Strategic - Hay Group ambidextrous_white paper… · and their ongoing operational excellence. >>...

Strategic transformation is an ongoing state of being for the world’s best led companies. Hay Group’s 2013 Best Companies for Leadership study reveals how those at the top simultaneously excel at both innovating for the future and their ongoing operational excellence. >>

How the Best Companies for Leadership globally and in Asia excel at both innovation and operational excellence

transformationStrategic

2 Strategic transformation

Contents

Executive summary

Global Top 20 Best Companies for Leadership

4

5

6 The era of continual strategic transformation

8 Different industries, identical issues

9 The traps in neglecting ambidexterity

10 Doing things differently

13 What the ambidextrous leader looks like

16 The Asia perspective

4

Executive summary

The Best Companies for Leadership identified in Hay Group’s 2013 survey avoid intermittent revolutions that are normally forged by periodic strategic reviews.

Instead, these companies are as adept at innovation as they are at operational excellence. These are the twin peaks they must ascend simultaneously – a feat that requires an unusual but crucial mix of leadership skills.

Recognizing that strategy development is both ongoing and subject to sudden seismic shifts, leaders must create a culture in which new ideas are incubated safely until they can be integrated into the organization (or terminated). Differentiation of existing products or services is too subtle. Too incremental. When the world is turbulent,

when the environment is disruptive, only innovation keeps the enterprise competitive.

At the same time, organizations must enable employees to reach the heights of operational excellence in all its facets – customer service, product development, logistics, accounting, marketing and so on. They must operate at the top of their game now and build the future so that the organization maintains its preeminence. It is far from easy and it requires a new type of leader who possesses high levels of emotional intelligence and exceptional cognitive ability.

The Best Companies for Leadership operate at the top of their game now and build the future so that that they maintain their preeminence.

©2013 Hay Group. All rights reserved

Strategic transformation

Global top 20 Best Companies for Leadership

1 Procter & Gamble

2 Microsoft

3 General Electric

4 Coca-Cola

5 Unilever

6 IBM

7 Wal-Mart

8 McDonald’s

9 Telefónica

10 Facebook

11 Intel

12 Samsung

13 3M

14 Nestlé

15 Siemens

16 Oracle

17 Citigroup

18 Caterpillar

19 Toyota

20 Ford Motor

TOP20 GLOBALOOOOOOOOOOOOOOOOOOBBBBBBBBBBBBBBBBBBGGGGGGGGGGGGGGGGG LLLLLLLLLLLLAAAAAAAAAAAAAAAAAALLLLLLLLLLL

6

The era of continual strategic transformation

Strategic transformation is now an ongoing state of being for the world’s best led companies.


In a turbulent world in which the rate of disruption is quickening, these companies have developed the capability to transform at will while growing their core business. It is no accident that they are as adept at innovation as they are at operational excellence. They have leaders with an unusual skillset.

These are among the key findings in Hay Group’s eighth annual Best Companies for Leadership survey. In the largest global survey project of its kind, more than 18,000 qualified individuals in 2,200 organizations rated their own companies’ leadership practices and then nominated three global firms they most admire in terms of leadership. From the research data, Hay Group has identified the top 20 Best Companies for Leadership in the world.

This year’s results highlight the dual impetus of innovation and operational excellence in an era that requires continuous strategic transformation. The top 20 Best Companies for Leadership exhibit an ability to innovate while being operationally excellent, even in tumultuous times when they must steer the organization through an increasingly disruptive business environment. Unrelenting and accelerating change, volatile world economies, technological transformation, demands for greater corporate accountability and solving complex global problem are just some of the challenges leaders today face. It makes leadership more complex than ever and demands skills that are very different from those that CEOs have traditionally exhibited.

The top 20 Best Companies for Leadership exhibit an ability to innovate while being operationally excellent


These leaders exhibit exceptional levels of emotional intelligence and cognitive competencies. They are able to flex their use of power, influence and leadership style; making instantaneous switches in their approach so they can attend to operational issues or areas of innovation as the situation demands. Shunning the traditional ‘command-and-control’ style, they are change agents; building the necessary bridge between the core business and the new, emerging businesses that will secure the organization’s future.

A new type of leaders is emerging: people with exceptional levels of emotional intelligence combined with unparalleled cognitive competencies.

