Why Managerial Ability to Act Matters

Why Managerial Ability to Act Matters
October 2015 | Lukas Michel, Agility Insights

 

New insights demonstrate that dynamic capabilities help companies thrive in the new era: when organizations invest in dynamic capabilities, they develop the speed, agility and resilience necessary to cope with volatile environments.

Throughout the past 15 years, Agility Insights has studied the impact of a wide range of managerial practices on organizational agility, speed and resilience with the Agile Management Score.

The most recent analysis of our ongoing surveys with more than 3, 000 participant leaders in more than 100 companies in all sectors worldwide provided a solid baseline for the research that inspired our two books THE PERFORMANCE TRIANGLE and MANAGEMENT DESIGN.

This fresh insight confirms that when organizations invest in dynamic capabilities, they simultaneously develop the speed, agility and resilience necessary to cope with volatile environments.  

Our research highlights the actions companies need to take in order to succeed in the new era with increased volatility, mounting complexity, rising uncertainty and constant ambiguity.

We know that much of the knowledge learned by leaders years ago in business schools to help them manage their companies is outdated, with of course, the exception of some wise advice that survives from Peter Drucker, Henry Mintzberg, Charles Handy and many others. We take these insights from Drucker et al and further dig into what we now define as the dynamic capabilities of an organization. They are the kind of capabilities that will help your organization adapt to the ongoing challenges of the new era.

In Managerial Ability to Act, we demonstrated that companies must strive to develop capabilities that enhance their adaptability - these being speed and agility - and at the same time, create a stable core - we call it resilience - that will give them the flexibility to compete in a dynamic environment. This combination of speed, agility and resilience is what empowers organizations to act on any imaginable challenge they may face.

From our practice, we know that some executives are keen to adapt their organizations to fit them to their beliefs in the next big things to come be it lean, six sigma, balanced scorecards, business model design, business reengineering and others. We have learned, that 80% of these change efforts which simply alter things for the next big change to come, simply fail to deliver a lasting impact.

Most of these attempts come from an old world mentality of controlling people and organizations. These change projects have, at most, a short-term impact on competitiveness and financial results.
Other organizations have embarked on employee engagement activities, often motivated to become great places to work in order to attract and retain a higher caliber of talent. The aggregate results from organizations using the Agile Management Score over the past 15 years show that companies on average use just 67% of the readily available creativity, knowledge and skills of their incumbent talent.

Nevertheless, we also know that implementing HR-driven employee engagement activities in isolation is not sufficient to compete in a dynamic environment. They have a negative impact on the agility and resilience of organizations.

For the first time, we no have used the results of a sample of companies that have conducted the Agility Insights Diagnostic over the past 15 years to conduct a systematic analysis of their capabilities on speed, agility and resilience. We have taken the aggregate results of over 100 capabilities that these companies evaluated to better understand how they performed in a variety of contextual settings. For the analysis, we translated the responses from the online self-assessment surveys into scale of 1 to 100, 1 being low scores and 100 being high scores on the respective capabilities.

We have grouped our research sample of 102 companies into a grid (Exhibit 1), which illustrates their competitive environment and how managers are responding to their respective contexts. In Managerial Ability to Act, we have explained in detail what the grid means and how to review your organization’s capabilities.

Exhibit 1 categorizes these companies into the grid with four areas: rules-based management, employee engagement, change management and dynamic capabilities.

Exhibit 1: Management Context

Management Context - Agility Insights

It is clear to see that most companies have yet to take advantage of the benefits of developing lasting dynamic capabilities to compete in an ever-changing environment.  

Exhibit 2 expands the analysis to how companies in the four quadrants respond to the challenges of a dynamic environment with respective management models and how they develop the speed, agility and resilience for a higher ability to act.

Exhibit 2: Performance on Ability to Act

Performance on Ability to Act l Agility Insights

Companies with an enabling managerial response and a high ability to act (speed, agility and resilience) are better at competing in a dynamic environment.

