Delivers The Future
Effective leadership pays off. Measuring leadership effectiveness
in organizations tells us a lot about the future performance of an
organization. Towers Watson’s Human Capital Index provides striking
data showing leaders that are trusted by their employees generate
higher employee commitment and return 42% more to shareholders. It
is well recognized that good leaders are effective decision makers.
But that does not entirely explain the high return to shareholders.
Effective leaders engage their employees by:
- Increasing their awareness of task importance and value.
- Getting employees to focus first on team or organizational goals,
rather than their own interests.
- Activating their higher-order needs such as: Achievement, Self
Respect, Belonging, Competency and Recognition, etc.)
Leadership in Action
From 1991–1993, IBM lost more than 15 billon dollars. Lou Geistner
was hired as CEO to turn things around. By carefully making sure the
right people were in the right positions and installing a
team-oriented compensation system, Geistner eliminated silo thinking
and expanded cross functional cooperation. He returned IBM’s focus
to its cultural roots: ardent customer service and discipline.
Promotions and performance management shifted the culture focus from
entitlement to achievement. Geistner once remarked, “I have come to
see in my time at IBM that culture is not just one aspect of the
game, it “IS” the game.” By the early 2000’s IBM had shed 14 billion
dollars in inefficiencies and become the world’s largest and most
influential information technology company.
How do you know if your managers are creating value or destroying
it? James Collins said it best in How the Mighty Fall, “People do
not have jobs, they have responsibilities.” Performance based job
descriptions define measurable leadership responsibilities.
Establishing specific leadership measures encourage managers to do
more than act as coordinators. They must get the best out of their
people. Accurately defining and measuring leadership provides an
incentive to excel at every level throughout the organization.
There are several ways to measure leadership effectiveness. One way
to establish leadership effectiveness is to measure employee
- How long does it take for employees to take action (Agility)?
- How well do employees perform in activities that drive strategic
- What percentage of employees go beyond just meeting job
requirements, e.g., exceeding customer expectations or suggesting
better ways of doing things (Discretionary Effort)?
- How many ideas from employees are initiated and implemented?
- How many employees can directly link their daily activities with
mission or strategy (Strategic Alignment)?
- Ensuring the performance range between top performers and poor
performers does not exceed 10% year after year.
While extremely valuable, quantitative data does not always provide
richness of analysis, and may focus on lag, not lead indicators of
future sustainability. A rigorous qualitative analysis, e.g. of
management quality and human capital practices, helps to distinguish
lead indicators of an organization’s future performance. Consider
the limitations of quantitative measures alone.
Consider what the numbers didn’t tell us about Enron:
- Enron appeared in many general and social investing mutual funds
when it failed.
- In 2000, it received six environmental awards and issued a triple
bottom line report.
- The CEO was a speaker at ethics conferences.
- Enron’s CFO was awarded “CFO of the Year” by CFO magazine three
months before the Enron scandal was made public.
Since then we have had numerous well respected organization names
added to the Business Hall of Shame. Quantitative metrics provide
additional insights to the investment process. As we know from
Towers Perrin Human Capital Index, measuring the soft skills
accurately predicts future organizational performance. They also
provide a closer alignment with disclosure requirements of the
Financial Services Reform Act. There is increasing pressure from
stakeholders on equity research analysts to understand and report on
soft variables such as:
- Management quality – systems and processes
- Corporate governance
All can be termed as “human capital.” Today, it is no longer
sufficient to have great technology. You must wield great employee
skill and commitment to compete in the global market place. The
future of business today is dependent on the installation and
measurement of effective leadership practices.
Both market analysts and senior leadership can benefit from
information accurately measuring the rate of return on their Human
Resources today. There is obviously money to be made for anything
that helps us predict the future better. Leadership is critical. Jim
Collins, in How the Mighty Fall, says it this way, “When an
organization grows beyond its ability to fill the key seats with the
right people it has set itself up to fall.” This may explain why
some organizations never get off the ground. Harvard’s John Kotter,
generally acknowledged as the world’s foremost authority on
leadership, remarked, “I am completely convinced that organizations
today lack the leadership they need and the shortfall is often
large.” Kotter believes the root of the problem is the over emphasis
of management versus leadership. The concern over effective
leadership is not new. What is new is Performance Path®, a next
generation management system that provides insights into leadership
effectiveness and the future of business success.
In closing, the following poem by Archibald Bowman in 1938 is telling
of the critical importance of leadership.
Though your balance sheet’s a model of what a balance sheet should
Typed and ruled with great precision in a type that all can see;
Though the grouping of the assets is commendable and clear,
And the details which are given more than usually appear;
Though investments have been valued at the sale price of the day,
And the auditor’s certificate shows everything is OK;
One asset is omitted – and its worth I want to know,
The asset is the value of the men who run the show.
Article © Copyright 2011 Performance Path ® LLC. All Rights