The world is changing fast and we have to manage ambiguity in the midst of a complex global environment.Laurie BevierSenior Human Resources Manager General Electric

8

Different industries, identical issues

Whatever the business sector, and wherever in the world organizations operate, key issues arise time and time again. The 2013 Best Companies for Leadership intuitively understand the issues and organize themselves to take advantage of them.

n Customers are storming the citadel. By creating their own experiences and developing their own products, customers increasingly demand to be actively involved in product design, delivery and after-sales. Nike is the prime example.

n Commoditization in consumer electronics means companies must create new elements within the value chain, especially in services. Now it is affecting every industry, not least consumer electronics. For example, Sony was once a pioneering gadgets company, now most profits in its Japanese home market come from insurance products.

n Access to information reduces brand influence. Because customers can read reviews online, they are reassured when buying from companies with low brand awareness. Ratings matter.

n Sustainability and high environmental standards are now critically important. Corporate social responsibility is no longer something that can be delegated to a department or individual, nor should the ‘green agenda’ be addressed through standalone projects or something that is just there to be ‘managed’. Sustainability must be part of corporate culture and led from the top.

n Employees want to be in control of their own destinies. At all levels, people want and deserve to reach their potential, while balancing other parts of their lives. Increasingly, employees – not just managers – expect to be trusted to work where they want, when they want and provided with the tools and support that enable them to do so.



The traps in neglecting ambidexterity

Through its work with clients across the world, Hay Group has seen the traps into which those who lack the necessary ambidexterity fall.

n The ‘lock-in’ – leaders get trapped into doing business in tried and test ways– until suddenly they no longer work. It is not sufficient to relive successes of old.

n Overlooking sales innovation – for example, pharmaceutical companies that rely on traditional direct sales to clinicians and hospitals overlook the criticality of innovation in sales channels. They must open conversations with new gatekeepers to procurement decisions.

n Believing technological innovation lasts forever – customers are now much more likely to switch allegiances once technology is no longer a differentiator, so organizations must become strategic business partners, not simply technology providers. Sales directors have particular difficulty in making this transition.

n The incubation conundrum – innovative products, services and processes may need incubating. When incubation remains separate from the main business, integration is challenging and less likely to succeed.

Leading an organization that is both highly innovative and operationally excellent requires an unusual skillset. Not every leader possesses the temperament, outlook or emotional intelligence to succeed when strategic transformation is constant.

We need people who are adept at thinking through complex scenarios, and who are able to handle ambiguity and complexity.Richard FloerschExecutive Vice President and Chief Human Resources Officer McDonald’s

Doing things differently

The ambidextrous organization that excels at innovation and is simultaneously operationally excellent is notably different from its peer companies in a number of key areas.

Molding and mentoring The Best Companies for Leadership pay particular attention to employee engagement. To mold leaders of the future, they create opportunities at all levels for people to develop their leadership capabilities, actively managing a pool of successors for mission critical roles and personally spending time coaching and mentoring others.

While all companies focus most of their development attention on senior management and high potential talent lower in the organization, the Best Companies for Leadership go further. They give extra consideration to the middle management pool, ensuring that the emerging leadership pool can simultaneously focus on innovation and operational excellence. The biggest difference between the top 20 companies and their peers is that the former are much more likely to provide web-based self-study leadership modules, have 360-degree feedback mechanisms and provide mentoring programs by senior executives.

Rewarding strategically It’s easy to say that collaboration and innovation is important, but harder to deliver – especially when many companies still reward on results achieved, on hard numbers now, not softer concepts like collaborating for a brighter future. But the best companies put their money where

their mouth is. They reinforce collaborative behaviors. And they do that through formal rewards and recognition programs.

It is no surprise that these same companies purposely drive innovation. They understand that the innovative approaches they need will not magically happen unless the structures and rewards are in place that ensure people collaborate, such as rewarding collaboration across business units. They also reward operational excellence too, and are much more likely than their peers to incentivize operational efficiency.

Future focus Some of the most striking differences between the top 20 companies and their peers are based around contemporary business issues, such as global awareness, leadership development and environmental sustainability – among the megatrends identified in Hay Group’s Leadership 2030 research. Overwhelmingly, their leaders are change agents for higher environmental standards, not simply sponsors of projects within in the business. Sustainability is of concern to broad stakeholder groups, critical in the value chain and increasingly noted by customers when they make purchasing decisions or employees when they choose who they wish to work for. In short, staff care more about just their salary. Corporate ethics matter; to employees, customers and stakeholders.



