Why CEOs Rely on Early Warning Systems to Prevent Crises

Only 50% of CEO departures are voluntary. This is not encouraging information to receive, especially for those of us who are already under the multitude of pressures that come with the CEO job. It’s like being behind the wheel of a race car knowing that your chance of a crash is 1 in 2. How do you cross the finish line and beat your competitors without crashing first?

I can’t speak for race cars, but most modern vehicles are equipped with warning systems that prevent us from merging into a car in our blind spot or hitting an object behind or in front of us. You might see a flashing light or hear a rapid “beep beep beep” that saves you from impact.

It’s time to build a system like this in your company. I call it an Early Warning System. An Early Warning System will help you anticipate and correct poor results before they become unavoidable failures. The more failures you can avoid, the better your chances are of sticking around and leading your company into the next stage of growth. Instead of being a reactive leader who is along for the ride, you will become a proactive leader steering your business to success.

How to Build an Early Warning System

To build your Early Warning System, you need the right KPIs (Key Performance Indicators). Focus on leading indicators instead of lagging indicators. Leading indicators provide data that help you anticipate obstacles and failures while lagging indicators show you results. Each type of KPI has its purpose, but lagging indicators alone cannot help you avoid being blindsided.

It may take several tries to identify the right leading indicators. They should be future-focused and predictive. Consider a scenario in which you need to get five new client contracts signed. Ask yourself:

• How many leads will we need this quarter to get five signed contracts?
• How many meetings will I need to get five signed contracts?
• How many marketing email campaigns will we need to prepare and send to get five signed contracts?

Work to identify what happens “upstream” of your final result. What numbers should you be seeing early in the process to end up with the right numbers at the end of the process?

Status With Consistency and Candor

Next, begin statusing your leading indicators weekly using Red-Yellow-Green Success Criteria. If you are statusing Green, things are good, and you are on track to achieving your goal. Yellow status indicates that you are encountering an issue that can be resolved and that you know what actions to take to get back on track. Statusing Red means that you are trending toward failure, need help from your team to solve the problem collaboratively, and need to take action urgently.

Make sure that you agree with your team on specific Red, Yellow, and Green criteria for each indicator so that you can status with consistency. Otherwise, you will end up misaligned on what you are trying to achieve and how well you are progressing.

At your weekly meetings, hone in on whichever KPIs are stating Yellow and Red. These are the warning signals going off in your car that alert you of an impending crash! Do not assume these signals will simply go away or resolve themselves.

Some of your team members may feel embarrassed bringing a Yellow or Red status to a meeting. This is a normal human instinct. Most of us would prefer to fix the problem on our own instead of bringing it forward to the group for collaborative problem-solving. Encourage your team to be candid about goal progress by telling them, “Hey—if you keep this to yourself, you’ll have only one brain working on it. If you bring it to the team, you’ll have many brains working on it. Many brains are better than one!”

Align on an Action Plan Before You Need It

As you build your Early Warning System and talk through leading indicators with your team, discuss potential obstacles, tensions, and resource constraints that could arise. For each one, agree on an action plan that you will implement if your numbers veer off track.

This will save you valuable time in the heat of the moment when Reds and Yellows start popping up. You will have to adapt your original plan to current conditions, but you already have the framework for solving the issue.

Progress with Greater Speed as a Leader

Establishing an Early Warning System is one of the key practices shared in-depth in my book, The Journey to CEO Success: 7 Practices for High-Growth Leadership.

Pick out your leading indicators, agree with your team on Red-Yellow-Green Success Criteria, and discuss your Reds and Yellows—with candor—every week of the quarter. This will give you 13 opportunities to call out issues, implement your action plans, and steer clear of a crash. Become a proactive leader who predicts and avoids failure to achieve success, and stay confidently behind the wheel of your company.