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LEADERSHIP IS A PROCESS OF SOCIAL INFLUENCE, WHICH MAXIMISES THE EFFORTS OF OTHERS TOWARDS THE ACHIEVEMENT OF A SHARED GOAL.

Thursday, March 18, 2010

Compassion is an important Leadership Skill

National Hockey League Hall of Famer Mark Messier, considered one of the greatest leaders in team sports history,  once said, "to lead you have to have the trust of the players (people), and to do that you have to find a way to connect with them, to find common ground with every individual. It's a people issue (not a sports or business issue). The way to find that common thread is through compassion.  With compassion the appeal to the person is much deeper than the old hard line reprimand."


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Leadership Skills Undervalued in M&A Transactions

We were pleased to see this new report by the Hay Group The Silver Bullet of Success: Winners and Losers in the M&A Game. The report is about how intangible capital is critical to the success of M&A. Below are the major points of the paper (quotes in italics) with our comments on each one:

Companies underestimate intangible capital : Executives typically value intangible capital - including culture and customer relationships - at just 30 per cent of market capitalisation, not the 75 per cent that analysts expect.

This finding has a very strong correlation with recent data from accountants Ernst & Young which shows that on average, 70% of the average deal is intangible but only 23% is linked to identified intangibles like customer lists and technologies. That leaves 47% as ‘unidentified’ goodwill.

Buyers risk damaging deal value: By underestimating intangible value, they allocate insufficient resources to protecting it during integration. Just 38 per cent of companies conduct cultural due diligence.

If you cannot identify 47% of the value of a company that you are purchasing (and probably have a similar information gap about your own company), it’s no surprise that mistakes will be made.

Other findings include:

  • Management of intangible capital influences integration success: Companies that reviewed intangibles during due diligence are more than twice as likely to consider their merger a success compared with those who did not.
  • Poor management of intangible capital has major consequences: Executives struggle with cultural integration, leadership changes, understanding the target company’s customers, governance.
  • Dealing with intangible capital is considered to be more challenging in cross-border transactions.
  • Two thirds of respondents (66 per cent) believe an increased focus on intangible capital would improve merger success.
  • Most business leaders (61 per cent) plan to increase their focus on intangibles but need guidance on how to capture data about intangible capital during M&As.
Hay details a list of intangibles that are relevant to M&A. For example, organisational capital is described in terms of shared values, effective governance, agility, channels of information flows and effectiveness of the organisation to deliver on the strategy. These all describe aspects of effective structural capital.

It is also worth considering the basic components of organisational capital which include core processes, databases, captured knowledge, culture and intellectual property.

This approach is an important first step to understanding an organisation’s intangible capital. When we assemble a first-level description of intangible capital, we focus on making an inventory of the “assets” that support revenue generation. These include the employee competencies (human capital), the key external relationships (relational capital) and the processes that support a company getting paid/creating value for its customers.

This approach makes a more direct connection between the financial and the intangible value of a company. It also helps if you want to link intangibles to financials. Because companies invest in building these intangible assets, looking at that investment is an effective and quick way to understand what is going on in that 70% of the operation that is intangible.

Once you have an inventory, then you can decide how to measure intangible asset effectiveness.  The options are financial measures, non-financial indicators and assessments. Most of the items on the Hay list are assessment criteria which would be great ways to measure the strength, outlook and risk of the intangible assets identified.

They have the bottom line right. If 70% of the average deal is intangible, then it’s time for analysis of intangibles to be an integral part of every M&A process.

This is exactly the approach that successful Scottish businessman, Jim McColl takes - http://business.scotsman.com/business/Jim-McColl-warns-firms-are.6150046.jp  

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Leadership, the West Point way

March 16 was West Point's two hundred and eighth anniversary. Celebrations of "Founder's Day" span the globe and range from a massive formal dinner in the Cadet Mess Hall to small gatherings of alumni just back from patrol or off shift in Iraq and Afghanistan.

'It's seven AM on an ice-crusted February morning, and Pete H., college freshman, is not sleeping in. He's in the gymnasium boxing room, taking attendance, checking to ensure that each of his 20 classmates is in the right uniform, has the prescribed mouthpiece, has donned boxing gloves and protective headgear, and is standing at attention for the instructor's entrance at precisely seven ten. If anything is amiss, the boxing coach will let Pete know it. In his face. Loud and clear.

Welcome to Phys Ed class, West Point style.

Throughout academia and in the conference rooms of many American businesses, there is a seemingly endless discussion about whether or not leadership can be taught. No one is debating the point at the U.S. Military Academy, where the mission is ensure that each graduate is a "leader of character."

Tasks assigned to first year cadets like Pete, called "plebes" at West Point, tend to be well-defined and hands-on: take charge of 20 peers for boxing class, clean your rifle, manage your time. For seniors, the challenges are higher order: sustain a culture in the brigade (the student body) that encourages academic achievement, athleticism and ethical behaviour.

Escalating challenges are part of the academy's distinctive leadership programme as described by Professor Scott Snook, now with the Harvard Business School and formerly an Army colonel and leadership professor at West Point.

The basic ingredient is good people. West Point takes great pains to admit young men and women who have a willingness to take on responsibility. The admissions committee looks for the above-average student who is also the team captain, a leader in her church, a volunteer firefighter.

Then there are four key elements of the developmental experience.

The first is challenge: dragging cadets out of their comfort zone, forcing them to resolve conflicts and take on new roles. Quiet cadets must speak up, lumbering football players take gymnastics, the most petite women learn body throws in hand-to-hand combat.

The second part of the model is support. Every member of the staff and faculty, most of whom are active duty soldiers, is a coach. 

The third element is assessment. West Point has a variety of feedback tools, some of them obvious: cadets in leadership roles receive frequent evaluations. Some very effective feedback comes from not-so-obvious sources: a lot of learning comes from conversations among teammates, roommates, classmates.

The fourth part of the model calls for reflection; maturity doesn't come overnight. West Point's leadership lessons sink in over forty-seven intense months. 

The final part of the framework is the freedom to fail. If the challenges are truly difficult, it follows that cadets will sometimes miss the mark. These are, perhaps, the most precious teaching moments.

Saying that leadership can be taught is not the same as saying that everyone can become a leader. But it is patently unfair to leaders in any organisation to saddle them with the responsibilities of leadership without preparing them. That would be like sending a soldier into battle without teaching her or him how to use a weapon. Yet many organisations don't take a deliberate approach to building leaders.

Certainly West Point's model would be hard to replicate exactly, but it can inform even the most cash-strapped development programme or seat-of-the-pants coaching effort. Pick good people; challenge them; assess their performance and give them some feedback; give them the opportunity to process and make sense of the experience; accept that there will be some missteps and learn from those mistakes.

Founder's Day will come and go, and soon it will be Graduation Day for the Class of 2010. A thousand or so young men and women will leave West Point with a rolled-up diploma and an astonishing set of experiences. Some of them will be sorely tested in battle; all of them will get the chance to lead. That's what all the work has been about, and that's what the nation and their soldiers expect of them.'


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