Differentiation: How to Get There and What to do Next
Leadership competency models drive organizational outcomes when they follow these four steps:
- Cover the leadership fundamentals
- Implement outside-in logic
- Connect leadership behaviors to organizational outcomes
- Focus HR practices around reinforcing desired competencies.
Differentiation: How to Get There and What to do Next
While leadership competency models have become a leadership staple, there are significant opportunities to use them to better drive organization and individual results. We know from numerous studies that an organization’s financial and social results are increased with wise investments in leadership, culture, and human resources. One key investment that affects all three areas is the ability to find and develop individuals with the greatest potential for high performance.
Since Boyatzis’ work in the 1980s, leadership competency models have been used to align individual behavior to organizational goals, create clear expectations, guide development, and show how behaviors must change as leaders progress through the organization. Recent research has continued to build on the theory and understanding of why and how competencies matter to organizational performance. While we recognize the significant contribution that much of this research provides, in many cases the attempts to accurately set forth general findings for complex and varied situations have led to a level of complexity in the literature that makes it difficult for practitioners to know how to apply these findings in their organizations.
This article lays out a practical and simple methodology for creating leadership competency models that drive organizational outcomes that matter to customers and investors.
- Make sure you cover the leadership fundamentals, or “Do the Code,”
- Think outside-in by getting customers involved in establishing differentiators,
- Connect leadership behaviors to organizational outcomes, and
- Get tight, or make sure HR practices reinforce the desired competencies.
Cover the Leadership Fundamentals
Researchers have turned their attention to what makes a leader more effective. The sheer volume of that research has sometimes made it more difficult to apply this knowledge. In the RBL Leadership Code, Dave Ulrich and Norm Smallwood drew on research and interviews with renowned leadership theorists, researchers, and consultants to simplify what good leadership looks like. We felt that if we could simplify what makes an effective leader into straightforward categories, we could establish a clearer standard of effective leadership (See Figure 1).
Leaving out any one of these foundational leadership competencies would be like forgetting the salt in making bread—it would have a significant and noticeable impact on the organization to be selecting and developing leaders who didn’t create accountability, for example. You would know it pretty early on in the process because the results just wouldn’t look right.
Good leadership competency models include in some way the competencies identified by decades of leadership research and summarized in the Leadership Code model. We often encourage clients to map their existing leadership competency model to the Leadership Code to see if the model is missing any important competencies. When we do this, we often find that companies over-emphasize some domains at expense of other equally important domains. In one company with 10 leadership competencies, 8 of the 10 were in execution. If successful, this company would have leaders who excelled at execution, didn’t know what they were executing for and had an unengaged workforce with no talent pipeline.
Mapping leadership competency models to the Leadership Code allows organizations to quickly and simply understand how well they are defining and delivering the leadership fundamentals.
Several years ago, we were approached by a national logistics company. They had a legacy leadership competency model that had been updated over time by various senior executives and HR/OD practitioners, but felt the model had become cumbersome. In mapping the behaviors included in their model to the Leadership Code, we found that the majority of the leadership competency model centered on communication, with holes not only in Human Capital Developer, but also in other important competencies. Mapping to the Leadership Code competencies allowed them to identify and balance their leadership competency model, providing a robust and valid model for ongoing assessment and development.
Building leadership effectiveness begins by making sure you are covering the fundamentals in a balanced way.
Get Customers Involved
Once you’ve made sure the leadership competency model covers the foundational competencies, it’s time to add differential value. Differentiating competencies are where you’re really able to be strategic in your work: a strong leadership brand is where you make firm brand and the employee brand real by identifying for leaders in your company what it is that customers and employees expect and the organization wants you to deliver (see Figure 2).
Most organizations—and the way leadership competency models have historically been developed—do a great job of looking internally. They hire highly-trained I/O psychologists, identify and assess high performers, run statistical analyses to identify behaviors that they in which they excel, and build these into a leadership competency model of what high performance leadership looks like in their organization.
While there is nothing wrong with this approach as a starting place, we argue that until you look outside at what customers and other stakeholders want, you don’t have the full picture. What is it about leaders at your company that is different than a leader at your competitor? What do key customers expect from your organization and what leadership competencies are required to deliver on those expectations? As leaders at all levels of the company master the attributes that deliver the desired brand experience to customers and employees, they establish sustainable and measurable value while also generating intangible value.
Many organizations that are refreshing an existing—or developing a new—leadership competency model begin the process by soliciting input from key or target customers about what makes them (or would make them) want to do business with their organization. A few organizations are also soliciting input from investors, analysts, government entities, and other external stakeholder groups. This information is then incorporated into the leadership competency model as competencies that differentiate their leaders from leaders at other organizations.
