One of the value drivers that contributes significantly to the valuation of a company is the effectiveness of the management team.
The New Growth Strategies SM process (Figure 3) was developed by Avantt Consulting, now Avantt Partners, to drive the paradigm shift and concomitant behavioral changes in management teams needed to implement these new goals. While there is considerable detail behind each of the three rings, the elements that are relevant to this discussion center on the top two rings.
The result of one of the analyses conducted as a part of the “Dimensions of Excellence” component is the identification of ‘disconnects’ between the vision and strategies and what is really going on in the organization now. Typical disconnects might include divergent views about strategies for growth, markets, facilities, organizational structure, etc. In our experience, effective strategy cannot be developed and implemented without addressing those ‘disconnects’: they tend to obstruct progress.
One of the crucial activities in “Performance Management” is a root cause analysis of the disconnects. The findings reveal they tend to go hand in hand with the earlier discussed “dysfunctions.” Addressing these obstacles that are counter-productive to the growth strategies means addressing the behaviors that engender those obstacles.
The effectiveness of a management team, then, and therefore the effectiveness of an organization can be essentially framed as a behavioral issue. Unless and until the management team can effectively address the behavioral issues it faces, it risks stifling the very best potential among its members and within the organization and the ability to resolve the issues it faces.
In a dated but still relevant article, Hamel and Prahalad provide a lucid example of the failure of the management team to reign in inappropriate behavior: “Chrysler’s purchase of an Italian maker of exotic sports cars and its acquisition of a jet aircraft manufacturer were driven more by the ego and whim of the company’s erstwhile chairman, Lee Iacocca, than by a solid, well founded point of view about what it would take to succeed in the automotive business ten years hence. They were a side trip. Any vision that is simply an extension of the CEO’s ego is dangerous.”
Nadler and Spencer provide some insight into the real dilemmas facing executive teams – they are often confronted with issues emanating from external forces that they have not been prepared to deal with based on their previous experience on teams within the organization. “Thus in many US based companies the executive team ends up composed of people who have been brought up and rewarded for their successes in the rugged individualism model of management and who may be less prepared than their colleagues at lower levels to either lead or participate in effective teams.” The additional issue becomes for these team members facing unprecedented complex competitive pressures, the imperative to assess which current (and past) strengths they bring to the executive team that in fact may become liabilities to the achievement of optimal effectiveness as illustrated in Figure 4.
Normally when people talk about changes that need to be made in a team or organization, however, the statements rarely include the pronoun “I”. Usually the implication is that everything would be better if everyone else would change. Meaningful behavioral changes will only take place in a management team if each person identifies his or her individual behavior changes needed to reduce the negative impact on the team and amplify the positive contributions of their behaviors. The process allows the management team member to take individual responsibility for the performance of the team and provides an opportunity for personal growth.
For example, one of our clients who had been noted for quick, decisive action found that as he entered the executive team, his tendency to continue those behaviors had several negative and divisive effects. First, because of the nature of the issues being addressed, his quickness did not allow the other team members to assess the potential impact on their organizations, the visibility of the decisions reflected on the team as a whole (not always positively), and the complexities of the situations demanded a more detailed analysis. “In light of these factors executive team dynamics are significantly different from those of other teams. Both the work of the team and the relationships in the team are more complex.” (Nadler and Spencer) And in fact, they observe, “…how the team members work at making decisions, solving problems, and committing the action will influence the outcomes of their work together.” Development of the dynamics of team behavior is vital in cultivating an effective management team whether it is done by the CEO or through an outside facilitator, “but it must be done to ensure their effectiveness” (Nadler and Spencer) (italics added)
The pivotal work is in deciding which behaviors the management teams sees as counterproductive and therefore to be avoided and which are conducive to the work (tasks) of the team and therefore are appropriate goals of the team. Once decided, however, it is insufficient to just state the behavioral goal, just as it would be with the task goals of the organization. Rather, the goal must be explicitly stated, and a system to sustain the goal must be developed. In the case of the previously cited executive, the behavioral goal was to get input from the rest of the executive committee before making decisions in areas where the management team had been involved in working on the issues. The strategy to sustain the behavioral goal was to ensure that he asked each member of the team directly, one-on-one, their view of the situation before the meeting ended.
Team learning, critical to effectiveness of management teams, remains poorly understood. One early, and eerily prophetic of group think, observer of that issue was Peter Senge in his book, “The Fifth Discipline” also still a good read these many years later. The caveat, however, is that one thing we do understand, according to him is “…we will be unable to distinguish group intelligence from “group-think”, when individuals succumb to group pressures for conformity.” So long as the management team falls into traps like conformity, team learning is effectively stifled and the resultant decisions are less than optimal at best, and disastrous at worst. So much for the highly trained, highly educated critical decision making skills represented in the team.
Perhaps the very dynamic of conformity resulting in “group-think” may explain some of the breathtaking belly-flops otherwise respected management teams have committed that have caused all of us who read business periodicals to wonder “How could they have done that?” Spitzer (among many others) detailed such colossal blunders as IBM’s decision to maintain focus on mainframes in the face of the microcomputer revolution, Coke’s failure to anticipate the brand equity of its classic Coke when attempting to launch New Coke, etc.
The question becomes, what is preventing the team from learning what needs to be changed – specifically, what behaviors must change? In our work with the management teams, it is not that they are unaware of the problems. Perhaps the answer lies in why there is resistance to a forthright examination of what behavioral changes the management team needs to make. Table 2 provides the actual answers by the management team of a public utility from a similar inquiry.
The persistence of members of the management team in avoiding Team Behavioral Goals as an expedient method of dealing with issues will ultimately have their effect on the valuation of the company, affecting shareholder wealth and stakeholder value. It is simply not an acceptable situation that can be justified. If necessary, it is up to the board to take the necessary actions to ensure the issues are resolved and management team effectiveness, one of the key drivers of valuation in the Invest-Ability Index™ are resolved as the Valuation Driven Strategy is developed and implemented.