Doing things differently

We actively recruit from cultural minorities

Everyone at every level has the opportunity to develop and practice the capabilities needed to lead others

We provide 360 degree feedback to assess and provide feedback on leadership attributes, skills, and traits

We provide mentoring by senior executives

We view employees in new start-up or innovation areas as having equal importance to those driving operational improvement

We use rewards to stimulate collaboration across business units to develop new lines of business

We provide incentives to encourage operational efficiency

Our leaders are advocates for environmentally responsible business practices

Leaders are change agents who initiate change towards higher environmental standards

The company uses corporate social responsibility to recruit employees

0 20 40 60 80 100

n Top 20 n All companies


12

Leaders are expected to both build the business and also the people within our organization – it is the greatest part of our performance evaluation. Mark BieggerChief Human Resources Officer Procter & Gamble


This necessitates a fundamental change from the leadership types and behaviors of old. Historically in a traditional business environment, the organization searches for cost efficiencies, builds the sales funnel and improves products incrementally. Here, quite possibly, established leadership styles may continue to work. Indeed command and control may be effective for delivering cost savings, and inspiring visionaries can lead sales teams to greater successes. But neither of these approaches necessarily creates an environment conducive for innovation.

Conversely, visionary leaders who drive innovation at the expense of continuing operations risk the enterprise they are striving to transform. When innovation leads to revolution – rather than transformation – the enterprise can struggle to catch up. And while the leader with a defining talent – the smart operator, the turnaround specialist, the great motivator – may work for a specific challenge, today the cycle is so rapid that the specialist can be out of date before the work has begun.

A new style of leadership The future calls for the ego-less leader; someone who can orchestrate and get the best out of everyone. The change agent. The bridge builder. The person with the emotional intelligence to influence – not control or bully – and who can exert that influence simultaneously with people and teams who may have conflicting agendas.

As such, the post-heroic, ambidextrous leader requires a broader repertoire of skills than those that would have been the foundation of their success in the past. These leaders cannot just sit at the top of the organization. Their skills need to be replicated; competencies developed. At some levels, it is an impossible task. Business unit heads and the middle management population cannot necessarily simultaneously innovate and be operationally excellent. While collaboration is critical, these managers have their own objectives – and so instead must master complex post-heroic skills sequentially as their careers progress.

What the ambidextrous leader looks like

Ambidextrous organizations require post-heroic leaders; collaborators not controllers for whom soft skills are as important as hard numbers.

Leading an ambidextrous organization focused simultaneously on innovation and operational excellence is fundamentally different from leading on enterprise focused solely on one or the other. It is imperative that:

n Senior management articulates a clear vision and strategy, including a common set of values and shared meanings that provide a common identity.

n Attention is paid to the behavioral integration of the top management team, its unity of purpose and its ability to synchronize actions. This determines successful ambidexterity and subsequent performance.

n The senior team has a consensus about both strategy and the importance of ambidexterity; reflected, for example, in a common incentive scheme.

n General management, which remains important, is overlaid with an ability to manage chaos. Managers must act cohesively and decisively when there is no stability, while exploring new opportunities that arise from the chaos, despite the uncertainties.

n Leaders handle volatility, uncertainty and ambiguity, thereby creating an environment that enables people to get things done, while also incubating new ideas. This requires a thinking pattern that is conceptual, strategic and pragmatic.

n Responsibility for transformation sits at the very top of the organization: it cannot be delegated.

What the ambidextrous leader looks like Continued



Mary FontaineGlobal managing director, key client accounts Hay Group

Senior leaders need to be able to conceptualize where they are taking their organization and effectively communicate that direction in order to make transformation happen.

16

The Asia perspective

As we have seen, it is a tremendously difficult balancing act that only leaders with exceptional emotional intelligence and cognitive ability are able to achieve. Leaders in Asia are no less emotionally intelligent or less able cognitively than their Western counterparts. But Asian culture is different and it has implications for how organizations are led.

Mastering one or the other Most of Asia’s successful companies are skilled at either innovation, for example in new products, services or processes – or operational excellence – maximizing their existing assets to ensure that they deliver great products and services. Even for some well-known Asian companies, it is a matter of one or the other.

Choosing either innovation or operations can be a meaningful strategy. It allows businesses

to articulate a clear corporate story and be explicit about the direction they expect employees to follow. However, Hay Group’s 2013 Best Companies for Leadership survey has uncovered a number of companies in Asia that stand out from their peers by focusing simultaneously on innovation and operational excellence. As a result, they outperform other businesses across all major financial indicators. The evidence is clear – when companies master ambidexterity, the bottom line benefits. In key measures such as return on assets, return on equity and EBITDA (figure 1), Asia’s top 10 Best Companies for Leadership score highest.

