The Problem
A groundbreaking study of 430 institutional investors revealed a critical paradox in investment decision-making. While investors weighted leadership quality as accounting for 28.4% of their investment decisions—nearly as important as firm performance (38.5%) and industry favorableness (33.1%)—they had significantly lower confidence in their ability to assess it. With a confidence score of only 3.75 out of 5 (compared to 4.47 for firm performance), investors faced their most glaring weakness when making investment choices. This "leadership gap" meant that companies with strong leadership capabilities were potentially undervalued, while those with weak leadership might be overvalued, creating market inefficiencies and missed opportunities for both investors and companies.
The Solution
Recognizing this critical gap, Dave Ulrich and Norm Smallwood developed a comprehensive organizational capabilities audit framework to make intangible assets like leadership tangible and measurable. The solution involved creating a systematic approach to assess 11 key organizational capabilities, including leadership, talent, speed, and innovation.
Two major implementations demonstrated the framework's effectiveness:
- Boston Scientific International adapted the audit to identify that strategic unity and leadership brand were critical gaps preventing their continued growth.
- InterContinental Hotels Group, facing hostile takeover attempts and industry-lagging costs, used the audit to transform their organizational structure and save over $100 million annually through improved collaboration.
The audit process provided a 360-degree assessment methodology that quantified previously subjective measures, allowing companies to demonstrate leadership quality to investors through concrete metrics and action plans.
The Outcome
Companies implementing the capabilities audit achieved remarkable results. Boston Scientific International improved their strategic unity scores by 0.91 points and developed clear leadership brands that distinguished them from competitors. InterContinental Hotels Group successfully defended against hostile takeover, increased share price by 71% from April 2003 to February 2004, and outperformed the FTSE 100 by a factor of two.
Most significantly, the framework provided investors with the tools they desperately needed to assess leadership quality. As one investor noted after using the framework: "Quality of leadership is one of the most important considerations that our fund makes when considering a potential investment." The audit transformed leadership from an intangible uncertainty into a measurable asset, closing the leadership gap and enabling more informed investment decisions that better reflected true company value.
To learn more about RBL's organization capabilities audit framework or our leadership transformation solutions, contact us.