The Leadership capital index

The Leadership capital indexRealizing the Market Value of Leadership

ByDave Ulrich

Purpose of the bookTo measure the elusive variable of company leadership which plays a key role in determining company success and market value

To provide the right questions to ask and the right indicators to track on leadership

Using Leadership Capital Index, Investors can hope to move from 5% to 30% or even 40% confidence in their assessment of leadership.

Importance of intangibles for FIRM valuationA companys value comes from tangible assets (products, receivables, technology, facilities) as well as intangibles (strategy, brand, intellectual property, reputation, employee expertise, R&D, Systems). These intangibles are more subjective but have been recognized as being just as essential to determining a companys desirability as an investment.In recent years, intangibles have received more attention as a source of value. However, firm valuation has evolved from financial metrics to intangibles to leadership.

LEADERSHIPKeep our promisesCreate a clear, compelling strategyAlign core competenciesBuild Organization CapabilitiesIntangible valueArchitecture for Intangibles

Leadership capital domainsLeadership Capital Index has two domains:Individual refers to the personal qualities (competencies, traits, qualities) of the top leader and key leaders in the organizationOrganizational refers to the systems (often called human capital) these leaders create in order to manage leadership throughout the organizationHighLowHighLowFocus on org capability & Human capitalFocus on individual leader competenceLeader or Talent AuditNo AssessmentOrganizationAuditLeadership Capital Index

Individual leader elementsThese five elements of leadership can be extracted through interviews, observations, and surveys. Personal ProficiencyMaintain good character & HealthLeadership Brand ProficiencyAct as outside Stakeholders expectPeople ProficiencyBuild and maintain an effective workforceExecution ProficiencyGet things doneStrategic ProficiencyHave a clear view of future directionIndividual: PersonalLeadership Proficiency

Organization elementsThese five elements of leadership can be extracted through interviews, observations, and surveys. Cultural CapabilityCreate an Effective CultureWork ProcessesOrganize to Cope with Increasing ChangeInformation ProcessesUse information for ImpactPerformance AccountabilityReinforce desirable behaviorTalent ManagementManage the flow of peopleOrganization: Human Capital Systems

Individual DOMAINHOW WELL DOES THE INDIVIDUAL LEADER OR COLLECTION OF LEADERS BE, KNOW, AND DO WHAT MATTERS TO INVESTORS?FACTORTO WHAT EXTENT DO LEADERS..EXAMPLE METRICS OR INDICATORSPersonal ProficiencyHave the required personal characteristics to be effective?Has successful industry experienceHas good character and healthDemonstrates learning agilityExhibits personal presence (charisma)Has emotional intelligence (self-awareness)StrategistHave a point of view about the future and strategic positioning?Articulates a unique point of view about future industry trendsUnderstands external business driversEnunciates a differentiated strategy for the firmExecutorMake things happen or deliver as promised?Gets things doneHas a proven track record of successIs willing to hold people accountableMeets commitmentsTalent Manager / Human Capital DeveloperBuild competence, commitment, and contribution of employees at all levels?Maintains stability of senior teamWorks smoothly with people with different skillsEngages with issues of staff retentionDelivers better staff productivity than rest of industryHas a workforce planEmpowers othersLeadership BrandFit actions or behaviors with stakeholder and other expectations?Links firm brand to leadership behaviorsAligns leadership behaviors to strategyLives the values and uses the values to guide decision making

ORGANIZATION DOMAINWHAT DO LEADERS DO TO BUILD ORGANIZATION CAPITAL AND HUMAN CAPITAL THAT MATTERS TO INVESTORS?FACTORTO WHAT EXTENT DO LEADERS..EXAMPLE METRICS OR INDICATORSCultural CapabilityCreate an effective culture that matches customer expectations?Pays attention to defining and delivering desired cultureConnects firm brand to culture and valuesTurns culture and values statement into specific, measurable behaviorsHas a clear shared view of desired cultureTalent / PeopleManage the flow of talent into, through, and out of the organization?Promotes and monitors firms hiring success rateRetains key talentInvests in training and developmentMaintains a succession planning processPerformance AccountabilityCreate a performance management process that reinforces right behavior?Sets clear standardsAligns executive compensation with performanceSpends tome on performance conversationsInformationManage information flow to gain information asymmetries?Uses social mediaCollects and disseminates external informationTurns big data into insights that inform decisionsWorkCreate organization and work practices that align with strategy?Matches organization structure for strategyUnderstands and reengineers key processes for successHas clear decision making and governance guidelines

