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MEASURING EXECUTIVE PERFORMANCE

February 25, 2015 - In Articles, Featured, Leadership and Management articles - No comments yet

Last month Andrew Hill, the Financial Times management editor wrote an article for the Saturday supplement FT Money, about how investors can judge executive performance.  It addressed some difficult issues for anyone who thinks that the leadership effectiveness of executive managers is a major influence of success.

A recent study on a ranking of the world’s best performing chief executives for the Harvard Business Review* used growth in total shareholder value return and market capitalisation to measure performance.  These are typical scoreboard numbers that are publically available and relevant at a particular time.  However, they give little insight into how the CEO or indeed the top team (if it is a team) influence the long term performance of the organisation.

Hill refers to another study, the ‘World Management Survey’ developed by the London School of Economics, Mckinsey and professors from Stanford and Harvard which identified some management practices that lead to increased productivity.  However, the study only focused on the manufacturing sector and included medium sized companies, many of which were privately owned. How the findings can be applied to large complex companies in a variety of sectors is not clear.

Investment managers, noted for having better access to information and even company executives, were reported as saying that judging executives is more of an art than a science.   Hill comments that outside investors may want to follow Warren Buffet’s advice “to buy stock in businesses that are so wonderful that an idiot can run them.  Because sooner or later, one will”.

The ‘Sage’ may have the point here, focus on the business and its organisation first, then the CEO, the executive group and management.  Also, for anything other than a small business, it’s worth remembering that we are considering a business organisation of many people producing output, especially when total shareholder return and market capitalisation are being judged.

Our favourite study about measuring performance, the one that we felt would encourage people to take leadership and management seriously, is ‘Built To Last’ by James C. Collins and Jerry I. Porras.  This study looked at thirty six large companies and used the measure of cumulative stock returns to evaluate relative performance.  Their interest, inter alia, was to understand more about 18 visionary companies and the leadership that enabled their success in relation to 18 comparison companies in similar sectors.  To engage attention of a range of readers, including investors and ‘numbers’ men, the authors used the stock return measure.

The study period was 1926 to 1990.  If in 1926 $1 was invested in a general market fund, $1 in a comparison company fund and $1 in a visionary company fund and all dividends reinvested then in 1990 the general market fund would be worth $415, the comparison company fund $955 and the visionary fund $6,356.  These results speak for themselves!  The study covers a range of organisational topics that need to be addressed to deliver exceptional performance and it is clear that the comparison companies were by no means a poor lot to have beaten the market for over 60 years.

The major difference between the comparison companies and the visionary companies was that the overall interest of the people running the visionary companies was to build a great company or business organisation.  Their approach to leadership was described by Collins and Porras as ‘clock builders’ whereas the approach to leadership by people in the comparison companies was as ‘time-tellers’.

In the visionary companies, building the vision, developing the core values and goals were done in a way so that everyone in the organisation was aware of their significance and importance and were able to make a contribution.  The vision and values were part and parcel of company culture which was developed over the long term.

There was openness about what was intended to be achieved that enabled people, within the organisation, to know how the organisation was performing, hence the term ‘clock-builder’.  A framework was developed that linked vision, values and the strategic goal setting process into a coherent whole.  This provided clarity of direction and ways of doing things that were open for all members of the business and engaged peoples’ commitment and effort.  In the comparison companies, the leaders did not establish such robust clarity so people had to ask the leader what the time was, leading to delay and relatively less engagement with the consequential impact on results.

 

*Harvard Business Review study by Morten Hansen, Professor University of California Berkeley and Insead and Herminia Ibarra and Urs Peyer both of Insead.

 


EFFECTIVE LEADERSHIP: Now and for the Future

February 23, 2015 - In Articles, Featured, Leadership and Management articles - No comments yet

In July 2014 the Commission on the Future of Management and Leadership reported on its work about the current state of UK management and leadership and its recommendations for the future.  Founded by the All-Party Parliamentary Group on Management and the Chartered Management Institute, the Commission described a variety of challenges (and opportunities) facing UK organisations with respect to leadership development, management effectiveness, the engagement of people and productivity.

From the analysis of the information provided to the Commission, ten ‘characteristics of a highly effective 21st century leader and manager’ were identified:

On the face of it, these seem important characteristics for all levels of manager.  On further reflection, they raise questions as to what they really mean, such as what ‘sense of purpose’ or specifically what ‘strong values’.  Also, how characteristics shape action depends on the views and attitudes that managers may have.

If a manager shared the assumptions of Douglas McGregor’s Theory X, that the average person dislikes work, avoids responsibility and has to be directed/controlled to get them to put in the requisite effort, then the actions that the 10 characteristics would drive will be very different from those delivered by a manager who adopts the assumptions of McGregor’s Theory Y.  Theory Y’s assumptions, among others, are that people like work for the sense of achievement and satisfaction that work can provide, and that people will exert self-direction and put in effort to achieve objectives to which they are committed.