For the majority of companies that focus on either innovation or operational excellence, opportunities are missed and potential goes unfulfilled. Companies that want to achieve market-leading financial performance should choose an ambidextrous path.

Asia’s top 10 Best Companies for Leadership 2013

1 Samsung

2 Toyota

3 Unilever

4 Tata

5 Petronas

6 General Electric

7 IBM

8 Sony

9 Coca-Cola

10 DHL

Asia too has a number of outstanding companies that excel through their ability to simultaneously focus on both innovation and operational excellence.


TTM = Trailing Twelve Month, A company’s trailing 12 months is a representation of its financial performance for a 12-month period

Figure 1 The Asian top 10 have a better EBITD margin and Return on Assets compared with companies that focus solely on innovation or operational excellence

Top 10 Asia

Ambidexnon-top 10

Innovation Operational excellence

25

20

15

10

5

0

20.5

17.2

11.213.0

EBITD Margin (TTM) in %

A measurement of a company’s operating profitability. EBITD

margin can provide an investor with a cleaner view of a company’s core

profitability.

Top 10 Asia

Ambidexnon-top 10

Innovation Operational excellence

10.52 11.46

5.354.10

ROA gives an idea as to how efficient management is at using

its assets to generate earnings. Sometimes this is referred to as

‘return on investment’.

Return on Assets (TTM) Correlation with Financial Performance

Companies with a bigger gap in innovation and operational

excellence have a tendency to have lower EBITD Margin (TTM) and

Return on Assets (TTM)

*Correlation is significant at the 0.05 level (2-tailed)

EBITD Margin (TTM) in %

Return on assets (TTM) in %

-.278*

-.249*

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The Asian perspective Asia’s top 10 Best Companies for Leadership have embraced the ambidextrous approach. However, peer group companies have yet to catch up.

The best-led companies maintain equilibrium between their focus on the future and the importance they place on the present. This is evidenced by the fact that the leading companies in Asia encourage employees to spend time discussing customers’ future needs

– a facet of innovation. Yet the importance they attach to providing incentives for operational efficiency is equally high, as figure 2 shows.

By contrast, companies outside the Asian top 10 place much less emphasis on both of these indicators. Fewer than 60 percent of respondents of these companies grasp the importance of simultaneous innovation and operational excellence, compared with about 80 percent of leading companies both in Asia and globally.

Figure 2 The global top 20 and Asian top 10 place greater emphasis on both innovation and operational excellence

Current ambidextrous comparison

The core essence of ambidextrous organizations lies in maintaining the balance between innovation and operational efficiency in daily practice.

The global top 20 and Asian top 10 have a current posture of ambidexterity that is better than the rest of Asia.

n Encourages employees to spend much time discussing customers’ future needsn Provides incentives to encourage operational efficiency

Top 20

78

90

60

70

50

40

30

20

10

80

0

75

Asia top 10

79 80

Rest of Asia

60 59


The Asian instinct In Asia, companies that lack ambidexterity tend to focus on operations rather than innovation. They find it easier to develop the existing business, rather than exploring new concepts that might provide strategic transformation.

In many respects, this is understandable. Many of Asia’s developing markets remain hugely inefficient. This is not a criticism as much as a reflection of how organizations in emerging countries develop. New markets, greater affluence and increasing competition focuses leadership attention onto operational issues such as how to make products and services better, cheaper, faster. Often, companies are too busy satisfying emerging demand to look too far ahead into the future. The fear is that simultaneously addressing innovation and operations – being ambidextrous – risks spreading resources too thinly. Because much growth in Asia can be achieved simply through operational improvements, concentrating on this alone can be a credible strategic choice. Innovation is riskier, less tangible and requires investment

today for a possible, but not guaranteed, return in the future. It’s little wonder that Asia’s companies tend to tread the safer path.

Balancing innovation and operational excellence In terms of an ambidextrous approach that balances innovation and operations, the global top 20 Best Companies for Leadership perform best. As figure 3 shows, over the next five years, these companies will give almost equal attention to innovation as they will to operations.

The top 10 best-led companies in Asia are not far behind. Although there is a slight preference for concentrating on existing operations rather than innovation in the pursuit of growth over the next five years, the difference is modest. However, when it comes to other Asian companies, the gap is striking; an imbalance of 35 percentage points. This could mean that most companies in Asia become even less ambidextrous over time.