1. Personal proficiencyPast Performance and ExperienceMoral Values and Ethical JudgmentIntellectual Agility, Resilience, and GritSocial SkillsPhysical Presence and VitalityEmotional Identity and Well-BeingLeaders Personal ProficiencyHow successful has the leader been at meeting performance commitments in previous assignments?What has the leaders career path been? Similar or different assignments? Safe assignments or risky ones?Does the leader maintain adequate diet, exercise, and sleep habits?Does the leader have the vitality to meet the demand of the job?Does the leader have a personal identity that matches personal strengths and needs of the business?Does the leader manage ego, balancing confidence and humility?Is the leader a network builder? Does the leader make others feel better about themselves after an interaction?How does the leader handle failure? How resilient is the leader?How committed is the leader to learning? How able is the leader to accept new ideas?Does the leader evoke personal trust from key stakeholders?Does the leader encourage a code of ethics to shape behavior in the company?

2. Strategic proficiencyHave an overall Strategic ApproachManage the Strategy ProcessEngage and Communicate with EmployeesTurn Aspiration into ActionUnderstand External Business DriversCreate Unique Position for the FutureLeaders Strategic ProficiencyDo leaders have a strategic blueprint that captures all the elements of strategic proficiency?Do they regularly apply this frameworkDo leaders have a framework for thinking about future trends that might shape the industry?Do leaders have an innovation premium because they turn opportunities into products or services?Can leaders articulate in a few words how they are positioning their organization to win in the future?Are leaders seen as thought leaders or strategic pioneers in their industry?

Do leaders turn strategic direction into day-to-day choices?Do leaders have a framework for what choices should be made to make strategy happen?How committed are employees to the strategy?Do employees understand the strategy, and are they able to repeat its tagline, story, and narrative?What percentage of people participated in crafting the strategy?Do leaders encourage dissent and dialogue in creating and implementing the strategy?

3. execution proficiencyRecognize and Create a need for ExecutionAdapt QuicklyInfluence Others to Mobilize CommitmentManage Decision-making and GovernanceFocus on PrioritiesEnsure Clear AccountabilityLeaders Execution ProficiencyDo leaders build a comprehensive rationale for how to make sure that strategies are executed?Do leaders anticipate resistance to strategy execution and address the problem areas in advance?Do leaders know how to move from creating opinions to determining priorities?Do team members share a common set of priorities?Do leaders have clear indicators about that they expect from others?Do leaders follow up on what people promise they will deliver?

Do leaders manage the content of decisions by breaking big projects into specific choices?Do leaders have a decision protocol for who is involved and how they go about getting decisions done?Do leaders see how strategies, choices, and projects will benefit others?Do leaders transfer personal ownership for success to others?Are leaders willing to try something even if not fully finalized?Do leaders learn from failures and incorporate insights into the next project?

4. people proficiencyHave a Positive People Management Philosophy and Behavior PatternUnderstand and Use TeamsExcel at CommunicationCoach and Monitor OthersKnow and Trust PeopleAttend to their Personal SuccessionLeaders People ProficiencyDo leaders serve as talent magnets who attract and retain people who work for them?Do leaders generally have a positive (reinforcing, abundant) or a negative (belittling, deficit-creating) style?Do leaders know and have relationships with individuals two or three levels below them ?Do leaders behave in ways that engender trust?Do the current leaders work to define the future requirements for each position?Do the current leaders nurture possible candidates to prepare them for future responsibilities?

Do the leaders believe more in the command-and-control or the coach-and-communicate style?Do the leaders ask more questions or give more directives?Do the leaders capture their audiences attention and inspire people to take action?D the leaders have credibility as communicators because of their content and process of communicating?Do the leaders consistently and appropriately use teams to accomplish work?Do the leaders audit team processes to make sure each team is working well?

5. Leadership brand proficiencyCustomer: Reflect Leadership BrandValues: Embody the values of the organizationCommunity: Maintain strong community reputationStrategy: Match leadership to strategic priorityLife Cycle: Fit with organization stageLeaders Leadership Brand ProficiencyHow much overlap is there between firm brand as promised to customers and the leadership competency model used for the organization?How much overlap is there between firm brand as promised to customers and investments in leadership training and performance standards?

Does the leadership have a consensus about the strategic priorities in the strategic options matrix?Do leadership investment activities align with the requirements of the strategic option?Are leaders aware of the unique challenges of the organization stage?DO leaders have the ability to evolve their leadership from one organization stage to the next?

Do leaders adapt their styles to work in different country cultures?Do leaders work to become part of a broader community network?What percentage of leadership team can point to a specific incident or decision affected by values in the last 30 days?How do employees rate the extent to which leaders are meaning makers as they fulfill their role?