Effectiveness depends on many things, sometimes things outside the leader’s control, like luck.  With this in mind, we focus here on three vital aspects of leadership: self-confidence, power and vision.

Self-confidence.  This is very important and needs to be a profound characteristic.  As Jack Welch said, a person ‘must be comfortable in their own skin’.  Self-confidence needs to include self-awareness in that the leader is aware of their impact on others.  The awareness of how one affects others can be developed by a willingness to receive feedback from colleagues at all levels in the organisation.  This requires sufficient self-confidence on behalf of the leader to take the risk of opening oneself to potential criticism.  The ‘ability to engage and communicate across all levels’ is a managerial skill which will help garner a wide range of feedback.

Self-confidence needs to be matched by authenticity, being genuine.  People respect openness and honesty and feeling that their leaders and managers are real.  The leader’s self-confidence is tested in building a successful organisation, by helping others do things for themselves.  Self confidence is crucially necessary to use our other selected aspects of leadership effectively; power and vision.

Power.  It is the use of power that markedly differentiates successful leaders from the not successful.  David McClelland identified three needs in relation to motivation: the need to achieve, the need for power and control and the need for friendship.  McClelland’s observations of managers in organisations identified that some managers’ use of power was ineffective.  This was because they used power to gain status and privileges and expected people to respond to their commands.  However, it was found that effective leaders used power to empower others to take responsibility for their own work and make a wider contribution to organisational effectiveness.

Vision.  The leader’s self-confidence and use of power need to be applied to developing the organisation’s purpose/vision.  In developing a clear vision, the leader’s ideas are important, potentially as a starting point for establishing purpose.  But the critical role is to lead and help the top group of executives develop a vision and ensure that everyone contributes to enrich the outcome.  The leader is also generating common ownership by involving the top executives in shaping the vision.

Essentially, the work should create an enduring long term vision for the organisation that will serve as a starting point for strategic planning and enable organisational effectiveness, the motivation, engagement and empowerment of people, unifying effort up and down and across the organisation, challenging the past and stimulating innovation.  The vision must also explain how the organisation will relate to its stakeholders:  employees, customers, suppliers, communities in which it operates and shareholders.

In this act of leadership, the leader uses power to direct the process towards a successful outcome, that of the organisation having an inspiring and enduring vision.  He/she is not using power to impose their personal opinion of exactly what the vision should be; this is the result of the senior executives’ participative work that includes obtaining contributions from their people

The Commission refers to the challenges facing UK management, we suggest they are opportunities, some relatively easily resolved through management education and training.  Leading positions need to be filled by people interested in fulfilling a leadership role as an enabler of exceptional performance.  Power should be used to facilitate the development of an effective organisation and culture.


Management and Leadership Today By Richard Nelson

September 29, 2014 - In Featured, Leadership and Management articles - No comments yet

Here we look at the some of the main findings of the current situation produced by The Commission on the Future of Management and Leadership in their Management 2020 report.  After examining a ‘vast range of evidence’, the report says ‘the underlying weakness in management and leadership is holding back our economic performance.’

On reading the report it is clear that economic performance is not the only thing being negatively affected by inadequate management and leadership.  Individuals’ sense of achievement and job satisfaction are significantly limited.  Also, the lack of engagement of many employees means the malaise goes beyond their immediate jobs and negatively shapes their view of the organisations in which they work.

This situation is not healthy and certainly not rewarding for stakeholders, including the communities in which such organisations are situated.  As customers we all know what it’s like to deal with unenthusiastic employees.  Also, shareholders are not maximising the return on their investments in businesses and all of us are receiving services from less than well-managed public institutions.  But in many ways the unrealised economic performance is indicative, like poor scores on the score board, of the overall situation.

Other findings speak for themselves:

People unfamiliar with good leadership and management practice may feel these data are very difficult to change.  Fortunately for the UK and its organisations all of these challenges can be met over time.  The knowledge, practice and experience are available to develop the leadership necessary to build world class organisational cultures that will endure and generate sustainable rewards.

The key is for executive leaders to recognise that investing their time in clarifying purpose and vision, shaping culture, aligning organisational structures and processes, developing managers and involving them in the work to realise the vision, is their job.


The ‘Management 2020’ Report – a review by Richard Nelson

September 29, 2014 - In Featured, Leadership and Management articles - No comments yet

An important, comprehensive, evidenced backed and excellent report, from the Commission on the Future of Management and Leadership, has been published detailing the needs for improving management and leadership in the UK.  The findings are surprisingly poor, even for those in the business of developing leaders in management, and leave no room for complacency.

Not without irony, the report notes ‘no one would let a doctor perform surgery without training’ and yet CMI’s Management 2020 Survey found that ‘71% of respondents reported that their organisation’s commitment to training staff before, or within three months of, being promoted into a management role was either non-existent or could be improved.’

