Building Organisational Capability Part 2: Making it part of your culture

Episode #24 Building Organisational Capability Part 2: Making it part of your culture

Carrying on from last week’s episode, which explored what organisation capability is in the context of corporate strategy, this week we finish it off by talking about how to build a competitive advantage into our culture.

• I’m going to start with a very short recap on last week’s episode, part one of building organisational capability, just in case you haven’t come across it yet.

• I’m going to talk about the career path dilemma between technical and leadership streaming inside an organisation.

• We’ll talk about how to build technical capability in your organisation, but the main focus is going to be on how to take a methodical systematic approach to building leadership capability.

• I’ll finish off by giving you four steps to building organisational capability

A recap of Part 1

Let’s start just by circling back on what organisational capability actually is. It’s the ability and capacity of an organisation expressing terms of the resources it owns and has access to, and it is all important in how we develop and execute strategy.

It incorporates six different types of resources that we might be able to deploy. Remember the acronym, PROFIT, for the different categories; physical, reputational, organisational, financial, intellectual and technological.

Organisational capability supports what we call the resource based view of competitive advantage. How well equipped are we to compete in our chosen industry and markets? Remember the business strategy in its simplest form, seeks to address two fundamental questions. Is the market worth winning in? I like to think of this as the external view of strategy. And, can we win? Which I like to think of as the internal view of strategy.

Good executives try to focus on doing the things that deliver the most bang for buck. This naturally leads them to very tangible actions to improve short term performance. So, balance sheet repair, MNA transaction, cost out initiatives, etc. But many leaders ignore, or struggle with, one of the richest sources of value creation for an organisation, improving the capability and performance of every single individual in the organisation, starting with the leaders.

the career path dilemma

Before we go too far, I just want to recognise a really fundamental issue that doesn’t get spoken about very often, and this is the career path dilemma. In most industries and organisations, we lack a clear career path that enables people without the aptitude or desire to be a leader to have a fulfilling career. Let’s face it, everyone who’s born with an ambition chip, wants to move up. They want recognition, they want title, they want status, and they want financial rewards, and that’s fair enough, it’s programmed into us. And many people as they move up, become intensely unhappy, as they’re in roles they don’t like, they’re not suited to, and ultimately can’t be successful.

This is why I talk about making the choice to become a leader. Do you really want to take on the hard yards of leadership, letting go of the need to be liked and instead adopting the mantra of: respect before popularity, having difficult and uncomfortable conversations, investing time in your people, much of which doesn’t have any discernible impact, and of course being prepared to make tough decisions and you just being okay with that?

If the only moving up options are in leadership roles, this pushes non-leaders who were built for technical roles, into positions that they are bound to struggle with, they don’t really have any desire to lead. And sure signs are leaders who say things like, “My job would be great without the people.” Or, “I spend too much time on admin work.” Or, “I can’t find time to do any real work.”

The $64,000 question becomes, “How can I establish a career path for technical experts that will allows them to get career advancement, financial rewards, respect, and status without putting them into roles that they aren’t cut out for?”

I know a lot of you aren’t in a position to influence your organisation architecture and design, and that’s okay, but one day you will be, and this is a key area for you to think about.

When I think back to my time at CS Energy, we weren’t particularly good at this technical career streaming either, however, we did take on an individual basis, people in senior leadership roles who were clearly not suited to it, and reassigned them to very senior technical roles.

So for example, we created a Chief Engineer role. This enable excellent technical people with highly valuable skills and knowledge to focus on what they do best. In general, this enables people to be paid what they’re worth, in the place that they are worth the most.

In terms of those technical skills and capabilities, is it critical that these are built within the organisation, and that you pay attention to that.

Remember last week from David Yoffie, the most enduring competitive advantages come from people in culture advantages. So to deal with this technical stream rather quickly, I see this as predominantly a function of workforce planning. What technical capabilities will we need? Number, skills and capability of people. And what skills and capabilities will we need in two, or three, or ten years time? What skills and capabilities are core to our business? What is it that really differentiates us, and is this potentially going to be a source of competitive advantage for our organisation? If it is, how do we perpetuate it? How do we nurture it, and grow those skills in house?

For example, skills and experience in the thermo dynamics of coal combustion, is pretty important if you’re in a company that runs a portfolio of coal fired power stations. Do you have the ability to retain it, and if so, how would you do it? On the other hand we have what we call commodity skills, which we can easily buy out of the market, and so there is an endless supply of high quality and competent accountants, and lawyers, and software developers coming out of the universities all around the world.

