Putting Leadership before HR

the Mantra for Emerging Companies

NASSCOM

Emerging Companies Forum Chennai

April 25, 2008

Arrangement

1. Nasscom & Emerging Companies

2. Mittelstand and the spirit of entrepreneurialism

3. Why is leadership so important

1. Life cycle of an Organisation

2. The potential crisis that entrepreneurs face

3. Malcolm Baldridge Framework

4. The organisation building agenda

• The foundation of Leadership

• The People Processes

NASSCOM Emerging Companies Forum

• SME sector forms a significant percentage of the Indian software and services industry

• Contribution of this sector will be crucial for India to retain its competitive advantage and sustain future growth.

• As per NASSCOM estimates, approximately 50-60% of the industry revenues will be from the SME segment by 2008.

• The NASSCOM SME Forum aims to draw strategies to explore the huge growth opportunity that exists in this segment.

• The forum will also serve as a platform to the SME segment to share experiences, ally on critical projects and even focus on partnerships to cater to customer demands.

In Germany SMEs are called Mittelstand

Mittelstand

The qualitative meaning of Mittelstand

From a qualitative angle, the term implies a unity of ownership, management,

liability and risk. The enterprise is owned and managed by the same person or the

same group of persons and the company management is responsible for and involved

in all decisions related to corporate policy. A vital pre-condition here is the owner-

entrepreneur’s autonomy in all decision-making matters.

The head of an SME is an entrepreneur Manager who is responsible for its ownership and management.

All entrepreneurs start with a great

idea…

…..an idea that can transform the world

Entrepreneurs also have a unique DNA

• They are able to create / innovate

• They are able to take risks

• They are able to react to changes quite rapidly

• They are informal and flexible

• They have their finger in every part of their business

given their need for control

• They often rely on their gut feel in taking decisions

• They are passionate and have huge energy

• They often have a very personalised style

Traits that help them to go all out and convert their ideas into

great businesses.

The spirit of entrepreneur managers

All SMEs go through various stages in their life cycle of development with problems and challenges

in each of the stages

The Start-up stage

The founder builds a company from scratch around an innovative product or service:

– Blast of entrepreneurial frevour

– Vision, energy, commitment

– Gets the magic formula

– Rides a comfortable wave of success

The Stabilisation & Growth stage

The founder appreciates that success came from more than a flash of inspiration:– He identifies and defines the ingredients of his or her successful

strategy– He installs a structure & policies to support it

However, some…– Do not recognise the need for building an organisation around

their ideas– Get wedded to their original strategy– May not know which of their formula worked and led to success– May not be able to respond to changing market– May not be able to provide the leadership and direction that is

now required to stay focused

Greiner five stage life cycle model

According to Greiner’s five stage life-cycle model of growth each stage ends in a crisis, which has to be managed and resolved to grow to the next stage.

Age of organisationYoung Mature

Large

Small

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

1. Crisis of leadership

2. Crisis of autonomy

3. Crisis of control

4. Crisis of red tape

5. Crisis of ??

1. Growth through creativity

2. Growth through direction

3. Growth through delegation

4. Growth through coordination

5. Growth through collaboration

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The crisis of leadership is the most dangerous one.

Growth through creativity ….

• Characterized by start-up company, entrepreneurial, informal communication, hard work

and low earnings.

• Dominated by the founders of the organisation - emphasis is on creating both a product

and a market.

• The founders are usually more focus on technical and entrepreneurial activities than on

management

• They put all their efforts in making and selling a new product. The enterprise grows

without too much focus on the right style of leadership and without developing the

necessary management capabilities.

• As the organisation grows, management problems occur that cannot be handled through

informal communication. Founders find themselves burdened with unwanted management

responsibilities and conflicts between the employees and management grow.

The crisis of leadership

……….leading to the crisis of leadership

• Characterized by sustained growth, functional organisation structure, capital management, budgets and standardized process.

• The question of who is going to lead the organisation out of confusion and solve the management problems confronting the organisation arises. Need to find a strong manager who can pull the organisation together.

• During this phase the new manager and key staff take most of the responsibility for instituting direction, while lower level supervisors are treated more as functional specialists than autonomous decision-making managers.

• As lower level managers demand more autonomy, this eventually leads to the next phase.

What is needed is growth through direction …

….. leading to the crisis of autonomy

Even the Malcolm Baldridge Award emphasizes Leadership

• America’s highest honor for performance excellence, the Baldrige

Award is presented annually to U.S. organizations by the President

of the United States.

• Awards are given in manufacturing, service, small business,

education and health care.

Baldrige Criteria for Performance Excellence

The leadership triad

The basis for performance management

The results triad

So, where is the HR connection in all this?

Why put leadership before HR?

Leadership crisis is often presented as lack of HR or weak HR

When ………

– Employees are not clear about their roles

– Employees are unhappy

– There is lack of performance

– HR is not performing

– HR managers are leaving

– There is no ownership

…… It is seen as an HR issue rather than as a leadership problem!