Some critical success factors from these organizations include:
- For customers, target high visibility accounts where the organization’s leaders have been engaged in building a longer-term relationship
- Also consider including target customers who are not yet customers for the organization
- For investors and analysts, target large investors or analysts who have the most interactions with the leaders in the organization
- For other groups (government regulators, community activists, etc.) identify key stakeholders who (1) know the organization well enough to provide specific input and examples and (2) are influential with other stakeholder groups
- Send external representatives so that respondents will feel free to express honest opinions and observations
Creating differentiators doesn’t have to be a complicated process. Many organizations have gigabytes of customer data and/or clearly defined firm brands. Examining this data with an understanding of the strategic direction for the organization (Which customers are going to matter to us in the future?) should allow you to identify themes in customer data that describe behaviors they want from your leaders. A good check is whether there is a clear and logical line of sight from these differentiators to your firm brand. Defining the behaviors associated with these differentiators and getting customer input on them is often a powerful exercise in strategy clarification.
You begin to get competitive advantage through leaders as you identify competencies that matter to customers and emphasize those competencies to create leaders who embody the firm brand, acting and making decisions in ways that are consistent with customer expectations.
Connect Leadership Behaviors to Organizational Outcomes
With a clear theory of what you think leaders should do that covers the fundamentals and differentiates your organization from competitors, you have a theory of leadership for your organization. Well-constructed theories are often right, but not always. In many organizations there is unit performance data that can be used to validate and refine the leadership competency model to be sure that the behaviors you have identified will actually drive the results you want to achieve.
This involves collecting data on individual behaviors (leadership 360 results, psychometric results, etc.) and on unit-level outcomes (NPS, revenue, engagement, etc.). Using statistical analyses on these data, we are able to identify which leadership attributes are correlated with performance. This step provides an outcome-driven leadership profile that can be used for hiring and development.
Some key watch outs for this step include the following:
- Sample size matters. You can’t look at 20 leaders and have results that are generalizable for 1,000 leaders. Use a randomly selected cohort that is representative of your leadership population and will give you statistically significant results.
- Consider data from multiple stakeholder groups. We generally advise that clients include customer (customer satisfaction, NPS, intention to return, etc.), employee (engagement, culture surveys, etc.), organization (performance ratings, bonus allocations, etc.), and owner/investor (revenue, growth, etc.) measures.
- Collect customer and financial data at the right level. The individual leader whose data is being correlated with their results needs to have enough decision discretion that the unit’s results can be connected to their actions.
- Don’t constrain yourself to what the data says. This analysis is limited by the fact that it is dependent on historical data. Business conditions and strategies change and sometimes require fundamentally different skills for success. Don’t become so focused on the analysis that you lose sight of what will matter for the future.
Another benefit of this stage is that it provides a clear ROI on leadership investments. If leaders who have these attributes generate five times the revenue or three times the key customer retention or four times the growth as average leaders in our organization, then the business case for investing in leadership development (as well as how to measure the effectiveness of development interventions) becomes pretty straightforward.
Get Tight: Reinforce Through HR Systems
All too often, companies get the leadership competency model right by doing the basics and the differentiators, then stop. They have a robust leadership competency model and have communicated it throughout the organization. Expectantly, they wait for things to change…and they don’t. Defining the leadership competency model is only the first step. To get different results, leaders have to act differently. That means building, rewarding, and promoting leaders who live the brand.
HR practices that build leaders who more fully embody the desired competencies play a role in both building individual and organizational capability in those competencies as well as signaling to the organization the competencies that matter. Aligning learning and development efforts to the leadership competency model, particularly the differentiating competencies, ensures the organization is building the leadership capability needed to delight customers.
HR practices that reward leaders who embody the desired competencies play an even stronger signaling and capability-building role. As leaders who exemplify the desired leadership competencies are those who are promoted while those who may struggle with one or two critical competencies remain in place or exit the organization the leadership brand becomes more real—both inside and outside the organization. Aligning succession, reward, and promotion processes to the leadership competency model, particularly the differentiating competencies, ensures the organization is building the leadership capability needed to delight customers.
As they align internal HR systems designed to build and reward leaders to these desired leadership competencies, companies are able to create a leadership brand that is experienced by customers, investors, employees, and other stakeholders as a consistent organizational capability that differentiates them from other organizations.
Leadership competency models are critical to guide leaders to which behaviors will help produce the great results that both organizations need and employees want. As organizations evolve their leadership competency models, they can ensure they have a greater impact on the organization.
HR groups can sponsor and facilitate the evolution of their organization’s leadership competency model by ensuring it covers the fundamentals, getting customers involved in identifying differentiating competencies, validating the model against business outcomes that matter, and reinforcing and institutionalizing the leadership competency model by aligning existing people systems to the model. As HR leads the process of evolving and updating the organization’s leadership competency model, they help employees understand what it takes to succeed, create value by helping customers have the experience they want and expect, and ultimately help investors get the results they want as they satisfy customers and generate more value.
With years of experience implementing leadership competency models which build confidence with stakeholders, The RBL Group is ready to work with your organization. Explore how we can help you build leadership capability and drive better business results.