Now let’s focus down on the leadership and organisational capability that becomes an inherent part of what you do.

The first thing is, we really have to take a methodical approach to building people capability. You can’t ignore one of the richest sources of value potentially, for your organisation.

The organisational advantages that are the hardest to create, as we’ve said before, people process and methods, are the most difficult for your competitors to replicate. Because they’re very hard to imitate, the payback is enormous. They are sources of long term competitive advantage. But it starts with your leaders.

Leadership affects everything you try to do. Nothing happens unless a leader makes it happen. Or actually, I should probably rephrase that, nothing different happens unless a leader makes it happen. The organisation would just roll along doing what it’s always done, and nothing will be different. So if you’re trying to make any improvement to your organisation in terms of culture, productivity, efficiency, quality, the success, or failure of that is directly proportional to the influence and impact your leaders can exert.

If this is allegedly so valuable, why aren’t we all focusing on it more?

I just want to reference a McKinsey survey from a few years ago, that looked at how companies build organisational capability. And leadership skill was considered by the majority of respondents in this survey, to be the capability that contributes most to performance. But, interestingly, only 35% of organisations say they focus on it. They also found in this survey that less than 10% of companies said that capability building was a top priority for their organisations. And even when it came to the mechanics of clearly defining organisational roles and accountabilities, less than 40% of organisations said that they did that well.

If we’re going to take a methodical view of building organisational capability through our people, the very first step would obviously be to work out where you are now. What innate capabilities do you have in your people? Is there anything special that differentiates your people and processes, and this is the O part of the PROFIT model we spoke about earlier. But, when you think about your people and process capability, you need to be honest.

I hear a lot of leaders say, “We’ve got the best people.” Or, “People are our greatest asset.” I’m going to tell you, 99% of the time, this is pure unadulterated bullshit.

It is in most cases, a thin platitude voiced by out of touch leaders. Let’s take a reality check, your people, like my people, are most likely to be an average representative sample of what you can buy from the market at any point in time, given your industry, location, and remuneration policies.

You may recall I dedicated Episode 12 of the No Bullsh!t Leadership podcast to The War for Talent, and I explored some of these dynamics there. But, let’s step back for a minute, what if you could actually make it true? What if you could build your leadership and organisational capability to the point where you actually did turn your people into better than average employees? What if you could retain your best employees, and free up your worst to be successful with one of your competitors organisations, would that be valuable?

four steps to building organisational capability

To that end, I want to give you four steps to building organisational capability through leadership. I just want to preference this by saying, at CS Energy and other organisations I’ve been in, this takes teams of people years to work on to get it right and mature, but you’ve got to start somewhere.

So let’s see if your organisations have some of these things in place already, and recognise the good things that are already being done, and then see how you can improve them.

1. Be methodical and deliberate, so, it doesn’t all just become a fluffy talk fest

And when I say this, methodical and deliberate means, you have systems and processes to understand, track and develop your leadership talent, which in turn increases organisational capability. It means you make it a priority for leaders, so it would naturally be part of their own performance assessment. And you make it clear, the first and foremost job of a leader, is to build leadership talent and capability below them. Then, you link performance assessments to organisational capability development and talent management.

2. Set really clear performance standards, and you need a standard for each level in the organisation

Now let me explain, performance standards are generic for each level and are multi-dimensional. At CS Energy we had six categories that every leader was rated across, and these categories were: safety, leadership, management, commercial, working across boundaries, and developing others.

Now, your organisation might require different categories or dimensions for full performance standards. And each of these dimensions can be weighted differently depending on the point in time you’re at. But everyone, from the Chief Executive down to the front line leaders, had a performance standard based on their performance on those six dimensions. At each level though, there were different imperatives and different time horizons based on the layer of the organisation was at. So, clearly, the CEO would have a very different time horizon to a front line supervisor.

We had a lot of fun though trying to get people to understand, that to be at full performance as a leader, you needed to be able to perform across all six performance categories. It wasn’t enough to be an outstanding commercial person, and to be absolutely rubbish to be working across boundaries or developing others, you had to have a combination of all of these six dimensions to be at full performance.

To make this a bit more tangible, I’m going to put a sample performance standard with the show notes here, so that you can download that as a free downloadable at the end of this episode. DOWNLOAD THE PERFORMANCE STANDARD HERE.