6. Culture capability processesDefinition Stage One: Recognize need to build capabilityProcess Agenda: Management processes align with cultural messageBehavioral Agenda: Employee actions align with cultureIntellectual Agenda: Clear and shared cultural messageDefinition Stage Two: Set Capability PrioritiesDefinition Stage Three: Equate Culture with identity in customers mindsOrganizations Cultural Capability ProcessesDo leaders talk about culture as part of the success of the company?Are cultural assessments woven into formal decision-making and planning processes?Does the firm have a regular process for doing capability audits? Does the firm prioritize prioritize key capabilities?Does the firm have a capabilities implementation plan?Does the firm have the right culture for future success?Does the internal culture reflect external customer expectations or brand promises?

Does the firm have a unity of identity about its cultural message?Does the firm have redundant communications to share the cultural message?Does the desired culture show up in day-to-day employee activities?Do employees take personal ownership of the culture (refer to my culture as opposed to managements culture)?Do management practices in financial allocation, strategic planning, operational performance, and human capital reflect and reinforce the culture?Do customers sense that the management practice will meet their needs?

7. Talent management processesOverall Commitment to Talent ManagementOut: Removing Poor PerformersOut: Managing RetentionThrough: Preparing Future SuccessorsIn: Acquiring the Right TalentThrough: Developing Current TalentOrganizations Talent Management ProcessesDo leaders allocate attention (time, energy, money) to talent management activities?How does the firm benchmark with competitors on labor productivity?Does the firm have a rigorous talent acquisition process?Does the company have a reputation for attracting top talent (e.g., a strong employee value proposition)?What is the training & development budget per employee? As a ratio to sales?How does the company encourage employees to develop from experience?

Does the firm have a strong talent pipeline?Does the firm have a regular annual process for anticipating future key positions and reviewing how key people can be prepared for those positions (for example, through a rigorous succession planning process)?What is the voluntary turnover rate?Does the company have a thorough talent retention strategy?Are leaders willing to have difficult conversations with poor performers?Do leaders act boldly and decisively with poor performers?Through: Building CommitmentDoes the company track and use employee engagement indicators?How does the company define engagement? Satisfaction, loyalty, commitment, personal responsibility?

8. Performance accountability processesOverall Commitment to AccountabilityPerformance Follow-UpReward Systems that Drive BehaviorStandards Linked to ConsequencesPositive Accountability ConversationClear Standards that Differentiate PerformanceOrganizations Performance Accountability ProcessesHow much variance is there in financial performance from guidance?How well does the organization hold people accountable for meeting or missing goals?How well are leaders trained to have ongoing positive conversations?What percentage of employees have had a positive accountability conversation within the last year?What percentage of employees see how their personal work fits with the overall organization strategy?What percentage of employees have clear expectations for what defines effective performance?

What percentage of executive compensation payouts are linked to the top five performance commitments?To what extent are bonuses and incentives tied to the interests of shareholders?

To what extent do employees throughout an organization share in the gains of the organization?To what extent do executive incentives reflect business strategy?

To what extent do leaders help employees learn from mistakes rather than punish them?To what extent do leaders have timely performance conversations when things need improvement?

9. Information processesMaintenance of Overall Commitment to InformationManagement of Information Flow Across BoundariesUse of Information for Decision MakingTransparent Dissemination of InformationUse of Information for Puzzle SolvingUse of Information for Mystery DiscoveryOrganizations Information ProcessesDoes the organization have an information bias and culture, so that people make decisions based on information?Does the organization have a strategy of how to access and use information? Is there integrated information technology?To what extent does the organization have regular reporting mechanisms to monitor performance?To what extent does the organization solve problems with regular information?How well does the organization source information o unsolved problems or concerns in its field?How easily do people bring new ideas to the leadership team?How well does the organization share information, both electronically and socially?How well does the organization share the right information about what matters most?

Can executives prioritize key choices and decisions they need to make to be effective?Does the organization use the right information to make essential decisions?

How well does the organization share information outside-in boundaries?How well does the organization share information across side-to-side (horizontal) and top-to-bottom (vertical) boundaries?

10. work processesManage by ParadoxCreate a collaborative WorkplaceParadox: Stable - FlexibleParadox: Centralized - DecentralizedParadox: Inside - OutsideParadox: Individual - CollectiveOrganizations Work ProcessesDo leaders have the ability to see multiple sides of an issue?Do leaders address paradoxes but still make decisions?To what extent do employees know the top 20% of customers and their buying criteria?How much cocreation occurs with customers involved in key activities?How well does the organization form teams to accomplish work?How well do teams operate against the criteria of a high-performing team?To what extent does the organization structure align with the business strategy?How effectively do leaders clarify roles and responsibilities for governance?

