As Israel Berman, head of Hay Group in Europe, said in his opening remarks at this year’s Hay Group International Conference in Berlin, what differentiates the best companies from the rest is a powerful corporate culture that drives great performance, enabling teams and individuals to realise their strategy and their own potential.
Culture drives performance through three channels, explained Hay Group’s Jean-Marc Laouchez:
It is critical to have alignment between the organisation’s core values, the messages it sends to people and the behaviours it expects of them.
And alignment has proven results. Hay Group’s research finds that organisations with well-aligned cultures show consistently better results than other companies, with an average five-year return on investment that is twice as high and gross profit margins that are 27 per cent higher.
Nothing stays the same–ever–and your current leaders won’t be around forever. So who are the people who will lead your organization in the future? Having identified them, how do you develop and retain them? Which critical activities will provide the right experience for the fastest growth and development?
CEOs at the world’s most successful companies know that they can only safeguard their business’s competitive future if they have the right leaders to develop and implement their strategy. While CEOs know they can also hire external candidates, they also know that the track record of outside hires can be very unpredictable. CEOs and HR Directors from those organizations seen as best by their peers for managing talent, prefer to ensure they develop a good bench-strength of talent from inside their own organizations.
For many years CEOs at the world’s most successful companies – such as GE, P&G, BP – have seen the importance of securing their long term competitive future by investing large amounts of money and time in identifying future leaders. Using a whole battery of assessment techniques and processes they have attempted to recruit the best graduates and to see, early in their careers, which managers had the long term potential to make it to the top: what the British army has called: ‘finding the General’s batten in the knapsack of the new recruits.’
But in recent years CEOs have become more concerned about their more immediate competitive future: do we have the talent and capability to develop and implement the strategies that will enable success in today’s highly competitive and changing business world? Today the pressures for change are greater than ever – from globalization, competition, technology, break through business models – which means that the shelf life of both strategies and leaders can be much shorter.
And here is the CEOs real concern: the ability of leaders to implement one type of strategy may not be the type needed to implement another: the skill sets may be different, the behaviors may be different, the experiences needed may be different. For example those needed to lead a nationally based, fully functional company, operating in a stable competitive and technological environment, will be very different from those needed for a leader in a highly matrixed global organization facing rapid competitive and technological change. But this is the transition many businesses are going through.
Some major companies have responded by throwing out or downgrading their programs for building long term bench- strength because they have lost their confidence in their ability to predict the type of talent needed. But our research shows that it is the companies that can resist this response and combine a focus on both the long term and the short term which have enduring success.
Future winners are investing in the right leaders today. As in past recessions margins are being cut, costs pushed down, currencies are shifting – and future winning organisations are starting to reposition themselves. These winners invariably see the writing on the wall first, take advantage of market movements and realign their resources to where they can make most money. This is the message from our annual Best Companies for Leaders research which shows that these winners are already thinking about, and investing heavily in, the future leaders they need to identify and grow.
The big difference this time round is that they want to know the odds: to place bets on the right employees to invest in and to do so at significantly reduced cost. To put it simply, once they have worked out how to re-organize and operate differently, they are investing heavily in redefining what that looks like for the people agenda, particularly their leadership competency frameworks. They see this as the first step in re-aiming their talent management processes on their new success criteria. They also make sure they keep their next-generation leaders engaged and energized despite the difficult market conditions. That way, when the economy swings back, they will be ready for repositioning growth and stealing a march on the competition.
This article offers our best thinking on the most cost effective way to identify future leaders – those who should get the cream of your development budget.
An organisation can be destroyed by its own culture. There’s the slow route to decline, where outmoded assumptions and practices render it increasingly uncompetitive – a dinosaur which just doesn’t ‘get it’. But there’s also a swift route to catastrophe. In these circumstances, institutional collusion in interpreting key facts leads to pervasive managerial delinquency. We’ve seen it in the collapse of Enron and more recently in the fall of Northern Rock. We’ve seen tragic consequences in the Challenger space shuttle disaster, caused more by managerial than engineering failure.
Organisational culture therefore belongs firmly on the risk register for any significant organisation. Directors need to ask not just whether they are being given facts, but whether they are also being given the story. Their legitimate role is to challenge assumptions which lie under the facts. The over-arching question should be “what is the true story of what is happening here, and why is it happening?” In this article, I draw on my experience in executive coaching to unearth the main risks and identify the strategies to address them.
In the privacy of a coaching engagement, leaders often share vignettes of executive dilemmas like the one highlighted on page 82. Anxiety caused by navigating uncertainties at pace and scale sets up unconscious defensive responses. I call these defences a ‘flight into deviance’. We avoid thinking about, talking about and therefore addressing, the results we fear the most. And in complex, fast moving, ‘go-getting’ cultures there are many excuses to avoid reflection or asking the awkward questions. Eventually, executives cross the line from silent discomfort (a regular feature of life at the top) to flight from realities they should confront more openly. And when things beyond your control change as fast as they do these days, you might find it’s best to know whether the common ground, on which you thought you were all standing, has got any earth beneath it.
