NZIM Improving Managers

It may be partly due to the rosy glow cast by buoyant local economy but Kiwi managers are steadily ratcheting their way up the New Zealand Institute of Management’s Management Capability Index (MCI).
The just-released 2004 MCI results show New Zealand managers and their organisations are performing at 65-70 percent of their potential – that’s year-on-year increase of nearly four percent and represents an across-the-board rise in nine separate performance categories.
Those categories showing the highest increases are results and comparative performance (+5.15 percent), financial management (+4.22 percent), people leadership (+4.16 percent), and visionary and strategic leadership (+3.86 percent). The smallest lifts were registered in external relationships (+1.66 percent), performance leadership (+2.28 percent) and innovation in products and services (+2.66 percent).
The other two categories are organisation capability and application of technology and knowledge. The nine categories are given different weightings – 30 percent going to results and comparative performance, 15 percent to visionary and strategic leadership, 10 percent each to performance leadership, people leadership, financial management and innovation and five percent to each of the rest.
Measuring the capability of leadership in practice is recent initiative of the NZIM and in his analysis of the second set of results, index author and NZIM national director Doug Matheson notes that improved business performance has been the main influence on lifting the index.
“The MCI has benefited from the current external environment. While the financial management, people leadership and visionary/strategic leadership [categories] have lifted about four percent this year, the real test of capability will be when the external environment gets more difficult,” he says.
“Can the leadership and management still deliver high levels of performance? That’s exactly what leadership and management capability is about.”
In terms of those categories that are lagging slightly, Matheson says it could be an issue when times get tougher. “The relatively small lift in performance management and innovation in products and services would suggest that leaders need to increase their focus on this if business performance is to be sustained in more difficult times,” he adds.
“However, there is an across-the-board improvement in management capability, so we are moving in the right direction.”
This year saw SMEs included in the survey for the first time. Their ability to lift management standards is tied to the lift in SME performance that the Government is currently focusing on, says Matheson.
“So it’s useful to compare the SME management capability results against the Top 1000.”
Perhaps not surprisingly, they average out 4.91 percent lower with the lag showing up most in the categories of people leadership (-9.75 percent), visionary/strategic leadership (-8.7 percent), financial management (-7.57 percent), organisation capability (-7.47 percent) and performance leadership (-5.06 percent).
In other areas – such as innovation, application of technology/knowledge, results and external relationships, they’re lot closer to their larger – and better-resourced counterparts.
Given the relatively small teams involved in SME management, lower performance on the people leadership criteria is not unexpected, says Matheson.
“The relationship between leadership and employees is much closer – more face-to-face. However, SME management must ensure it is focusing on the development of human resources, on growing the people and on maintaining stimulating culture.”
But the relatively significant gap between SME and bigger organisations in terms of visionary/strategic leadership, finance management and performance management should be concern, says Matheson.
“SME products and services frequently have short lifecycle. To sustain the SME’s performance longer term or even the survival of the SME itself, management needs to have strong strategic focus – strategic leadership is just as important to the SME as it is to the larger organisation.”
Financial management is also critical component of enterprise sustainability, says Matheson.
“And for SMEs, strong focus on performance leadership and the balancing of risk with achievement is no less important – in fact usually more important – than it is for the larger business.”
It is importance to understand that management capability is much more than management competencies, says Matheson.
“While competencies are general descriptions of the abilities necessary to perform successfully in particular job or position, capability is the degree to which management uses its skills, abilities and competencies to achieve results.
“In examining capability, we are moving up level beyond competencies.”
Capability is demonstrated in business/organisational performance and could be described as the sum of competencies plus leadership skills that add up to sustainable business performance and growth. It’s what helps temper the impact on performance of external influences – such as government policy, inflation, labour shortages or touch markets.
“Highly capable managers respond to changing environments and are capable of applying their competencies in practice in different and challenging conditions – and of producing superior results,” says Matheson.
“They have the vision and clear, inspiring, strategic goals and are capable of growing the organisation, capable of continually improving its performance.”
Measurement of management capability must therefore link the application of management skills and abilities to the results achieved by the business or organisation.
The MCI Index is based on self-evaluation – CEOs and general managers rate their own practice and performance against criteria statements describing the highest standards of leadership/management capability in an organisation. Respondents score the current position in their own organisation out of 100 percent.
This data is converted into an index which provides useful indicator of how capable or inadequate one CEO, organisation, group, sector or even country is against the criteria – which allows performance levels to be benchmarked across sectors or across countries.
The importance of measuring capability is that it shows how management skills play out in practice, says Matheson. “Management capability is the ability to deliver performance by applying your competencies in the environment you face with the resources you have.”
A full description of the categories and 2004 scoring can be found on www.leadershipsummit.co.nz.