to ‘problems’. And they make sure that people are placed where their strengths can become effective.”

Shaping Values and Standards:

Values create and establish an identity of the company. Values help the businesses move forward. Standards are the expectations which influence the decision making process. Standards are the measuring stick for values. Drucker says, “CEOs set the values, the standards, and the ethics of an organization. They either lead or mislead”.

The fourth task of the CEO is to understand the values of the organization in a changing environment and competitive structure and then define the standards. The values and standards should be linked to the meaningful outside and relevant to the present and the future. The correct interpretation of values and standards is equally important. For example, P&G’s values had been in place for generations, but over time, they had been internally focused and interpreted in a way that put employees’ needs ahead of consumers. Lafley states, “Trust had come to mean employee reliance on the company for lifetime jobs. We reoriented it as consumers’ trust in P&G brands”.

Standards most often, are set in comparison with the past, whereas the past may not be necessarily a correct yardstick of measurement. The standards must be set in accordance with the present scenario and future estimates. It is important to compare the standards with the expectations of the external stakeholders. The correct interpretations of values and standards must be explicitly defined.


In Management Challenges for the 21st Century, Peter Drucker wrote,

One cannot manage change. One can only be ahead of it. In a period of upheavals, such as the one we are living in, change is the norm. To be sure, it is painful and risky, and above all it requires a great deal of very hard work. But unless it is seen as the task of the organization to lead change, the organization will not survive.


The external environment changes inexorably, at times very fast, and often unpredictably. The dynamics do not change the work of the CEO. The CEO is the only person who can appreciate and link both the inside and the outside. This work will never go away.

The bulk of a CEO’s time should be spent on the four tasks mentioned here. But it may not be a reality for many CEOs. They have to constantly fight the gravitational pull from the inside. The real challenge is to work on an exclusively external perspective that is not accessible to the rest of the organization. The CEO has to make it accessible through choices and actions every day.