The first essay defined enterprise viability through three questions: Does the company’s work need to be done? Why is this enterprise the one to do it? And why should those answers remain true in the future? This second essay considers what happens when the CEO does not have a coherent answer to these questions.

The issues develop over time

When enterprise viability is thought about and projected inadequately, the company continues to act in that people still choose opportunities, allocate resources, hire, build, cut, and make commitments. Employees, customers, and investors still form expectations about the company’s future. Issues associated with a lack of handle on enterprise viability may take time to become apparent. The company benefits from earlier decisions, established relationships, accumulated knowledge, and an existing position in its market. People may also continue working from an understanding formed when viability was being thought about and projected well, usually from the days of founding or during the tenure of a storied previous CEO who came to become founder-like in the organization’s cultural canon. But decisions continue to change the company, and circumstances continue to change around it. The inherited understanding of viability, like most inheritances, gradually becomes an anachronistic relic if it is not actively nurtured.

Drift in prioritization and belief

In the absence of a fresh, thoughtful understanding of what makes the company viable, the company’s strategy could be based on the wrong fundamentals. And priorities can increasingly be determined by whatever makes the strongest immediate case: an “attractive” financial proposition, a pressing operating problem, an influential executive’s ambitions, a macro trend, or a familiar way of doing things. Things that are fundamentally unsound may get prioritized and, on the flip side, fundamentally important things can get deprioritized. Some relationships, capabilities, and sources of knowledge may continue working without demanding the attention needed for their upkeep. The work needed to renew and sustain them can repeatedly lose priority to opportunities whose benefits are easier to describe or realize quickly. Over time, these individually defensible choices can move the company toward a future that its capabilities and position in the world cannot sustain, a drift that management may present as a “transformation”.

This drift in prioritization may also manifest as a drift in the belief of stakeholders in the company. As we have mentioned before, people act on expectations about what their investment or work will accomplish. Employees considering where to develop their capabilities, customers considering a continuing dependency, and investors considering further capital need reasons to believe that the company’s work remains needed, that it can perform that work, and that its direction makes sense. The priorities people encounter help them form those beliefs. They learn from what receives resources, what is protected under pressure, what gets abandoned, and which commitments are honored. Where there is no sufficiently credible shared understanding, people supply more of the explanation themselves. One group may interpret a new priority as a temporary adjustment while another understands it as a change in the company’s direction. People can then make commitments based on incompatible expectations about what will continue to matter. They may also become reluctant to commit beyond what is immediately required because they cannot see how their work connects to a future they have reason to believe in.

Prioritization and belief therefore affect each other. Priorities influence what people believe the company is becoming and their beliefs influence how they interpret those priorities, what they are willing to contribute, and whether they support the difficult commitments needed to pursue them. When people repeatedly encounter inconsistencies or disappointed expectations, their willingness to participate can weaken. That can make it harder to develop capabilities, maintain relationships, or secure resources, further limiting the enterprise’s prospects.

Financial results may not surface developing issues

Since these drifts can take time to develop, a company could well be financially successful while they are developing. Established activities may remain profitable, and gains in one part of the business may outweigh difficulties elsewhere. Some people may encounter contradictions directly in their work while the CEO and Board see aggregate results that appear to confirm the company’s direction. They may give less weight to emerging inconsistencies, treat difficulties as local execution problems, or extend the same choices into more areas of the business. Success can then reinforce a false confidence and lead to major moves like transformational M&A that turns out to be impossible to integrate. By the time the issues with an inadequate understanding of the company’s viability become difficult to dismiss, the company may have developed capabilities, neglected relationships, and accepted obligations that make correction harder. Changing direction may require substantial work while some of the people whose participation is needed have become less willing to commit. The company then has to revise its priorities and establish credible grounds for renewed belief while already dealing with the consequences of decisions already made.

A viability problem can remain hidden until its consequences have had time to develop. The third essay moves from diagnosis to practice and considers how the CEO keeps the viability questions active, projects the answers, and preserves enough attention to continue testing them.