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Leap of faith
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Leadership development: a leap of faith?

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28th Jun 2016
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Justin Hughes writes on issues relating to team and organisational performance. A former Red Arrows pilot, he is now Managing Director of Mission Excellence, a consultancy focused on improving clients' execution – their ability to close the gap between what gets talked about and planned, and what gets done. Justin previously spent 12 years as an RAF fighter pilot and is a renowned speaker on performance and risk and has presented alongside Richard Branson and Kofi Annan. He can be found on Twitter at @JustinMissionEx.

In many ways, development of non-technical skills can be viewed as an intellectual leap of faith.  Introduce a new process and the benefits can often be viewed (and measured) almost immediately. However improved human performance is like oil percolating through the pores of an organisation. It takes a long time to take residence and still longer to extract the value.

And even then, was the development programme the real reason for the improvement of results?

Correlating A with B with any precision is bordering on impossible in this context.  Plus, performance programmes are expensive. The delivery is probably the cheapest element; the opportunity cost for senior personnel can be a significant multiple of the programme cost. Finally, non-technical performance is rarely what is measured or rewarded. Why would the individuals bother, never mind the organisation?

The answer to the above is because it makes a difference. A tangible, measurable difference which adds value to shareholders, organisations and to individuals within any organisation which rewards performance.  The evidence?

1. Effective senior leadership teams generate better lasting financial and operational performance.

  • A BCG analysis (Bhalla et al, 2011) of high-performing organisations found that ‘an aligned leadership effective deep within the organisation’ was a common characteristic of the organisations which generated ‘lasting performance gains and a competitive edge’.  As an example, the Royal Bank of Canada implemented a change programme focused on leadership behaviours, accountability and taking an enterprise-wide, long-term view.  During the next 3 years share price doubled, far outstripping its competitors, which the CEO attributed to the culture change at the top. 
  • Herb et al (2001) from McKinsey concluded that ‘the prize for building effective top teams is clear: they develop better strategies, perform more consistently, and increase the confidence of stakeholders.’ 
  • A study published in the Harvard Business Review (Mankins, 2004) looked at successful organisations that had outperformed their competitors in the market and found in all cases that it was the processes and behaviours of the senior team which was the key to their success. 
  • Analysis published by Forbes (Bersin, 2012) found that the effectiveness of leadership across the company, a focus on leadership development and succession planning were the common links to enduring business performance. 

2. Investors and buyers take senior leadership effectiveness into account when deciding whether to invest in or acquire a company. In fact, leadership commands a premium on the value of a company. 

  • A global study of over 400 investment analysts conducted by Deloitte (Canwell, 2012) found that they judged senior leadership team effectiveness as second most important only to financial performance, when assessing the success of a company.  The research also highlighted that effectiveness of senior teams was a particularly relevant factor to analysts when looking at Financial Services, and also when looking at smaller companies.  In fact, it was suggested that effective leadership could lead to a premium of 15.7% on the value of a company, and that the opposite had even more impact – ineffective leadership was linked to a 19.8% discount. 
  • Hardin and Rouse of Bain (Harding 2013) found that investors and buyers are increasingly conducting ‘human due diligence’ on prospective acquisitions.  They concluded that the success or failure of a deal is largely down to people-related factors: culture, roles, style of management and decision-making capabilities were all cited as highly relevant.  Their M&A advisors therefore recommend that parent companies take increasing interest in researching these elements of a company prior to acquisition; their assessment can affect the price they’re willing to pay, and even their decision to go ahead with the deal or not. 

As leaps of faith go, this one stacks up pretty well…

This blog was co-authored with Mission Excellence Programme Director, Amy Cruickshank.

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