Management summary
The global financial crisis has caused chaos for businesses. CEOs have been forced to slash budgets, manage complex change agendas and attempt to survive in uncertain conditions.
Alongside this unease, businesses are also threatened by increased competition in the form of rapid developments in products and services that are faster, smarter and more sophisticated.
Organisational effectiveness is therefore vital to the success of any business. To produce better results, organisations must acknowledge the connection between their talent and business strategies.
Leadership behaviour is critical to achieving this. Leaders need to effectively engage their people, translate between business strategy and functional activity and work with systems to create integrated, big-picture solutions that can truly address business needs.
What is organisational effectiveness and how can this be measured?
Nick Kemsley, director, Henley Business School’s Centre for HR Excellence: It describes an operational business outcome – how efficiently an organisation turns inputs into outputs in terms of people, process and structure.
A variety of metrics exist at different levels. Organisations make the most progress when they narrow the field to the few effectiveness metrics that make the greatest impact on current and/or future business performance. Use of the ROHI (return on human investment) ratio is growing but it should be used carefully. Span of control is much loved, but usually badly applied.
Nigel Nicholson, professor of organisational behaviour, London Business School: It’s important to ask if an organisation has the right goals and strategic intent. Is it defending where it should be attacking, competing where it should be cooperating, consolidating where it should be transforming, or vice versa? An organisation must be effective in its chosen markets or domains by pursuing a winning strategy that fits the changing landscape – or switch domains. Rarely, the brave organisation can shape its own markets in which it is powerfully innovative, like Apple has done over the past few decades.
How can leaders maximise organisational effectiveness?
NK: Having a good grasp of how to design and develop the capability of your organisation in the context of business needs is not just an ‘HR thing’ – it’s a critical leadership requirement. Strategy is nothing without the organisation to deliver it – leaders must appreciate that organisational effectiveness is more than just a chart and some training.
They need to look at the different dimensions as an inter-related system comprising structure, system, process, skills and culture, and make sure these elements line up to deliver critical business outcomes in the best way possible rather than pulling in opposing directions.
NN: Once goals have been correctly set, the leader’s job is to make sure the structure and systems of the organisation are in line with the goals and that people are engaged, capable, motivated and committed. This is in effect, the task of building a high performance culture.
What role does the human capital agenda have to play in maximising organisational effectiveness?
NK: Just like financial capital, human capital has to be working for you all the time and creating a return. You need to invest in some areas and divest in others so that you always have the optimum relationship between the cost of that capital and its role in delivering value.
Human capital management is just a complicated way of saying we must manage the people we have now and need in the future, to get the best results at lowest cost.
NN: Often, people are hired on the wrong criteria such as what university they went to or for doing well in a badly conducted interview. They are also cooked to death by poor business processes.
By building a winning profile, culture can do a lot of the work around talent management for you. You can become the place which the best people want to join, because they know it is where they can do their best work and be themselves.
What correlation is there between leadership behaviour & organisational effectiveness?
NK: One of the biggest issues we see is leaders’ lack of ability to translate between strategy and functional activity and work with systems to create integrated, big-picture solutions rather than disconnected piece-meal ones that build in inefficiencies, misalignment and non-value-added activity.
NN: The correlation is strong. Leaders must understand the complexities of their role. Instead of spending all their time messing in the detail of the organisation they must look outwards and upwards to see the best opportunities, resources, challenges and threats. They also need to make sure HR is being properly developed and mobilised through the management ranks – especially in the key positions.
How can leaders develop self-awareness and identify their leadership style in the workplace?
NK: To drive value, traditional approaches to developing leadership capability need to become much more contextual and individually-focused. Self-awareness is essential. Strength-based 360s, analysis of derailers and more judgement-based tools are growing in prominence, but must be applied and interpreted more skilfully.
NN: Leaders must be careful not to fall into the trap of believing everything people tell them. People are selective in what they say to leaders and, even if the leader is not surrounded by ‘yes’ people, their lieutenants may still only see what the leader sees. The leader must seek feedback, advice, support, challenge, insight and help from people outside their circle.
How can leaders modify behavioural responses to enhance the commitment, co-operation and motivation of employees?
NK: The most underrated skill a leader can have is the ability to be a good line manager. We are great at promoting bad managers.
NN: Leaders often think their job is to stand on a platform making speeches. The more neglected skill, though, is asking questions – smart questions that make people think. The most difficult and critical skill here is ‘decentring’ – seeing what the world looks like from another person’s perspective. This is not easy to do – you need to liberate yourself from prejudices and assumptions to really understand what others think and feel. Then you are in a position to know how to engage them. More generally, you also need to help people make a difference and know that they have done so.
Nick Kemsley
co-director, Centre for HR Excellence, Henley Business School
Nick works to develop organisational capability and performance and takes a strong interest in HR functional capability.
Nigel Nicholson
professor of organisational behaviour, London Business School
Nigel’s major research interests include the psychology of family business, personality and leadership.