Value Creation through Executive Development

Solomon Akrofi

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351271547
• Edition: 1
• Topic: Business
• Subtopic: Organisational Development
• Index: Business

The ability of organisations to generate long-term value and growth depends to a very large extent on the capacity of the executive cohort to conceive and implement strategic initiatives through a well-motivated and enabled workforce. However, generating consistent value in today's volatile, uncertain, complex and ambiguous (VUCA) and rapidly evolving digital economic landscape can be challenging and, therefore, executives need to update their capabilities regularly to align with the changing value drivers required for long-term growth. To achieve the expected value and growth at a more sustainable level, executive development must be managed as a strategic asset and optimised through effective design and implementation and the effects must be proactively evaluated through meaningful leading indicators and actual 'hard' measures.

Value Creation through Executive Development, therefore, offers a well-supported and clearly structured approach to address the gap between executive development initiatives and the creation of long-term organisational value and growth. This book provides a valuable resource to executives and management development professionals who have experienced frustration about the lack of non-value-adding executive development programmes. It also serves as a professional resource for managers of executive and management development programmes, organisational development departments and organisational development consultants, allowing them to integrate this material into existing programmes to achieve value-centric outcomes and to achieve long-term performance targets. Additionally, it serves as a teaching resource for participants in executive/management development courses or seminars globally; offering them the capacity to conduct value-centric initiatives and gain the capacity to influence the tactical, operational and strategic dimensions of their organisational performance.

1

Executive development and value creation for business growth

Executives at all levels and stages of their careers need to recognise that developing, and the rapid application of new capabilities is a new currency for driving organisational growth and survival. Developing the right set of capabilities also provides the capacity for executives to adapt quickly in uncertain times and lay the foundation for long-term organisational growth. Hence, there is a greater imperative for executives to become used to learning and unlearning at a rapid rate. At the same time, organisations need to recognise and manage executive development as a core strategic driver of value and growth and not just implement it as a tick-box exercise where executives engage in a plethora of programmes with no direct link to organisational growth and survival.

The cases of Nokia and Kodak exemplify why executive development is crucial for organisational survival. Having pioneered and launched the world’s first mass-produced mobile phone (Nokia 1011) in 1992, Nokia held a dominant share of the global mobile market throughout the 1990s until it relinquished this enviable position to Samsung and Apple, both of which have a much wider portfolio of businesses to cushion them from the shocks of the mobile phone industry. Nokia’s management team did not only fail to respond to emerging disruptors such as Apple and Samsung, and the shifting consumer experience from the Symbian platform (on which Nokia phones were developed) to App-based platforms such as the iOS and Android, but they also failed to anticipate competition in the lower end of the market, from manufacturers such as HTC, Huawei and ZTE, who reduced the market share of Nokia in emerging markets by offering cost-effective handsets with more powerful functionalities and features compared to Nokia’s offerings.⁽¹⁾

Nokia’s top management also lost the technologically and the strategically integrative decision capabilities required to set priorities and to reposition itself against the pressure of disruptive competitors and the low-cost manufactures which eventually resulted in the eventual shrinking of the business to a network infrastructure provider.⁽²⁾

Nokia’s rapid decline exemplifies an organisation in which executives failed to leverage and translate a unique selling proposition into long-term sustainable financial growth. Kodak is another classic example of an organisation which fell from prominence to extinction owing to strategy deficiency of executives in converting vast intellectual capital into value-generating products.

Although Kodak built on its strengths in organic chemistry and optics to create some profitable products, however, the organisation failed when it tried to launch new business models and products based on existing capabilities and hence significantly undermined its ability to benefit from the digitisation of the photo and motion picture industry.⁽³⁾

These two firms, and indeed several other organisations, have been driven from a dominant market share position to complete oblivion in this era of volatility, uncertainty, constant change and ambiguity (VUCA), where business models across industries are becoming obsolete rapidly.

The commodities sector (oil, gas and metals), for example, experienced a sharp decline between 2014 and 2016. This resulted from the over-expansive production (owing to low borrowing cost) without predicting the weakening demand (for natural resources like steel, iron ore and crude oil) from China and other emerging economies.⁽⁴⁾

The most efficient operators such as Rio Tinto and BHP Billiton have profited from economies of scale and the lower cost capabilities they have developed over the decades, whilst others such as platinum miner Lonmin – with a previous market capitalisation of £6 billion – failed to survive the turbulence and have been taken over by South African peer Sibanye-Stillwater valuing the company at £285 million.⁽⁵⁾

Businesses in the commodities sector are adapting their business models to align with lower profit margins or otherwise face extinction owing to the dependency of this sector on uncertain and unpredictable demand factors from emerging economies. For example, Anglo American is focusing its operations on three products – Diamond, Platinum and Copper and has veered away from iron ore, coal, nickel, phosphate and manganese, as these were less profitable compared to the three retained products. The retail sector is also undergoing rapid transformation with the onslaught of digitisation and technology, which will shrink the workforce used in traditional brick-and-motor models. Uber and Airbnb have also disrupted existing industrial business models by utilising technology and digitisation by taking advantage of the platform business model to meet customer needs across a wider geographic audience at the fraction of the cost incurred by traditional business models in the urban transportation and hospitality sectors. The effects of the VUCA environment on businesses are exacerbated further by ever-shifting customer expectations for greater customisation coupled with uncontrollable events such as natural disasters, epidemics and geo-political tensions, which make prediction of future profitability almost impossible. These external factors influence the capacity for organisations to create consistent value and financial growth.