How well does the organization honor the past, by thanking predecessors, and create the future, by anticipating expectations?How well do leaders show the evolution of change efforts so that they build on each other?

Does the employee workplace encourage workplace productivity?Does the work setting reflect the organizations culture?

individual domaiN ASSESSMENTElementTo what extent does our top leader possess.Rating (Low-1, High 10)To what extent does our senior leadership team possess.Rating (Low-1, High 10)Personal ProficiencyRelevant past experience and performanceRelevant past experience and performancePhysical presence and vitalityPhysical presence and vitalitySense of personal well-being and identitySense of personal well-being and identityAbility to make others feel better and multiply their workAbility to make others feel better and multiply their workStrong values and ethical judgmentStrong values and ethical judgmentAbility to learn, be resilient, grow and show gritAbility to learn, be resilient, grow and show gritPersonal Proficiency Total= Total/6Personal Proficiency Total= Total/6StrategistUnderstand external driversUnderstand external driversPosition the organization for the futurePosition the organization for the futureTurn aspiration to action through systemsTurn aspiration to action through systemsEngage and communicate with employeesEngage and communicate with employeesManage the process of strategy creationManage the process of strategy creationStrategist Total= Total/5Strategist Total= Total/5

Top LeaderTop Leadership Team

individual domain ASSESSMENT (contd.)ElementTo what extent does our top leader possess.Rating (Low-1, High 10)To what extent does our senior leadership team possess.Rating (Low-1, High 10)ExecutorRecognize and create need for executionRecognize and create need for executionFocus on prioritiesFocus on prioritiesEnsure clear accountabilityEnsure clear accountabilityManage decision making or governanceManage decision making or governanceInfluence others to mobilize commitmentInfluence others to mobilize commitmentAdapt quicklyAdapt quicklyExecutor Total= Total/6Executor Total= Total/6People ManagerHave a positive people philosophy and behaviorHave a positive people philosophy and behaviorKnow and trust his/her peopleKnow and trust his/her peopleAttend to his/her personal successionAttend to his/her personal successionCoach and mentor othersCoach and mentor othersExcel at communicationExcel at communicationUnderstand and use teamsUnderstand and use teamsPeople Manager Total= Total/6People Manager Total= Total/6

Top LeaderTop Leadership Team

ElementTo what extent does our top leader possess.Rating (Low-1, High 10)To what extent does our senior leadership team possess.Rating (Low-1, High 10)Leadership BrandLeadership brand that meets customers expectationsLeadership brand that meets customers expectationsAlignment with strategic goalsAlignment with strategic goalsAwareness of the unique challenges of the organization stageAwareness of the unique challenges of the organization stageHave strong community reputationHave strong community reputationEmbody organization valuesEmbody organization valuesLeadership Brand Total= Total/5Leadership Brand Total= Total/5

Top LeaderTop Leadership Teamindividual domain ASSESSMENT (contd.)Individual: Top Individual LeaderLeadership BrandPeopleExecutionStrategicPersonal010000010101010

Organization capability ASSESSMENTElementTo what extent does our leaders .Rating (Low-1, High 10)Cultural Capability: Create an effective culture that supports strategic capabilityFocus attention on culture?Prioritize key capabilities needed to win?Create a clear intellectual agenda about a shared cultural message?Establish a behavioral agenda wit employee actions aligned to culture?Embed process agendas with HR practices aligned with culture?Cultural Capability Total= Total/5Talent Management: Manage the flow of peopleDemonstrate overall commitment to talent management?Acquire new talent into the organization?Develop current talent?Prepare future successors?Build commitment?Manage retention of key people?Remove poor performers?Talent Management Total= Total/7

ElementTo what extent does our leaders .Rating (Low-1, High 10)Performance Accountability: Reinforce desired behaviorOverall commitment to performance accountability?Engage in positive accountability conversation?Establish clear standards of what makes good performance?Link standards to rewards?Create reward systems that drive behavior?Follow up on performance?Performance Accountability Total= Total/6Information Flow: Use information for impactOverall commitment to information?Use information for puzzle solving?Use information for mystery discovery?Demonstrate information transparency?Rely on information for decision making?Manage the flow of information across boundaries?Information Flow Total= Total/6

Organization capability ASSESSMENTElementTo what extent does our leaders .Rating (Low-1, High 10)Work Processes: Organize to cope with increasing changeCommitment to managing paradoxes of work?Manage paradox: inside versus outside?Manage paradox: Individual versus collective?Manage paradox: Centralized versus decentralized?Manage paradox: stability versus change?Create a collaborative workplace?Work Processes Total= Total/6

Organization CapabilityWork ProcessesInformationPerformanceTalent ManagementCulture010000010101010