These average scores are good predictors of the extent to which these companies have developed the respective capabilities. Scores between 1 and 54 indicate inferior capabilities that require immediate attention. Scores between 55 and 65 represent medium capabilities and scores above 66 mean well-developed capabilities. 

Here is what we found:

Rules-based management: 45% of companies find themselves still competing in a comparably stable environment. They use traditional controls-based approaches to manage organizations and people. We know from looking at the Leadership Toolbox (Exhibit 5) of these companies that many still engage in managerial rules, routines and practices that largely stem from the industrial era. Moreover, the ability to act score averages (Exhibit 2: 60 for speed, 63 for agility and 62 for resilience) of companies in this quadrant indicate that many practices are what we call ‘virus infected’. In other words, their mechanistic control design interferes with what people do rather than to be helpful in getting things done. Interference directly limits the potential of their talent. Another part of the organizations simply has never built a toolbox to help leaders and employees to use their full talent.

Despite the fact that the average competency score of 59 among these organizations is 25% lower than top quartile organizations, there seems to be no rush in changing anything. The competency score measures (1) creativity (whether the talent is effectively used), (2) innovation (whether the company strives to renew itself), and (3) growth (the ability to capture new opportunities).

Change management: 30% of companies address increased volatility, complexity, uncertainty and ambiguity, through change management programs that shake up corporate structures and even culture. Despite widespread evidence from popular management research that most of these programs fail, management teams keep initiating these interfering programs. Our insights demonstrate that change programs only marginally enhance an organization’s ability to act –proving the case that further programs will need to be initiated in order to fix the next problem that stems from increased turbulence, complexity or lack of strategic clarity. Since most change programs do not address the managerial toolbox, they need to fix the symptoms of what they just have created - continuously and with increased speed.

It is of no surprise that the competency score of these companies (On average 64) will have only marginally improved. This could be attributed to the fact that change programs focus on short-term gains rather than long-term capability development.

The move to the right on the context matrix (Exhibit 2) requires a fundamental shift in the management model: from a controlling model to a people-enabling model.

In our second book MANAGEMENT DESIGN, we outline what this means over 100 pages, but in short, it is a decision between engaging people through control or self-responsibility. It is about coordinating work through bureaucratic processes or self-organization; energizing performance through tight goals or a broad vision; adapting to the environment through flexibility or standard operating procedures; and making decisions by engaging collective wisdom or top-down power. Most leaders would naturally select the first of the choices. However, the reality in many companies is closer to the second “control-based” choice: the management model that we know from the industrial era.  

Engaging People. Just 15% of the companies in our sample have made a deliberate choice to adopt an enabling management model. Many of these organizations have realized that their typically low levels of employee engagement restrict their performance and efficiency. Others simply wanted to ensure that the creativity, skills and knowledge translates into higher levels of innovation and growth.

Higher speed, awareness, focus, trust and choice (the people factors) are key results of employee engagement practices. However, we know that isolated engagement projects can actually hamper the agility of these organizations, because disconnected leadership and the mismatch of managerial tools with the new emerging management model, lowers overall agility considerably.

To our surprise, many of these companies, despite investing sizeable amounts in employee engagement activities, have not improved their overall competency score. With an average of 59, they are no better off than companies in the rules-based quadrant. Our experience from working with these companies is that these well-intend engagement projects are driven by HR, but do not address the necessary adaptation of their managerial tools to a self-directed management model. Despite the choice for an enabling management model, the toolbox resides in the industrial age generating frustration, inappropriate incentives and distorted collaboration. The Agile Management Score indicates ample viruses preventing people to perform at their best. 

The vertical move from mechanistic rules to dynamic capabilities combines structural shifts, changes in the management model with a management toolbox that can cope with a dynamic environment.

Dynamic Capabilities. Just 10% of the companies in our sample have developed capabilities for high speed, agility and resilience (Exhibit 2). Their competency score of 72 is significantly higher than in companies of all other quadrants. These companies have designed their managerial toolboxes with a stable core of tools and many flexible parts, enabling them to address new structures with decentralized decision-making and new management models. These companies benefit from self-responsible people that want to apply their full talent.