20

n Find new, different ways to go to marketn Improve our existing products/services

Top 20

46

90

60

70

50

40

30

20

10

80

0

43

Asia top 10

5057

Rest of Asia

36

55

Although this is a considerable risk, it is also presents an opportunity. By emulating the global top 20 – or even Asia’s top 10 – Asian companies could build a stronger future as well as capitalizing on the present. The challenge should not be underestimated. Without a successful present, the future is not assured. Asian organizations need to continually improve operationally, while at

the same time focusing more on innovation. Key success factors, such as building dedicated customer support functions and inspiring leadership, are necessary in this respect.

Making dedicated support functions work For most Asian organizations the force of day-to-day operations is too much to resist. They live in the here and now. But organizational

Figure 3

The global top 20 plan to focus on both innovation and operational excellence in the next five years

Future ambidextrous intent

There is a great balance between innovation and operational excellence intent for the global top 20. This reveals that in the next five years, the global top 20 companies might be able to maintain their ideal ambidexterity.

Overall, the global top 20 is better than the Asian top 10, which is better than the rest of Asia for ambidextrous intent in the next 5 years.


60.0

40.0

20.0

0

-20.0

-40.0

-60.0

-80.0

Follow-through

Abandon

Figure 4 The Asian top 10 are more likely to have separate support functions than the global top 20 and the rest of Asia

Future ambidextrous intent

A separate support function (such as HR, Finance, Legal, etc.) that is self contained and dedicated to supporting innovation or operational excellence is vital for ambidextrous organizations to perform effectively.

The Asian top 10 has a brighter outlook – indicating that they are more likely to have separate support functions compared to the rest of Asia and the global top 20.

structure can help address the strong and almost natural tendency that Asian companies have towards existing operations.

Dedicated support functions that are separate from business units are the simplest way of creating simultaneous focus around both innovation and operational excellence.

When the areas that concentrate on innovation have their own HR, legal, finance and marketing teams that can support them exclusively, they thrive. In fact, the top 10 best-led companies in Asia are better when it comes to providing dedicated support functions, outperforming the global top 20 (figure 4).

Rest of Asia

-56.0

30.8

Asia top 10

-45.0

42.5

Global Top 20

-48.6

36.2

22

Dedicated support functions really count when times get tough. When a competitive threat emerges, when the external environment suddenly shifts or when a crisis hits, even Asia’s top 10 companies are likely to revert to their natural tendency to focus on operational issues. As figure 5 shows, they are

13.4 percent more likely to forego the balance between innovation and operations in difficult times. Companies outside the top 10 are 17.9 percent more likely to be disrupted by a crisis. By contrast, the global Best Companies for Leadership are much more likely to maintain their equilibrium.

During tough times, the ambidextrous balance for the rest of Asia is more likely to be disrupted compared to the Asian top 10 and the global top 20. This ability to maintain balance between innovation and operational excellence during a downturn is crucial in achieving sustainable financial performance.

Figure 5 During tough times, the rest of Asia tends to abandon an ambidextrous balance

50.0

40.0

30.0

20.0

10.0

0

-10.0

-20.0

-30.0

Follow-through

Abandon

Rest of AsiaAsia top 10Global top 20

-17.9

26.8

-13.4

27.9

-8.8

43.4


The cultural challenge of inspiring leadership In Asia, hierarchical structures and respect for one’s superiors are embedded into culture. Compared with Western organizations, Asian leaders are – and are expected to be – much more controlling and directive. However, compared with companies outside the top 10, Asia’s best-led organizations are more likely to be headed by leaders who exhibit more collaborative behaviors.

These people coach rather than dictate and they play an active part in developing the next generation of leaders. But their styles also meet the expectations of employees in Asia, where people look for strength, authority and firmness from their leaders.

A direct leadership style need not be at the expense of a collaborative approach, but it must be executed with care in countries where too much collaboration can be considered a sign of weak leadership. The leader who gets this balance right – directive with a hint of collaboration – can be inspirational. Indeed, in common with the global top 20 companies, the best-led organizations in Asia rate inspiring leadership as one of the characteristics respondents most value. Reflecting the global best companies, inspiring leadership is the catalyst for ambidextrous organizations, and central to engaging employees.

Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organizations realize their potential.

We have over 3000 employees working in 87 offices in 49 countries. Our insight is supported by robust data from over 125 countries. Our clients are from the private, public and not-for-profit sectors, across every major industry. For more information please contact your local office through www.haygroup.com.

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Transcript of Strategic - Hay Group ambidextrous_white paper… · and their ongoing operational excellence. >>...