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.

1. Make sure you cover the leadership fundamentals, or “Do the Code,”
2. Think outside-in by getting customers involved in establishing differentiators,
3. Connect leadership behaviors to organizational outcomes, and
4. 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.