The first question is “What is business performance?” And flowing from that, what drives it? What impels and motivates business performance?
This is important because if there is willingness to improve business performance, leaders need to know where to devote resources and how to hone their management skills.
My interest in these issues was piqued through my involvement in board evaluations and my conversations with a friend who has recently returned from Europe after a multi-decade stint heading the human capital divisions of a few global corporate giants. I asked, “Surely there must be a better way to add value to a leadership evaluation?” And importantly, “What should business leaders do to drive corporate performance?” The answers were swift and elegant. It took a pen, a paper napkin, a few deft scribbles and I was looking at something very good.
Business performance is anything you want it to be. Choose your metric. Sales, Loeries, quality standards, ebita, MOST sheep or other. Driving the performance of your business, and ultimately your chosen metric, are four constituents: Behavioural Competency, Leadership, Culture and Extrinsics. Significantly, many years of innovative and clever work with behavioural economists has resulted in the following ratios of contribution to business performance (note: these have been rounded).
Behavioural Competencies are precedents to actual skills. For instance a skill is required to hammer a nail into a piece of wood. But there are Behavioural Competencies that will explain why some will emerge as good wood craftsmen while others will not. These Behavioural Competencies range from initiative to analytical thinking to directiveness. Interestingly there are only 20 known Behavioural Competencies. They are observed in individuals and they can be measured. Moreover, they have a predictive function. Those with task specific behaviours are more likely to succeed at those tasks in the long run.
Leadership in this framework describes the CEO or managing director (the grootbaas). It is one person … maybe two. This one person has a big influence and if they choose to mess it up, which does happen, their negative contribution is actually exaggerated. Because of this the Leadership contribution is not a constant. It is amplified if, and as, the leader wanes or deteriorates. Thus one person can actually destroy a business. Fortunately they can significantly enhance it too.
Culture is mainly a derivative of values and leadership. The Culture that exists in a business has a large contribution to the overall performance of that business. You may immediately spot that it is often overlooked by managers and business leaders. Underpinning Culture are 6 value factors that include the likes of trust and openness. As with Competencies, the subset of values that drive Culture has been refined through years of discovery. Therefore we understand Culture because we know the values that are most significant in its determination.
And finally there’s Extrinsics. Here I admit that I have struggled to find the one word that is most descriptive of this dimension. Extrinsics is better explained with examples. The extrinsic dimension is all the things that managers can’t change or do not have much influence over. They are things like the weather, the interest rate, the exchange rate, the load-shedding schedule, the legal environment, computer viruses and the resignation letter that might hit your desk. Extrinsics are “hard” factors.
Most readers will see the beauty of this framework at a glance and understand its significance. Business leaders, and especially managers, tend to spend a lot of time managing or trying to manage Extrinsics while their effort would be better directed at managing the “soft” dimensions, especially Culture and Competency. Arising from this many leadership styles tend to become defensive rather than open, receptive, and enterprising which is needed for business performance and growth.
This framework has been developed over several decades across many different industries and involving more than hundred thousand dialogues with managers and business leaders. It is robust, elegant and pertinent.
Managing the so-called “soft” issues requires refocussing, learning and receptivity. One has to actually recognise the behavioural competency profiles that exist in the workforce before they can be managed and developed. Similarly a clear understanding of the resident culture is needed before new interventions can begin. This requires time, work and investment. Fortunately we can now measure these competencies and values/culture and plot them relative to known best practice norms.
Using this framework I can share more detail on the leadership and culture dimensions shown above. That will be next time. Suffice it to say that Leadership too, is underpinned by competencies, and there is indeed a normative Leadership framework. Some leaders are simply better than others because their competencies are better.
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