Furthermore, these organizations have future proofed themselves, by developing dynamic competencies which will allow them to adapt easily to further changes in their environment and capture opportunities more readily as they arise. This is good news for companies that invest in a high ability to act: they have built the readiness for future challenges and simultaneously created a workplace that is attractive for the best talent.

Given these striking results, we have ranked all companies in our sample according to their respective ability to act score, for further analysis.  

Exhibit 3 establishes a significant relationship between ability to act and organizational competencies: creativity (the degree to which organizations use their talent), innovation (the ability to renew what the organization does) and growth (the ability to expand the business).

The top quartile organizations score 76 on average on their ability to act. As such, companies in the dynamic capabilities quadrant significantly outperform bottom quartile companies with a low average score of 50. Most of these outperforming companies score top on speed, agility and resilience.

With an average of 78, top quartile organizations score high on competencies (creativity, innovation and growth) as compared to bottom quartile organization with a score of 49.

With a strong correlation, ability to act is a good predictor of organizational competencies, e.g. high levels of creativity, innovation and growth. Hence developing higher speed, agility and resilience increases the chances to succeed with superior talent, innovation and growth.

Exhibit 3: Ability to Act Matters

Ability to Act Matters - Agility Insights

Companies with a high ability to act develop the capacity for superior creativity, innovation and growth.

Ability to act not only establishes superior competencies; it helps organization deal with an increasingly volatile, complex, uncertain and ambiguous environment.

Exhibit 4 compares the ability to act of the companies in our sample with the challenges they face. With another strong correlation, ability to act explains what it takes to address higher challenges.

Exhibit 4: Capabilities for a Dynamic Environment

Capabilities in a Dynamic Era - Agility Insights

Companies with a high ability to act are better at dealing with a challenging environment.

Top quartile companies in our sample on the ability to act score average 72 on challenges. This is significantly higher than the average of 56 on the challenges score of bottom quartile companies.

Moreover, through our analysis of the Agile Management Score, we have long established the scientific evidence of both a high ability to act and competencies as strong indicators of superior operating and financial performance.

In summary, the research demonstrates that successful companies with dynamic capabilities design their operating environment for both their ability to address higher external challenges and the response with an enabling management model. It therefore makes sense to have a closer look their Leadership Toolbox. To do that, we have ranked 20 tools on their ability to act score and separated them into the top and bottom quartile performers. Exhibit 5 ranks the tools with respect to their average score in brackets.

The results speak for themselves: top and bottom performers use a very different toolbox.

Here is what we have learned from the Leadership Toolbox analysis:

Top quartile companies invest into the design and quality of their tools. Their average scores are significantly higher as compared to bottom quartile companies. These scores are strong indicators of the quality of these tools and the importance that companies give to their design. High rankings also mean that companies pay attention to how they use their tools to address their context specific challenges.

Exhibit 5: Ranking of Management Tools

Management Toolbox Top
¼ Rank (Score)
Bottom
¼ Rank (Score)
Purpose
Risk Management 1 (92) 7 (57) The principles of managing risks and threats
Performance Planning & Reviews 2 (89) 5 (58) The routines to plan and review performance
Strategy Development 3 (86) 14 (51) The routines to analyze and develop strategy
Strategic Management 4 (86) 20 (46) The principles of managing strategy and competencies
Performance Management 5 (86) 13 (52) The rules of managing organizational performance
Performance Plans & Reports 6 (86) 2 (61) The tools to communicate performance
Objectives Alignment 7 (83) 1 (86) The routines of managing individual objectives
Mission, Accountability 8 (83) 18 (49) The tools to communicate boundaries and roles
Vision, values, benefits 9 (83) 16 (50) The tools to communicate beliefs
Measurement 10 (81) 4 (59) The rules of measuring performance
Governance 11 (81) 11 (54) The principles of decision-making
Risk Dialogue 12 (79) 15 (51) The interactions on boundaries and decisions
Sense making 13 (76) 12 (53) The interactions on meaning
Performance conversation 14 (76) 17 (50) The interactions on organizational performance
Contribution dialogue 15 (74) 8 (55) The interactions on individual contributions
Strategy conversation 16 (72) 19 (48) The interactions on direction and purpose
Strategy 17 (71) 10 (54) The tool to communicate strategy and direction
Performance feedback 18 (65) 9 (55) The routines of reporting performance
Performance indicators 19 (59) 3 (60) The tools to measure performance
Engagement 20 (59) 6 (57) The principles of engaging people

