Linking Assessment and Coaching to the Bottom-line (Seriously!)

Business Acumen is the Next Leadership Frontier

Leadership development approaches can be said to have undergone three phases over the past 20 years or so. These are:

1. The personality approaches
2. The competency approaches
3. The emotional approaches

Each one of these approaches has brought a unique set of insights and approaches to the practice of leadership. These may be summarized as:

1. Awareness of social interactions
2. Awareness of strengths and vulnerabilities in carrying our professional functions
3. Awareness of emotional capabilities.

These approaches support corporate strategies for organization development which focus on building strong corporate cultures and individuals who operate well within them. However there has been a growing realization that these approaches do not have a direct link with financial outcome and do not directly build behaviors which link directly with profitability and corporate valuation.

In spite of this, the leadership development field has increasingly recognized that human resources are a key component of the building of corporate capital, hence the increasing focus on building human capital. Until now the emergence of approaches that link leadership development directly to financial outcomes has been limited by the absence of a coherent model which clearly shows the linkages between behavior and financial outcomes.

The real need is for leaders to understand how their actions and their behavior impact their financial decision-making and how this in turn affects financial outcomes at the unit and the corporate level. This requires a behavioral model which can describe the linkages between behavior and financial outcome and can show how developmental interventions can improve the outcome and business performance of a manager.

Recent research reveals that there is a distinct financial personality that is innate and leads to characteristic and predictable financial decisions by individuals. This entity, which we call the Financial Signature of an individual, is innate, and usually the individual is entirely unconscious of it. The Financial Signature serves as a proxy for the executive’s level of business acumen, or nose for profit.

Business acumen should not be confused with financial literacy or other formal knowledge, as in book learning, academic expertise or familiarity with formal methods or disciplines. For example, possession of an MBA is unrelated to the level of business acumen. In fact, having an MBA may, in certain circumstances, lead to worse-than-average performance, due to a level of over-confidence in one’s abilities which is not warranted by an executive’s behavior or demonstrated outcomes of his or her financial performance.

The Financial Signature actually reflects the propensity of an individual manager to create or to consume capital. We can measure this propensity and can link it to financial impacts at the individual, team, unit and company levels. There are characteristic linkages between Financial Signature and these financial impacts which will be reflected ultimately in the profitability and valuation outcomes of an enterprise.

If executives are made aware of their Financial Signature, they can modify their behavior and compensate, at least to some extent, for this tendency. The extent to which they can learn to compensate is a function of their leadership and learning agility; the higher these factors, the more they can change.

Business Acumen Coaching

Executive coaching can be employed to accelerate a needed shift in an executive’s Financial Signature. In fact, the identification of an executive’s Financial Signature provides a model for executive coaching, one that integrates real business issues such as profitability, margin and growth metrics into the intervention. Traditional coaching has side-stepped financial, business and market factors and has instead focused on how the executive feels and how they interact with others. This is why many business people are skeptical about executive coaching. Their unspoken critique: Show me the money. Whereas business acumen-focused coaching assists the executive in proactively meeting the profitability and margin challenges of a new or existing position. This coaching centers on improving their business acumen and not just their interpersonal acumen, making them not just a better person, but a better business person.

Getting HR a Seat at the Table

Business acumen assessments should be used not only for individual development or executive coaching, but also into integrated into selection, succession planning and team effectiveness programs as well. Amongst many senior executives there is a pervasive feeling that many talent management programs such as these simply do not have a close enough connection with their financial and P&L responsibilities, and they focus overly on “soft issues” to the detriment of the hard issues of finance and profitability. Human resources and leadership development executives must align their programs more directly with business and financial concerns to make them more relevant to the needs of senior leaders and ultimately of shareholders.

Frequently HR is seen as having a transactional and administrative rather than a strategic role and often lacks the credibility to participate meaningfully in business decisions. This problem is widely known as getting “a seat at the table.” In order to make this breakthrough move, HR must become more oriented to the strictly financial and business needs of companies. Introducing business acumen into leadership development is a key touchstone in this process.

WJM Associates, Inc. invites you to discuss Business Acumen Programs for Leadership Development, facilitated by Dr. E. Ted Prince, WJM Faculty Member and founder of The Perth Leadership Institute.

Leadership development programs focus on numerous issues except the one that matters most to shareholders and investors – the business acumen of leaders and how this is linked to profitability and company valuation. This session reveals an exciting new model that links the behavior of leaders with financial and valuation outcome. This is a must-attend for HR and leadership development executives who wish to make their programs more relevant to business needs.