3. Review your talent regularly

At CS Energy we had a nine box process, and that’s an assessment of two things, we do it for every leader in the organisation, and it assesses the performance and the potential of each individual, and this includes their values and behaviours.

We would run talent management sessions, which I chair as the Chief Executive because I own the talent in the organisation, but I’d have the assistance of the executive team and it would be supported by HR and senior line managers.

And as well as the assessment of performance and potential of each of the individual leaders, we also did an evidence based assessment against a framework called, ‘Leaders Who Will Grow’. Because leaders who will grow have recognisable patterns, and in addition to delivering expected results they demonstrated a number of things; a thirst for knowledge and the motivation to apply it. They have a willingness to tackle tougher and tougher challenges, regular and frequent efforts are made to innovate, and they have an ability to anticipate and avoid obstacles. They exhibit an openness to ideas, and improvements submitted by others. They take calculated risks to accelerate progress. They learn from their mistakes and they don’t repeat them. And they like making their peers successful. They put team results ahead of their own, and they connect the dots, the value drivers, in order to get leverage. They seek feedback from diverse sources, and they can articulate complex problems in simple terms.

As I said before, looking at the combination of two things, performance and potential, we map them on a 3×3 matrix, that’s why we call it a nine box.

The dimensions of performance are: not yet full performance, full performance, or exceptional performance.

On the potential axis, we have: mastery, growth, and turn. So mastery means, you’re going to always do the same job you’re doing now, you’ll just get better at it hopefully. Growth potential says you can take on bigger roles at the same level of difficulty. But turn says, you have the potential to go up to the next level.

Check out The Leadership Pipeline book has a great description of nine box and how it works.

In my view there is no potential low without performance. You can’t be said to be at full performance unless you perform against all dimensions of the performance standard. And you can’t really be marked for promotion to a larger job at the growth or higher level at the turn classification, unless you’re performing as a leader at the level you are currently at.

One of the biggest mistakes I see in leadership development, is people applying the halo effect. For example, taking “a good bloke” and promoting him because of his likeability, or promoting someone who’s good in one or two dimensions of the performance standard.

For example, management and commercial, and putting them up where they can’t handle the rigours of the new level. The group assessment process is designed to circumvent this. But, in an open forum we are discussing peoples individual performance and potential, this is where your leadership performance is just so important.

We’ve spoken before about fostering a culture which invites and expects robust and respectful challenge. And the effectiveness of the talent management process, depends almost entirely on how well you can engage your leaders to bring that No Bullsh!t culture to the table. In my view, most leadership teams are too polite for the most part. They’re more afraid of being seen to hurt someone’s feelings, or be critical of another individual than they are to courageously seek the right outcome. “If I don’t agree with you, then at some point in the future you might not agree with me, and I might be embarrassed, so let’s not take the risk.”

But, like in any other domain, you want to encourage broad challenge, perspectives, and debate on the leadership talent. So, all executives come ready to talk about their leaders in their organisation. They need evidence, and that gets distributed as pre-reading. We evaluate and discuss each leader in the business, we agree on a rating for performance and potential, we talk about the high potential people, and this is really important. How can we stretch and grow them quickly? What opportunities inside the organisation can we create for them to develop them and retain them? And we also look at succession planning, building ready now successors in each of the critical roles. And we look for gaps in the organisational capability.

So, that process which I’ve just flown over the top of very, very briefly, is a critical part of building organisational capability.

4. Create a feedback and development plan for every individual that you’ve assessed

For me this is the most important part of the process, because it gives you the ability to give crystal clear feedback to individual leaders.

You’ve got an organisational wide assessment of their performance and potential, where you’ve consulted right across the organisation, the executives, HR, and so forth. You also test their direct manager as to what their views are, because sometimes let’s face it, we all fall in love with our people.

But, it opens a discussion about what they need to do to become full or exceptional performance, and to actually realise their potential to go up through the organisational layers and to become turn potential. It gives people a reality check on their career aspirations within the organisation at least, and lets them know where they stand. And being able to give that feedback to an individual, is just gold.

On the downside, some people will say that this is labelling individuals, and I know labelling is very, very unpopular these days from young childhood upwards.

This is particularly not for profits and other industries where you have less competitive rigour. But I see this as real feedback with the promise of support for improving career development, and this provides one of the rare opportunities for individuals to develop that they never would have otherwise had. This process for me, has turned out some of the strongest leaders I’ve ever seen. And that’s the bottom line.