How does the modern leader set goals and measure success?
By Erik Korsvik Østergaard, founder, Bloch&Østergaard Author of The Responsive Leader
Several executive leaders have begun to complement their performance management KPIs with impact accounting, that is, goals for their social capital and value creation. Why – and how do you do that?
Maybe this rings a bell:
It is Friday morning. You’re attending the quarterly meeting with the hundreds of other colleagues in the big auditorium. You hear your CFO present the quarterly report with a status on great revenue, profits, growth in the different areas, and an action plan for the next period. You all applaud the great results, and rightly so. You have done well. Again.
You go back to your seat. You need to start writing your weekly newsletter to your department and prepare for your department meeting later that day. You get to the regular point “What have we done and achieved this week?”. Of course, you want to link it to the messages of the quarterly meeting that you all just attended. Clearly, your employees have contributed to the success. But here you get stuck.
How did you actually contribute to the overall organization and to the economic performance? Sure, you have worked well and diligently, but can you directly say how you have been part of the success? Which of your operating tasks and projects have contributed to the creation of the results? And have your activities made a positive impact for your customers and the world?
Maybe you sit at home on the couch after work, thinking. Are you a success? Can you feel that you have made a difference? Can you put words on it – or measure it?
Maybe you are a consultant and are in contact with three, six or more customers in a week, and in a bit of the same situation. You can see that your invoices get paid and that the customers have approved your work, but you still have the feeling that you do not know if you have done well. You don’t know for sure what difference you have made.
I have met a number of leaders in recent years who can tell stories like these. Managers who are not sure how they contribute to the big machine, or how they can measure or sense their success. They can see the economic results and they speak for themselves. It is difficult in itself and must be recognized rightfully.
But, firstly, it is difficult to always see a causal relationship between the actions performed as a leader in daily life and the financial results, especially in a large company. Secondly – and more profoundly – more leaders seek to understand the impact they have, that is, the value they create for others. There is a clear trend towards impact accounting as a complement to financial accounting.
Often there is lag in cause-and-effect; a longer period of time from your daily decisions, actions, 1-to-1 talks, operational tasks and priorities, to the manifestation of tangible, financial results. Maybe it’s disclosed every month, maybe every quarter. In large companies, the actual money transaction between the customer and the organization happens maybe 3, 4, 5 organizational links away from you, out of your sight.
Several of the modern leaders have realized this and remedy the need for that type of feedback by measuring their success with two new dimensions, in addition to the financial objective:
They create (a) a mapping of the social capital in their department and around them, and (b) an expression of the value they and their department create for each other, for their customers, and for the society.
Common to the two dimensions is that it is something they can influence with nearly instant effect, and something they can measure themselves.
Together with financial accounting, they form a kind of modern triple-bottom-line: The modern leader assesses his/her success on
- Social capital
- Economic health
This is called impact accounting.
What is social capital for the modern leader?
Let us start with these two descriptions of social capital:
Wikipedia describes it as “a form of economic and cultural capital in which social networks are central, transactions are marked by reciprocity, trust, and cooperation, and market agents produce goods and services not mainly for themselves, but for a common good.” (Wikipedia 2017)
In his book ”Bowling Alone: The Collapse and Revival of American Community”, Robert Putnam describes social capital as connections among individuals – social networks and the norms of reciprocity and trustworthiness that arise from them” (Putnam 2000)
Both descriptions are reasonably aptly for what I have observed leaders ask for:
They want to know how strong the network in their business unit is, who has reciprocal relationships with each other, where the informal leaders and key influencers are, how “far” there is to the other leaders – and what their network looks like. And they want to know if the network looks different in terms of professional cooperation and personal engagement. The so-called “organizational network analysis” provide a plethora of insight into these areas.
Finally, they want to know how they can influence and activate the social capital and the network, so that it develops into a muscle and an organizational capability, that is both rewarding for the development of employees and the efficiency of production. A capability that has the dynamics – especially flexibility – to support the strategy and the tactical actions, in an accelerating and changing world.
Topics like social business (i.e. business based on relationships), trust, feedback, teaming, agile/scrum, and innovation often appear as both goals and means in these conversations.
The leaders, I have had dialogue with, observed and listened to, are really wrapping their minds around this. They want to measure and map the informal, real networks at regular intervals, thus establishing an understanding of how the network and the different local variants of teaming can help, lift and strengthen the entire business. In doing so, they provide a competitive advantage and create an attractive culture for existing and future employees – and customers.
It’s clear that a high level of social capital has become a yardstick for a successful organization and for the successful leader.
What does value creation mean to the modern leader?