Wednesday, February 20, 2008, 9:30 – 12:00 pm
(8:30 am continental breakfast)
The University Club, One West 54th Street, New York

Please Note: Business attire (jacket & tie, and equivalent for women) required by the Club

WJM provides this event as a service to our clients and colleagues.
Space is limited.

Please RSVP to .(JavaScript must be enabled to view this email address) by February 6, 2008.

Dr E. Ted Prince is an expert in the area of leadership performance and improvement from a financial and valuation performance perspective. His book on financial leadership styles and company outcome, The 3 Financial Styles of Very Successful Leaders published by McGraw Hill in September 2005, is a revolutionary addition to leadership theory. He consults to CEOs, boards and senior executives on leadership and its impact on corporate financial performance and valuation. He has numerous publications in the area of leadership, human resources, management, strategy and technology and is a frequent speaker at industry conferences.

Dr. Prince has had extensive operating background at the CEO level in both public and private companies. He was Chairman and CEO of Clearstory, a Boston-based public (NASDAQ) company that developed software for enterprise content management, a role in which he served for a period of almost 6 years. Amongst several other CEO roles, he also served as President and CEO of Computer Power Group in New York (later acquired by Spherion).

Dr. Prince also holds the position of Visiting Lecturer at the University of Florida where he teaches Entrepreneurship in the Warrington Graduate School of Business.

In our last newsletter we described WJM Associates’ Leadership Point-of-View by highlighting seven characteristics of effective leadership. As a quick review they are: Authenticity, Decisiveness, Strategic Acumen, Vision, Humility, Talent Selection, and Coaching and Feedback. To see the full article, as well as best practices for developing effective leaders within an organization, please click here.

The next several issues of the WJManagement Advisor will each include an article focusing on one of these characteristics. In this issue we address the second of these seven: Decisiveness.

Decisiveness

Subprime mortgage troubles, the dropping dollar, rising oil prices, capricious stock markets – 2008 looks to be a volatile year for many industries and many companies.

The rapid pace of business and increasing time pressures mean that dealing with the speed and complexity of all this volatility and change has become an everyday challenge. In this environment, leaders will be judged more heavily than ever on whether the decisions they make help or hurt their companies.

The best leaders make sound, defensible decisions in a timely fashion, especially in times of crisis and uncertainty. Managers at all levels of the organization are involved in constant decision-making and the quality of these decisions (both speed and soundness) accumulates and decides the fate of the organization. Executives perceived as indecisive or poor decision makers will quickly lose the confidence and commitment of their team.

A leader’s ability to make a high percentage of good decisions is fundamental to the effectiveness of the individual and the success of his or her organization. So how does an executive maximize his or her batting average when it comes to making the right decisions?

By viewing decision-making as a process and not an event.

The Process
The dangers of taking too long to come to a decision are obvious. However, leaders must also consider the dangers of deciding too quickly. Leaders who make mostly good decisions recognize that it happens as a process, not at a single point in time. The process employed by successful decision-makers entails the following:

• Gather information from a broad range of sources.
  Lots of research suggests that a diverse group of independent thinkers with access to sufficient information will consistently make better decisions than even the smartest CEO can. The decisive leader avoids existing in an echo chamber of their own opinions and pays attention to thoughts that differ from his or her own.
• Foster constructive conflict.
  The Scottish philosopher David Hume observed that “Truth springs from arguments amongst friends.” This is true, as long as the arguments occur in the spirit of collaborative problem-solving, and not just lobbying for entrenched positions. The leader should encourage participants in the decision-making process to share information widely, preferably in raw form (rather than selectively to advocate a position), to allow others to draw their own conclusions. If the process is viewed as a contest between different views, rather than a collective effort to test and evaluate alternatives, then it quickly devolves into a test of strength, where innovative thought is suppressed and participants are encouraged to go along with the dominant view to avoid further conflict.
• Honestly consider the alternatives.
  When a leader considers many alternatives, he or she engages in more thoughtful analysis and avoids settling too early on easy, obvious answers. However, just giving others a chance to voice their views is not enough. If they feel their voice was never really heard or honestly considered, this will lead to resentment and resistance to the final decision. While not every participant can prevail in the process, it is critical that the leader makes it clear to other stakeholders that they had a genuine opportunity to influence the outcome. This means the leader should convey openness by actively listening to and investigating the alternative ideas presented.
• Don’t dominate the process.
  People who talk first and talk the most, tend to have an inordinate influence on a group’s collective opinion – even if what they’re saying makes little sense. If the speaker is a charismatic CEO or other leader, then the likelihood of slanting the debate is even greater. The leader should avoid disclosing their personal preferences too early in the process or suggesting that their minds are already made up. Otherwise the process will stop in its tracks.
• Test assumptions.
  The leader must be able to discern between “facts” that have been carefully tested and those that have been merely asserted or assumed. Seek input from helpful contrarians who ask hard questions that can trigger healthy debate and be open to fine-tuning after the decision is made in case the assumptions turn out to be wrong.
• Make a clear yes/no decision and thoroughly explain it.
  Making the right decision is meaningless if no action comes of it. In order to give credence to your decision and effectively mobilize the people and resources you need to put your decision into practice, you must clearly explain the thought process behind the call and convey how each participant’s input affected the final decision. Be mindful that different people process messages differently, so be concise and strive to avoid ambiguity in your communications.
• Stay involved with the execution.
  A decision that is not successfully executed is a poor decision, no matter how much thought went into it. A decisive leader doesn’t simply “pull the trigger” and move on, but rather stays engaged with the execution, asks for continuous feedback on the results (and makes adjustments if necessary) and provides active support of those involved in carrying it out.
   

