Why CEOs are changing directions faster than ever

·6 min read
Why CEOs are changing directions faster than ever
A drawing of a business man wearing a suit standing on a compass
Just call them the "pivoters in chief."erhui1979/Getty Images
  • CEOs are changing their corporate strategies more frequently for many reasons.

  • A shaky economy, the rise of AI, and the blistering pace of business have made their jobs harder.

  • But their hubris and failure to plan have also played a role in many of these directional shifts.

CEOs are undoing big decisions faster than they can say "just kidding."

Mark Zuckerberg renamed the parent company of Facebook to demonstrate his enthusiasm for the metaverse. Now, Meta has all but ditched its efforts on a 3D, immersive version of the internet in favor of AI projects.

Amazon, under CEO Andy Jassy, has paused or canceled plans for dozens of warehouses across the country and delayed further construction on the company's second headquarters, in Virginia.

And Tesla's Elon Musk can't make up his mind on what to charge: He's dropped the prices of Teslas six times since the start of the year.

Just call them the "pivoters in chief."

CEOs have been throwing the bus into reverse for many reasons. For starters, global turbulence and a shaky US economy have made it an especially tough time to be running a company. What's more, the blistering speed of advancements like artificial intelligence, along with increased competition, has accelerated the pace of business.

"We're seeing the undoing of big decisions more now because the speed of change is — and this word is overused but it fits — unprecedented," Francesca Gino, a professor at Harvard Business School, told Insider.

"The rise of disruptive technologies, shifting consumer preferences, as well as increased scrutiny from the public and investors means that big decisions become obsolete more quickly," she said. "To stay relevant, you need to adapt to new information, and that will sometimes require reversing the course of action."

But there's no denying that hubris played a role in many of these directional shifts. Some CEOs didn't do the necessary medium- and long-term planning when they made their original decisions, and now they're being forced to backtrack.

A challenging time — that some CEOs failed to plan for

High inflation, combined with restive workers, more active boards, and the release of new generative-AI technologies have made CEOs' jobs much harder. In other words, all best-laid plans can feel out of date almost as soon as they're cast.

"There's lots of pressure on CEOs from a range of stakeholders, including investors, employees, customers, and regulators," Gino said, adding that there were more cooks in the proverbial kitchen.

"Boards of directors are very engaged," she said. "They're more involved in strategic decision-making, so you'd expect more frequent revaluations of big decisions as board members provide additional perspectives."

While these conditions are no doubt challenging, they don't tell the whole story: Some CEOs failed to plan appropriately, and now others — including their workers, backers, and clients — are paying the price.

Mark Zuckerberg at the Paley Center For Media on October 25, 2019
Meta's Mark Zuckerberg has all but abandoned plans for the metaverse.Drew Angerer/Getty Images

Take, for instance, the fact that Amazon's Jassy and Meta's Zuckerberg recently conducted multiple rounds of mass layoffs in quick succession. The cuts followed a gigantic pandemic hiring spree. Amazon more than doubled the size of its corporate workforce, and Meta grew by nearly a factor of two. But it was always clear — or should have been — that the heady days wouldn't last, even in the high-flying tech sector that enjoyed a lockdown-fueled boom.

Oscar Munoz, a former head of United Airlines and coauthor of "Turnaround Time," told Insider some tech companies got used to being able to boost profits by adding workers.

For about a decade, for every percentage a company grew its salesforce for some services, a corresponding increase in revenue seemed to follow.

"So it was: Hire like crazy. And all of a sudden that dries up," he said. "Then you've got to reverse that decision."

CEOs' recent hard pass on the metaverse is another example. Microsoft in recent months closed its virtual-workspace platform and axed the 100 members of its "industrial metaverse" team. Disney's Bob Iger also recently shuttered the company's metaverse division, and Walmart's Doug McMillon ended its Roblox-based metaverse projects. Meta's Zuckerberg, meanwhile, in the company's first-quarter earnings call pushed back on the idea that Meta is retreating from the metaverse. "We've been focusing on both AI and the metaverse" and "will continue to focus on both."

"Not moving, not shifting, not re-looking at decisions is going to hurt you," Munoz said. "You can't be afraid to make the changes that you want to. Just make them in a very calculated, organized, convicted way so that you don't confuse the hell out of your organization."

A new, lightning-fast pace of business

The rapidly changing business environment makes one thing clear: For CEOs, the day-to-day marathon of running a company feels much more like a sprint.

Munoz said that when he was the CEO of United from 2015 to 2020, he felt like his head was "always on a swivel," and that experience has likely been exacerbated for leaders today.

"The world's become more fluid," he said. "It's harsher. It's faster. It's more brutal, and it has infinitely more consequences."

Then again, CEOs are paid — handsomely — to lead. The average compensation in 2021 for CEOs of the top US companies was 399 times that of the average worker.

"Yes, things are moving faster," Munoz said. "Yes, the consequences are higher, but you still have to run your business."

Of course, shifting business strategies from time to time is nothing new. Companies try things and they don't always work or priorities change.

Elon Musk
Tesla's Elon Musk has dropped prices on Teslas six times since the start of the year.Bill Pugliano/Getty Images

Last week, Shopify CEO Tobi Lütke announced the company would sell most of its logistics business — a U-turn from its yearslong strategy to challenge Amazon's fulfillment juggernaut. Meanwhile, Amazon has spent the past year closing some of its experiments in brick-and-mortar retail.

Changing a strategy is one thing, but how a CEO communicates that change is another — particularly because these pivots are likely to happen more frequently. Because while leaders might have good reasons for reversing course, change can be unsettling for a company.

Eduardo Briceño, a consultant and speaker who works with CEOs to improve company performance, told Insider that CEOs placed a premium on having their companies appear nimble and fast-moving to investors but that leaders needed to pay closer attention to how employees perceive their decision-making.

"It's not just about becoming more agile and driving change, it's also about fostering stability for the people that they lead," he said.

"People need predictability; they need to know how things work and what the organization stands for," he added. "They need to know that the biggest strategic goals and where we're going haven't changed — even if the lower-level tactics of how we get there have."

Read the original article on Business Insider