 

Top quartile companies select principles and routines with a stable core and flexible parts. Their mix of tools serves a high ability to act and balances the requirements for speed, agility and resilience.

Their toolbox primarily frames important managerial principles and routines. Principles determine how things are done and routines set the pace. Managerial principles for dynamic environments are flexible by nature. They offer multiple ways to think about things rather than offer simple standard operating procedures for specific problems. Routines, freed from unnecessary bureaucratic baggage, offer a stable core of how to go about things. Top quartile organizations focus on a few routines that they apply throughout their organizations. As such, the combination of flexible principles and stable routines is an important component in a superior ability to act.

The emphasis on principles and routines over tools is a clear sign of an organization with an enabling management model. Top performing organizations establish operating environments for leaders and employees to be successful and get things done, rather than merely offering tools to solve specific problems. Moreover, this confirms a learning-based approach to management. It is more important to know how things should be done, than just knowing how to fix symptoms.

On the flip side, top performing organization place high importance on risk management. One normally would not put risk management first in an agile company, but this choice proves the business case that agile is built on a stable core. As such, these organizations use what we call ‘total risk profiling’ as a means of clarifying what is within the limits of what they can do what is outside their boundaries. By actively managing these boundaries, agile organizations are able to be fast and resilient. They can delegate decisions to act fast but are very clear about their parameters.

The principles and routines of managing organizational performance is second on the list for top performing organizations. These organizations have built a rigorous culture where the performance of organizational units is carefully planned and regularly reviewed. This discipline – one of these stable but agile practices -ensures that no part of the organization escapes the scrutiny of adding value to the overall organizational goals.   

Strategic management and strategy development are other signature procedures given high priority by top performing organizations. These top quartile organizations dedicate time and attention to frequently reviewing opportunities, redeploying resources accordingly and developing the capabilities necessary to address new challenges. These companies develop the skills and communication channels throughout the organization, where strategy is discussed and continuously improved. In other words, they have created a shared language and model of how to think about strategy.

Top quartile companies combine strategy for agility, performance management for speed and risk management to enable resilience. This mix gives these companies a stable backbone with ample choice and allows them degrees of freedom to apply rules and routines flexibly as the specific context demands.

The enabler of superior management in these companies comes from Managerial Systems (The right corner of the Performance Triangle with rules (as principles), routines and selected tools) rather than directive Leadership interactions (the left corner of the Performance Triangle). Top quartile companies ensure that their Leadership Toolbox is in support of day-to-day leadership interactions.

Bottom quartile companies use a toolbox centered on managing individual performance, which confirms their predominant control orientation. There is no doubt that the over-emphasis on control diminishes a company’s ability to be fast, act flexibly and build a resilient organization. Moreover, a control oriented management model limits the ability of an organization to unlock the potential of its talent, to be innovative and to stimulate growth.

The ability of low performing companies to address the challenges of a volatile, uncertain and complex environment is dangerously limited.

With our ongoing research on the Agile Management Score with the Agility Insights Diagnostic tool, we help clients address their challenges with new capabilities for a new era.

Follow this link to review your organization’s Agile Management Score: www.AgilityInsights.com/Agile-Management-Score

For more information on our research, consult our publication in a variety of management journals: https://www.agilityinsights.com/en/insights

Lukas Michel is the founder and CEO of Agility Insights AG, a Swiss-based management services company with a global network of Diagnostic Mentors and management scientists.

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