Value and growth defined

Organisational value is created at the micro and macro level. At the micro level, value creation is driven by an organisation’s capacity to produce unique products or services for customers better than competitors. The value creation capability can be expanded further at the macro level by enhancing the business model, acquiring other businesses or combining these approaches. If value creation activities are managed effectively, the consequence should be measurable long-term sustainable organisational growth, which is the growth rate an organisation can achieve without increasing its financial leverage or debt financing levels. In other words, this reflects the growth rate generated by the organisation from the reinvestment of normal earnings and through the prudent management of financial resources.

However, the generic drivers of growth tend to differ across sectors (e.g. occupancy rates in the hotel sector, sales per square feet in the retailers sector and patent conversion rates for pharmaceutical firms) and influence the strategic decisions that executives have to make across their portfolio of businesses.⁽⁶⁾ The sustainable growth rate is also influenced by three key variables: profit margin, capital investment intensity, expected growth rate versus cost of capital, and the combined effect of all three variables on the business models and revenue streams available to the organisation.⁽⁷⁾

Most often organisations grapple with the internal effects of inertia as they approach the pinnacle of the growth cycle. Some industries, like the insurance sector, are becoming more vulnerable as they approach the point of saturation with diminished margins and very little product differentiation, as the pressures of digitisation intensify with automation likely to replace various specialisms in the underwriting specialist in the insurance sector. As organisations traverse the growth cycle, they face a self-imposed threat posed by the propensity to lapse into a natural inertia, and they become less responsive to external threats and opportunities. This inertia, if not cured swiftly, can eventually normalise reactive behaviours and less adaptive cultures, such as in the case of Nokia in the mobile phone sector which starved their innovative pipeline and diminished the aggressive mentality required to drive survival and growth of the organisation.

All of these internal and external threats to organisational growth and survival provide a compelling case for executives to embrace an agile and continuous learning mentality with the acquisition of new capabilities being the norm. These are some of the main reasons why executive development is relevant at all levels of the organisational hierarchy, and must be supported by the right diagnostics of capability gaps, design, implementation and measurement to deliver the intended organisational outcome. All of these will be discussed in much greater depth in Chapters 3 and 4.

Who is an executive?

Executives include the chief executive officer (CEO), and the C-suite (chief marketing officer, chief information officer, chief technology officer, chief finance officer, chief innovation officer), senior vice presidents, divisional directors and their direct reports (two-three tiers below the C-suite) who are responsible for formulating long-range strategic plans (five years), conducting high-level boundary management activities and providing inspiration and talent management across the entire organisation.

According to a Harvard Business Review Research, the size of the executive team in large businesses has increased, rising from about five in the mid-1980s to almost ten in the mid-2000s’.⁽⁸⁾ This trend in the growth of the executive team size seems to be unabating with new titles such as Chief Robotic Officer, Chief Growth Officer and Chief Digital Officer emerging as organisations position themselves to address some of the complex challenges posed by disruptive competitors and decline in growth opportunities across industries.

Executives exemplify leadership behaviour in setting organisation-wide objectives, engaging in external communications and promotions to stakeholders and clients and coordinating activities across multiple departments. In addition, they carry the ultimate responsibility for delivering the overarching organisational-level performance targets, and focus on exceeding client expectations. Widening the scope of executives to include leaders two – three tiers below the C-suite depending on organisational structure and size is premised on the fact that these lower-level executives not only provide crucial input in the formulation of strategy, they also have much closer proximity and interaction with customers and the ecosystem and have better visibility of organisational resources required for driving organisational value.

For example, the head of product innovation will provide crucial input in the formulation of a business model or even be involved in due diligence activities for an acquisition which will drive long-term value creation. The contribution of lower-tier executives to the decision-making process challenges any possible group-think effects and biases at the top of the organisation and enables the integration of customer and employee perspectives to the strategy formulation and implementation process. Therefore, these individuals should be embraced into the ‘executive’ fold and provided with the necessary development and experience required to contribute effectively towards value creation as well as strengthen the executive bench. Finally, research indicates that business unit leaders outside the C-suite are accountable for up to 29 per cent of disruptive growth (which is growth emanating from the creation of new markets and differentiated products and services which will eventually displace existing offerings from competitors) which offers a compelling case for development interventions to be expanded outside the traditional executive ring.⁽⁹⁾ These lower tier executives – who have better understanding of the operational challenges, customer preferences and can combine data with strategic insight to deliver superior customer experience – need to be offered compelling development opportunities to create disruptive growth.

Figure 1.1 The executive level onion – layers of organisational executives.

What is development?

Development at the executive level is considered to encapsulate the systematic improvement and broadening of knowledge, experience and capabilities of personal qualities and attributes required for the successful execution of organisational challenges in current and future context.⁽¹⁰⁾ Such development also involves the process of embracing increasing complexity as an organisation, and becoming more elaborate and differentiated, by virtue of learning and maturation, thereby opening up the potential for new ways of acting and responding to changes in the business environment.⁽¹¹⁾ In essence, development interventions must not only result in transformed behaviours, experiences and capabilities must be acted upon to drive value and improvements in organisational outputs. With executives, the acquisition and action dimensions of development can occur concurrently or even overlap, as a greater level of executive development tends to be informally oriented and embedded within the workplace. Both informal and formal development modalities will be looked into in much more detail in Chapter 3.

By maintaining a continuous development mindset, executives can avoid reliance on past accomplishments, experience and successes and keep looking for new fr...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication Page
• Table of Contents
• List of figures
• List of tables
• Acknowledgements
• Introduction
• 1 Executive development and value creation for business growth
• 2 Mapping out value-centric executive capabilities
• 3 Building a value-centred executive development architecture
• 4 Designing executive development to fit unique organisational needs
• 5 Aligning executive development with organisational strategy
• 6 Bridging the gap between executive development and organisational performance
• 7 Measuring the impact of executive development on organisational performance
• Index