The Leadership - HR connection

1. HR initiatives never get implemented because of the fear of losing control

2. HR initiatives may not receive real sponsorship

3. HR managers may not be clear about what is expected of them

4. HR managers my not know what the basis of their work

The Leadership - HR connection

We must put leadership before HR!

Leadership

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Pro

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Peo

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The foundation of Leadership

The foundation of Leadership

1. Giving and sustaining clarity and direction

2. Designing the right organisation that delivers the strategy by promoting

delegation while maintaining control

3. Demonstrating a style of leadership that promotes trust, respect,

recognition, performance, ownership and fairness

While many Leaders are clear in their mind about what they want to achieve, they seldom clarify this or communicate it consistently.

While their founding team members may “understand” the direction, the next generation of employees fail to see it.

The problems become acute when the founders are unclear about where they are headed or keep making course corrections.

Sometimes the direction might be clear but the path to get there may not be as clear.

There are several reasons why entrepreneurs fail to give this direction:

– They assume people know

– They are so introverted that they find it difficult to communicate

– As the organisation becomes larger, they realise that they need special skills to not just communicate but rally people around this common purpose

– They are also unable to address conflicting views around the direction and just avoid talking about it

Giving and sustaining clarity and direction

• Leaders may have a clear direction but may still be hamstrung by an organisation design

that is not geared for the future.

• Issues of Organisation design could include the following:

– Job design for key roles might be wrong

– Roles may not be clearly defined leading to mismatch of performance expectations

– The basis of differentiation and the choice of organisational form may be erroneous

– Levels of impact may not be clear resulting in disparities

– The Span might be too large

– Accountability may be diffused across roles and levels

• Above all, the original design of the organisation as well as the original design of roles

may need to be recast given the scale and growing complexity.

Designing the right organisation that delivers the strategy promoting delegation while maintaining control

• In all organisations in general and in entrepreneurial organisations in particular, the style

of the leader has a direct impact on the climate and therefore the engagement levels of the

employees.

• Entrepreneurs are quite often unaware of their style and its impact on the climate of the

organisation because no one gives them feedback.

• Entrepreneurs may be causing unintended damage to climate and morale as a result of

their style.

• Entrepreneurs seldom realise that they need to change their style in line with the changing

life stage of the organisation.

Demonstrating a style of leadership that promotes trust, respect, recognition, performance, ownership and fairness

People Processes & the leadership connection

While there are several People Processes that are spoken about, our experience tells us

that there are three people related problems that keep entrepreneurs awake at night:

1. Hiring skilled resources

2. Securing performance

3. Developing people

The modern concept of employee engagement gives entrepreneurs the impression that

they need to get 70/100 on all people process. We see it differently.

We believe that it is important to focus on the vital few processes that gives the

organisation leverage at a given point of time. Scoring a 50/100 on all processes is not

good enough.

The People Processes

If you have watched Lion King the movie, you will certainly remember the famous words of Shenzi the Hyena:

“Look at you guys, no wonder we are dangling at the bottom of the food chain… you know if it weren’t for the Lions, we’d be runnin’ the joint”.

Quite often I find entrepreneurs in the same mental state as Shenzi – at the bottom of the chain in the staffing market and feeling envious about the hiring clout of the larger players!

Beyond hard realities, there are three leadership belief systems which seriously inhibit the entrepreneurs’ ability to hire:

– Trapped by loyalty

– Fear of paying market compensation

– My style is the best style

Hiring skilled resources

Entrepreneurs also end up not being clear about their Employee Value Proposition (EVP)

and fail to articulate it clearly.

Entrepreneurs may also not think through their staffing strategy including decisions of

mix, sources and so on.

Entrepreneurs are also prone to making huge hiring errors given the lack of skills and

experience or just the haste.

Hiring skilled resources …

Securing Performance

While entrepreneurs are anxious about results, they do not always use an institutionalised process to drive organisation wide performance.

The reasons for this are many:

– They believe that it is difficult to plan in a dynamic environment. As a result, they do not have culture of organisational level planning. The fact that plans and actuals vary significantly is also seen as reason not to plan.

– Even if they are sold on the idea, they may lack the discipline of committing themselves to a plan.

– Those who do plan, focus excessively on budgeting and numbers instead of looking at how they will achieve the numbers.

– The process may not be inclusive and inspiring

– The plans may never be reviewed and therefore may remain on paper

– There is often confusion between goals, strategies, initiatives and actions

– Many even believe it is the job of HR to set goals for all employees!

Developing people

“I seem to be the lone engine pulling the train along”

• For many entrepreneurs, the depth of talent beyond employee # 5 is quite poor.

• Successful entrepreneurs quickly learn that their success depends on assembling a winning team.

• Others try to do everything themselves.

• Entrepreneurs are also worried about developing the people they have – grooming them for higher responsibilities.

• Many do not realise that they need leaders at every level and that it calls for a disciplined approach.

• The biggest challenge is for them to realise that leaders develop through the right exposure to workplace challenges and not in the class room.

• It is also a reality that the grooming received by the founding team is significantly superior to what the next generation of employees receive.

So, what needs to come first in your organisation?

How do you go about your leadership development journey?

thank you