ORGANIZATIONAL DEVELOPMENT BLOG
Outcome Based Leadership
Introduction to a New Leadership Assessment Methodology
Dietmar Glodde (CBS) BA
Having spent a career as a C-level executive, peer and board member, leading companies as well as observing them, I have seen many executives launched and involuntarily retired. While working for Bertelsmann AG, Universal Music Group and Disney Music Group, there used to be a long term HR strategy in place and the speed of leadership change was rather slow. This was the opposite of working for CalPERS or CBRE Investors backed funds, in need of rather quick decisions regarding hiring, firing and executive change. However there was one common observation I made: hiring top executives always meant they were selected by their companies for their overall competence, drive and passion, the most scrumptious ones around with outstanding talents and qualifications, often veterans of large, successful enterprises. They sure would take the company to the next level, if not beyond while the next moment saw us firing them. I have always asked myself why some highly sophisticated, educated and competent leaders failed in new positions, while other young, inexperienced leaders were highly successful.
Leadership has shown many problems. Some of them clearly emerged during the recent economic crisis, questioning the belief in the effectiveness of our corporate leaders and that is true for most developed economies. Some executives did extremely well before and during the crisis while at the same time their companies went down the gutter. Apart from the very recent macro- and micro economical facts of life –you may call it as well “correctional process”- it is widely known that there is a high level of executive turnover. The clock runs faster for top notch executives, and their typical corporate lifespan becomes shorter. This particularly owes to the lack of effectiveness in achieving and/or maintaining the level of returns required by shareholders. As an observer it appears that there is a problem to predict who would succeed and who would fail, meaning that our conventional standard methods are falling short. This is an interesting phenomenon putting focus on the hiring process, leadership assessment methodologies and the several systems corporations in the developed world have essentially settled on to make the choice of their chief execs and team.
History of Leadership Development
Let’s take a brief look at leadership history and the development of methodologies. Classical approaches to leadership assessments and diagnostics are vastly based upon personality, competence and other models, most of them between half a century and a century old:
Personality approaches focus particularly on interpersonal and social functioning as well as styles of interaction with the world. They include approaches such as the Myers-Briggs Type Indicator (MBTI), the Five Factor Model (FFM), the Hogan Personality Inventory (HPI), the Minnesota Multiphasic Inventory (MMPI) to name but a few. Most of these are based on the ideas that were developed by Jung in the early 20th century and are saddle tools to distinguish a leader’s personality.
Competency approaches take a broader view of human capabilities and include systems such as the McQuaig, DISC, the Chally and others. Originally these systems arose out of the time and motion studies in the early manufacturing companies that focus on individual capabilities that conferred an advantage to a manufacturing worker. Today this set of abilities has been enlarged to a very large number, in the hundreds. They are now used in leadership assessments, trying to narrow down the definition and criteria of what actually constitutes a good leader in terms of the abilities they measure and postulate that having a number of capabilities makes a good and successful CEO, the more the better.
There are an enormous number of other approaches to leadership covering thought systems ranging from social, organizational, psychoanalytic and emotional systems. Regarding the latter, most notably the approaches by Daniel Goleman, Birkman and Kolbe about Emotional Intelligence, which however can be seen as an extension of personality.
If we keep looking for new groundbreaking approaches, they all seem to fall short of considering economical or business outcomes or linking leadership to profitability or competitive outcomes. I have seen numerous examples of leaders with good interpersonal skills who have been highly unsuccessful and vice versa.
Leadership in modern organizations is required to increase profitability and valuation. This applies to both public and private companies alike. Scarce capital is used by these organizations and the ability to make it more effective is a key requirement of modern leadership. Leaders who do not do this are routinely removed in order to find leaders who can. So leaders must drive better financial and valuation outcomes in order to be better leaders. When boards and shareholders examine the achievements of an executive or a particular management team, they draw their attention ultimately to the financial and business metrics rather than the organizational and interpersonal metrics. Therefore it seems inevitable that leadership approaches need to integrate these concerns directly into their ambit, to avoid a major systemic gap in modern leadership approaches.
So, what needs to be done to build the necessary linkages? Turning to the disciplines which conventional leadership and human resources specialists are generally uncomfortable with, i.e. economics and finance appears to be most appropriate and promising. In order to see to what extent they can meet the requirement of linking leadership and financial and valuation outcomes seems to be a proper approach, however the traditions of finance and economics assume perfect rationality, so we need to take a closer look at what economical sub disciplines allow for a development of deeper theories.
Classical economics` history dates back to the 19th century, so they are even older than some of the leadership theories. Formal models have been built by Keynes and Smith based upon a platform assuming that individuals and corporations are acting rational. This allows a sophisticated structure of models to be built, like the theories of utility and choice for both consumers and corporations involving indifference curves and the like. Almost all topics at corporate level like pricing demand theory, consumer choice and more latterly decision and game theory assume rational economic factors.
At the macroeconomic level, topics like interest rates, money supply, and consumer demand have been based on the assumption of rationality and different theories and models have been built based upon these assumptions. All of these models depend on the assumption of rationality to work.
Economists have always known and accepted that these theories are an approximation to the real world. The models work fairly well when conditions do not change much. However it has become increasingly clear that the classical economic models do not work at all in the following cases:
• When conditions change significantly
• In predicting major changes in corporate valuation
• In predicting macroeconomic inflection points and crises
It is increasingly being seen that classical economics tends to work best when conditions do not change much, and when rational behaviors dominate the market. When these conditions are infringed, then classical economics and finance break down and cannot predict the outcome.
In my upcoming blogs about “Behavioral Finance” I will take a deeper look at the predictable and systematic biases influencing all our financial decisions. This will describe the missing link, uncover the financial traits of leaders (their “Financial Signature”), and enable us to assess and tailor strategies to predict, adjust, align financial signatures and styles.
ABOUT THE AUTHOR
Dietmar Glodde (CBS) BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is organizational development. He has achieved a BA in Business Management and Economics and a BA in Hospitality Management and Tourism from Munich University of Applied Sciences. He is also a Certified Coverdale Consultant, specializing in Organizational Development, Change Management, Leadership Development, Executive and Group Coaching and a Certified Perth Leadership Outcome Model Consultant, specializing in Behavioural Economics, Finance and Business Acumen Assessment. He has been employed as a CEO, COO, CMO, Managing Director, Finance Director and Management Consultant for various companies and has experience within the media, entertainment, private equity, financial services, technology and telecommunications industries. His clients or employers have included Coverdale Consultants, Pension Corporation, Quadriga Worldwide, Dream Stream Studios, Acentic Ltd, Kids International, DEAG Deutsche Entertainment, DoRo Movie and TV Productions, Universal Music Group and the Bertelsmann Music Group. He has geographical working experience throughout Europe, including Germany, United Kingdom, Denmark, Switzerland and Austria and throughout Asia, including Japan, Hong Kong, Malaysia and Indonesia. He speaks German, English and Danish. His service skills incorporate behavioural finance, behavioural economics, leadership development (local-international), turnaround and change in difficult situations.