The concept of organizational culture is highly appealing to business leaders. Indeed, many globally admired companies credit their success to their unique organization cultures. Representing ‘how things are done’, organizational cultures are important drivers of employee behavior, particularly when employees must be relied upon to act on their own initiative in a way that is consistent with the company’s objectives, culture and values.
But managing and/or transforming organizational culture is not for the faint-of-heart. Nor does it merely involve a cosmetic sleight-of-hand. Efforts to change organizational culture often face three significant obstacles.
Firstly, culture is challenging to grasp as it is an inherently intangible issue. Secondly, changing the behavior of one person is already difficult enough, let alone trying to sustain new behaviors throughout an entire organization. Finally, attempts to transform culture are often met with cynicism – the culture snaps back to old habits if initial changes are not sustained.
Traditionally, executives look to their HR department and their tools – from reward to training – for help to change culture. But even experienced HR professionals get frustrated. The reason lies in the fact that successful transformation does not depend on the number of tools used, but rather how deeply the efforts penetrate.
Culture transformation is a journey without a final destination. If undertaken in the right way, it is a process of continuous improvement and adaptation that will lead to increased employee engagement and improved business performance for everyone involved.
Ask any group of businesspeople the question “What do effective leaders do?” and you’ll hear a sweep of answers. Leaders set strategy; they motivate; they create a mission; they build a culture. Then ask “What should leaders do?” If the group is seasoned, you’ll likely hear one response: the leader’s singular job is to get results.
But how? The mystery of what leaders can and ought to do in order to spark the best performance from their people is age-old. In recent years, that mystery has spawned an entire cottage industry: literally thousands of “leadership experts” have made careers of testing and coaching executives, all in pursuit of creating businesspeople who can turn bold objectives—be they strategic, financial, organizational, or all three—into reality.
Still, effective leadership eludes many people and organizations. One reason is that until recently, virtually no quantitative research has demonstrated which precise leadership behaviors yield positive results. Leadership experts proffer advice based on inference, experience, and instinct. Sometimes that advice is which precise leadership behaviors yield positive results. Leadership experts proffer advice based on inference, experience, and instinct. Sometimes that advice is right on target; sometimes it’s not.
Like parenthood, leadership will never be an exact science. But neither should it be a complete mystery to those who practice it. In recent years, research has helped parents understand the genetic, psychological, and behavioral components that affect their “job performance.” With our new research, leaders, too, can get a clearer picture of what it takes to lead effectively. And perhaps as important, they can see how they can make that happen.
The business environment is continually changing, and a leader must respond in kind. Hour to hour, day to day, week to week, executives must play their leadership styles like a pro—using the right one at just the right time and in the right measure. The payoff is in the results.
In a world where everyone is looking for a bargain, simply providing value for money is not enough. Customers now want more for less! But how can organizations achieve this when the recession has already forced most costs out?
The answer is to focus on increasing productivity – working smarter not harder.
This is partly about streamlining processes, technology and infrastructure. But, with labour costs incurring such a huge expense for many companies and human ingenuity the main source of competitive advantage, focusing on the productivity of human capital is also critical.
In our experience, people rarely work at full effectiveness. In recent Hay Group research with the FTSE 350:
32 per cent of employees said they didn’t understand the strategy well enough to implement it
37 per cent said they expected to kick significant decisions back upstairs
44 per cent said they only collaborate if they are forced to
6 per cent said they plan to sabotage plans behind the scenes.
Headlines such as these suggest there are some relatively easy fixes & significant benefits to be had in improving people’s productivity and effectiveness.
For many organizations developing business strategy is just the first step. Putting that strategy into action often proves difficult, if not impossible, to do. Hay Group works with CEOs and business leaders to help them bridge the gap between strategy and execution.
Together with clients we build a blueprint for the organization and we bring that design to life. We help our clients to clarify their strategic objectives and operating model, identifying the organizational structures, management systems, processes, jobs, culture as well as people capabilities required to deliver it.
We have a clear understanding of what motivates people and how work is most successfully designed. Using this knowledge, we help clients build an effective organization that engages leadership and energizes employees, driving performance and delivery.
Our world-class clients ask themselves two questions:
The demands inherent in working across boundaries have made traditional operating models and rigid, bureaucratic business structures obsolete. At Hay Group, we work with clients to understand the challenges and create innovative approaches that reduce time to market, increase speed of response and channel innovative ideas more effectively throughout the enterprise, not just in R&D.
We apply our expertise to multiple levels of the organization: vision, business and inter-relationships between levels. We build collaborative capability at each of these levels and, in addition, we assess where breakdown occur across boundaries.
Both formal organizational design features and informal cultural influences impact the ability to build the collaborative potential of the organization. Other constraints, such as limited time, information, tools, experience and so on also have an impact. Hay Group works towards building collaborative solutions based on shared values, connected structures and work practices that make effective collaboration possible at every point.
By focusing on the bottom-line value of our work, we help clients improve their organizational fitness in practical ways, introducing cross-functional working; removing layers of rigid and expensive hierarchy; and clarifying roles, work flow and accountabilities across the enterprise.