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. In a comedic case in point he demonstrates that the HCR of the NHL in Canada is approximately 50% (if the Canadian Ice Hockey League system was a university it would be shut down with that kind of success rate!) – that is the percentage of human beings in Canada who have the potential to be an elite NHL athlete that ended up making the NHL and all because of their birth date! 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 I 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. For example I worked with one FTSE 100 company to increase their sales growth (from neutral to double digits) without hiring or firing a single person. 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.
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.
To make sure you excel in this KPI, understanding your workforce, and their motivations, will be vital. There are many tools and organisations available to help you do this, I urge you to look them up. Doing this work will, at a minimum, point out a few tweaks to help improve and maintain performance, for others, it might lead to redefining What Great Looks Like ™ for many roles within your organisation.
Whatever happens don’t let this crisis distract you from the true purpose of leadership, to steer your people in the right direction and to support them to be great at what they do.