What really drives your business and
do you manage it?
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 with CGF Research Institute board evaluations.
Typically Board Evaluations follow the recommendations of King and tend to
provide an opportunity to demonstrate the extent of adherence to some of these
governance principles. But we believed that there was an opportunity to add
value, especially for the leadership complement in business. Boards, after all
are the custodians of business leadership and we wanted to add value by giving
boards insights that could direct future management practice and ultimately
improve corporate performance. The first task was to define performance in the
context of our objectives. What is it?
Looking abroad we were able to
draw on the experience of a range of global multi nationals that together with
a team of recognised behavioural economists have honed a framework describing
business performance that is both robust and elegant. This work has been
conducted over several decades and includes in-depth dialogues with over 100
000 business leaders and managers across a range of industries. The emerging
results are universally relevant being both culturally and task blind. They
apply to all.
Business performance is anything
you want it to be. Choose your metric. Sales, churn, quality standards, ebita, or
other. Driving the performance of your business, and ultimately your chosen
metric, are four constituents: Behavioural Competency, Leadership, Culture and
Extrinsics. Significantly, the years of innovative and clever work 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 MD. 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.
Managing the so-called “soft”
issues requires refocusing, 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.
This framework has been developed
using the best resources and talents available. It is robust, elegant and
pertinent.