With further irony, the Commission heard that many managers are risk-averse and unwilling to take the risks required to innovate, a situation exacerbated by the economic crisis.  But clearly executive leaders are prepared to risk appointing untrained people to managerial positions!

July 2014 saw the UK publication of the Commission’s Management 2020 report.  The Commission, founded by the All-Party Parliamentary Group on Management and The Chartered Management Institute, asked three key questions:

The report is set against the background of the financial crisis of 2007/2008 and its long aftermath, still ongoing for many people in the UK, which in the words of the Commission ‘unleashed a cost-cutting agenda that only reinforced the short-termist outlook that got us into trouble in the first place’.

Although the UK has world-class organisations and some excellent managers, the evidence gathered by the Commission suggests that we are faced with ‘a ticking time bomb of myopic management’.  The importance of sustainable growth is neglected in preference for short term profits and managers are not encouraged to take risks or given time and space to be innovative.

The overall picture is enormously challenging on the one hand but potentially full of opportunity on the other.  Some of the statistics are dismal, for example UK productivity is 21% lower than the rest of the G7.  Recently, the economy passed its 2008 peak, employment keeps growing but more people are working and seemingly putting in more hours to achieve the same output, meaning productivity has fallen.  Also, measures of management are lower than those of many rivals and time wasted by poor management could be costing the economy as much as £19bn a year (Department for Business, Innovation & Skills July 2012).

Apart from productivity, other major challenges identified are:

These issues along with the productivity challenge cannot be addressed if the needs in relation to training and developing managers are not met.  People well trained in being managers and confident of their leadership development are essential for the work of improving UK organisations’ performance.

Only 23% of organisations rank as good or very good in terms of whether staff are trained in management and leadership before or within three months of taking on a management role.  Also, in spite of the effectiveness of mentoring and coaching in helping managers develop the practical application of their knowledge and skills, only 24% of organisations rated the use of these techniques as good or very good.

The realities of the current state of UK management and leadership are covered in relation to: economic indicators and international comparisons, management effectiveness, ethics, training and development, the development of leaders (apparently the old myth still holds good, in some quarters, that leaders are born!), poor engagement of people and rigid silos in organisations.

The recent generations and their expectations are explored to understand how best to deploy their talents.  The world of 2020 and the themes of technology, diversity, globalisation and demographics, sustainability and the future of skills are considered in order to understand the implications for leadership and management effectiveness.

Though the challenges are great the opportunity is greater still, the rewards potentially vast.  The knowledge and practice is out there, encouragingly it’s been around for decades, so no magic potion needed!

The Commission offers its ‘Management 2020 Framework:

These areas of good practice are explored in depth along with the traits of high performing individuals.

We regard this report as a major contribution to the development of UK institutions and businesses.  In further editions of The Column we will be covering more of the findings and recommendations suggested.


Gain Productivity Through Managers’ Performance

April 3, 2014 - In Featured, Leadership and Management articles - No comments yet

The US and UK economies are showing some further signs of life, no significant hiccups since our February Column, but there are concerns about sustainability.  Cautious business investment, rising house prices and growing household debt could suggest a growth spurt based on poor fundamentals.  In the UK, the mystery of weak productivity is worrying some economists.

So what can organisations do to improve productivity and build capability that will be sustainable?  Getting managers to do more management is our suggestion.  Not old- fashioned chasing, hassling and breathing down people’s necks, but setting clear direction, developing common purpose and encouraging their people to work effectively and efficiently.  To improve productivity there needs to be more output for less input.  This requires everyone to know exactly what they should be doing to maximise their contribution, focusing on those tasks which will deliver the most and not being distracted by minor activities.  Also they need to be doing those tasks in the best possible way, quickly but with a firm eye on quality so there is no task repetition and no waste.

Executive managers can take the lead and encourage their senior and middle managers to engage their people in the drive to improve productivity.  To do this effectively and get the right response from managers, executives need to communicate the new drive for productivity in an inspiring way, promise their availability to provide support, when requested, and be prepared to give their senior and middle managers space and headroom to manage.

Managers at every level will need to apply leadership to improve productivity.  It is important to recognise this is an initiative for the whole organisation; to embed the sustainable capability to generate high productivity.  Practically, managers may find some help to achieve the necessary productivity gains useful.  Productivity Leadership Workshops, highly tailored to the needs of your organisation will bring managers up to speed in a consistent way, boost their confidence and make them want to improve their performance.

The Workshops can be designed to address relevant productivity improvement opportunities in the business and run in a facilitating and learning style rather than a lecturing and training style typical of standard programmes.  The Workshops can be structured around key topic content which can be delivered to stimulate ideas, refresh effective leadership, management behaviours and practice and build confidence.

Key topic content suggested is:

Productivity Leadership Workshops can make a huge difference for managers and their people as the Workshops enable them to stand back from day to day operations and develop new, more efficient ways of working for task completion.  This manager led approach to improving productivity can achieve more for less.


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