Value creation is the second element that managers begin to measure their success on.
Over the past 10-15 years, purpose-driven management and communication has gained strong foothold, most profoundly ignited by Simon Sinek and his bestseller “Start With Why” (Sinek 2009). Several companies – and business units – have reformulated or adjusted their mission/vision to be purpose-focused and not only aimed at products, market shares, or organizational capabilities.
However, it can be difficult to sense whether a department is doing something that supports the purpose. In the same way that the financial objectives are distant, the purpose is sometimes perceived as something that is difficult to sense in everyday life.
Therefore, more and more leaders are asking for a linkage and coherence between purpose, meaning and value creation:
Do their actions make sense, both intuitively, rationally and emotionally? And do they make sense in relation to the purpose and the mission?
How can the leader map and measure the value they create for their employees and for their customers – and for society?
Microsoft has applied this mindset and “value creation” has for several years been a part of the customers’ evaluation of the partners.
There are some strong common features of the thinking and doing of those leaders who want to know more about value creation. They use nearly the same approach:
(a) Put words on expected value creation – either as sender or recipient.
(b) Establish feedback loops at regular intervals to map the perceived value creation of employees and customers.
(c) Engage in dialogue to talk about actions that can enhance value creation.
Bain and Company introduced in 2015 a value pyramid with four different layers of value creation: Functional value, emotional value, “Life changing” value and societal value. This model can be useful as an inspiration for creating a description of expected value creation. The model was, among other places, published in Harvard Business Review in 2016 (Almquist, Senior og Bloch 2016)
The Danish union Krifa has investigated and documented, that ‘meaningfulness’ is the single most influential element, when it comes to employees’ wellbeing and engagement at work (Krifa 2016).
Both meaningfulness and value-creation can be a beacon for your success as a leader: Do you make sense? Are your actions meaningful? Do you create value?
Maybe you even deliver something that helps to achieve the 17 Sustainable Development Goals as identified by United Nations (United Nations 2015)? Or the 12 Global Grand Challenges, that SingularityU fights to tackle (Singularity University 2017)?
Together, the value creation provides an understanding of whether you personally – and you as a department or organization – provide something that supports your purpose, mission, and vision. You get a direct measure of whether you are a success. Or at least a new angle on it.
Consistency with the quarterly financial statements
Obviously, this kind of new triple bottom line is useless without three things:
- A direct link between the existing direction/strategy and this new bottom line
- An executive understanding that all three elements of the bottom-line have equal focus
- Actions that can strengthen the bottom-line
You must ensure that social capital evolves to support the strategy work and direction.
You must ensure that value creation supports the strategy work and direction.
But: “Inventing” or introducing new measurement methods is both hollow, lip-service, and The Emperor’s New Clothes, if not taken seriously. It must be measured regularly and made part of the role description and responsibilities of both leaders and middle managers. And it must be debated.
I have experienced leaders from several different industries and businesses plunge into this, precisely because they wanted to know if they were successful, and what impact they had beyond the financial accounting. Those finance numbers were “too far away from them” and useless in the motivation or recognition of the individual employee.
This definition and perception of success is growingly used as a modern addition to performance management.
Remember it when you hit the couch on Friday
So, remember this: Next time you write your newsletter or facilitate the department meeting and talk about what you have achieved and done for the company’s or your own success; Or the next time you hit the couch on a Friday evening and assess whether you are a success as a leader:
Think about which social capital you have around you and what value you have created. How does your impact account look?
Bonus: A tool to get started
Fill in this table to get the thinking flowing:
In each of the cells you describe:
- What is my ambition?
- Can I quantify it?
- How can I measure it?
Almquist, Eric, John Senior, and Nicolas Bloch. 2016. “The Elements of Value.” Harvard Business Review, September.
Krifa. 2016. God Arbejdslyst Indeks 2016. Krifa. http://bit.ly/2mLCESg.
Putnam, Robert D. 2000. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster Paperbacks.
Sinek, Simon. 2009. Start With Why. London: Penguin.
Singularity University. 2017. Global Grand Challenges. https://su.org/about/global-grand-challenges/.
United Nations. 2015. Sustainable development goals. http://www.un.org/sustainabledevelopment/sustainable-development-goals/.
Wikipedia. 2017. Social capital. Wikipedia. http://bit.ly/2gFOWr8.
About the Author Erik Korsvik Østergaard :
Erik is a founder and partner of Bloch & Ostergaard, a Danish management consultancy that provides inspiration, guidance, and implementation support to top and middle management. He’s also a guest lecturer at The Copenhagen Business School. His exciting new book is called The Responsive Leader.
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