Speed

Of course, in the real world, leaders must make decisions at the speed of business without always having the luxury of vetting every possible alternative or securing the thoughts and buy-in from every disparate party. Effective leaders deal with ambiguity every day and can decide and act without always having the complete picture. However, by acknowledging that a decision should not be treated as a discrete choice that is made by an executive at a single moment in time, but rather a process that unfolds within an organizational context, the leader vastly improves the odds of making the right decision and successfully putting it into action.

The Most Important Decision of All

The most leveragable, and therefore the most critical, decisions are people decisions . Having the right talent around you is the most fool-proof way to ensure good strategy calls are being made and that the best judgment is being exercised during the inevitable crises. After all, making the right people calls all but ensures that good decision-making is occurring throughout all levels of the organization.

Let’s be honest. Despite the best of intentions, our New Year’s resolutions almost always fail – often in record-breaking time. Why?, we ask ourselves. We are so motivated. We want to change. Really, we do. So what goes wrong? Why can’t we ‘just do it’?

The little-recognized problem here is that our resolutions are typically designed around fixing our flaws and correcting for our weaknesses, rather than developing our strengths. As Marcus Buckingham and Donald Clifton assert in Now, Discover Your Strengths, we all have unique strengths, or talents, that are firmly in place well before we reach adulthood. Trying to turn our non-talents into talents is an exercise in futility. Sure, we can modify specific actions and cut back on self-defeating behaviors. True opportunities for growth, however, lie in developing the strengths we already possess.

Here are some typical New Year’s resolutions. See if you can spot how each is a set up for failure and disappointment:

1. I’m going to start Atkins and lose all those extra pounds once and for all. True, I love pasta. And bread. And cereal. Still, I’m determined to lose the weight. Steak and bacon, here I come!
2. I’m going to update my website to better represent my brand and offer more value to my clients and customers. Although I’m not much of a techie and design’s not really my thing, I’ve got to get it done. It’s going to the top of my ‘to do’ list.
3. I’m going to pay closer attention to the numbers at work. I hate this part of my job, but it’s important. I’m going to prioritize this and then get back to the creative stuff that I really love.

Okay, so perhaps I made these a bit obvious. The point is, this is the kind of thing we do to ourselves all the time. We disregard our natural inclinations – and disinclinations – in an effort to remake ourselves into better, more effective and efficient people. It’s just a matter of willpower, we tell ourselves. All we’ve got to do is focus and commit ourselves. This time it will happen.

Or maybe it won’t. Now don’t get me wrong, I am all for setting goals. I believe that well-crafted resolutions can indeed provide focus and motivation for improved performance. The catch is that your goals must be centered on strengths rather than weaknesses. So what if you’re not a carnivore? Skip Atkins! There are plenty of other tried-and-true techniques for getting in shape. Not much of a web designer? Hire someone who is. Free up your time and energy for doing what you do best. Not a numbers cruncher? Delegate the numbers work to someone on the team who excels at this sort of thing. Then use your creative talent to produce truly outstanding results.

So go ahead and set goals for yourself – at the beginning of the year and periodically throughout. Just make sure you’re following a natural, strengths-based path. Let this be the year you achieve your goals – and sustain the momentum beyond the first two weeks of January.