How do you judge the value of the leaders in your business? What are the true measures of CEO performance?
We tend to judge the value of a leadership team to a business on easily defined numbers like stockholder value, market capitalisation, revenue growth and profits. But how can we be judged as business leaders when the markets are beyond our control and the usual financial levers are not available to us?
We need some sort of Key Performance Indicator that directly correlates you, your leadership and your people with the current and potential performance of your organisation no matter what the outside forces at play. The great news is that this indicator already exists. The Human Capitalisation Rate.
The Human Capitalisation Rate
Simply put the Human Capitalisation Rate (HCR), is the percentage potential of any community that has been unlocked.
Malcolm Gladwell (with a hat tip to James Flynn) highlights this in his book Outliers. He slightly comedically demonstrates that the HCR of the NFL is approximately 16% – that is the percentage of human beings in North America who have the potential to be an elite NFL athlete that ended up making it is 16% (if the American Football league system was a university it would be shut down with that kind of success rate!). In his explanation for why the capitalisation rate could be so low, Gladwell sets out three common assumptions: talent is scarce, talent is innate, talent is too narrowly defined.
At the Chemistry Group we see an abundance of talent in all sorts of organisations. We would argue that the problem is not that talent is scarce, but that talent is actually being squandered.
I could tell you many stories to illustrate this but I’ll stick with just one. We worked with a FTSE 100 company to increase their sales growth (from neutral to double digits) without hiring or firing a single person. Using our proprietary IP we could tell that the HCR of this organisation was suppressed, not because of the people on the team, but the accounts they were aligned to. After looking at every members’ Potential and Capability data we were able to align the sales team to increase the HCR for the business unit. You can read more about how we did that here.
There are big challenges ahead for all of us, from integrating radically different working practices into your new every day to thinking about reintroducing furloughed workers and the future shape of your businesses and organisations. In short, What Great Looks Like™ might look a little different now than it did 100 days ago. In this Brave New World HCR should be your key KPI.
At The Chemistry Group we are working away to develop tools that will help you deal with the coming challenges, and to find the talent in and outside your organisations to reach your objectives. You can find one of our first, on understanding Motivations, here.
We are looking to build on this in the coming days and weeks to develop our thinking around the challenges ahead, if there is anything specific you would like us to look at, please get in touch.