NZIM : The index is slipping – What’s going wrong?

Management capability is more than management competencies. Competencies are general descriptions of the ability to perform successfully in particular job or position. Capability, on the other hand, is the degree to which managers use their skills, abilities and competencies to achieve results. By examining capability we move up level beyond competencies.
NZIM’s Management Capability Index (MCI) provides an annual tracking and assessment of management capability in New Zealand. The MCI reflects chief executive assessment of their organisations.

Capability fallen off
The first MCI was taken in 2003. Over the three years to 2005 the index steadily improved. But in the 2006 survey, the index fell from 70.3 in 2005 to 68.6 (on base of 100).
The most heavily weighted factor in the MCI, the organisation’s “results and comparative performance”, began to decline in 2005, and the weakening continued in 2006. However, “results and comparative performance” are the product of management performance in the other eight management capability factors, so that’s where the analysis must be made.
The most heavily weighted management capability factor, “visionary and strategic leadership”, deteriorated most in 2006, but “people leadership”, also dropped significantly. No categories improved.
Perhaps our chief executives have moved into survival mode as response to the current increased pressure on profits, driven to significant degree by the demands for increased wages and the shortages of skilled workers. They may have shifted their focus away from the two key management performance elements of “visionary and strategic leadership” and “people leadership”.
In 2006, “financial management” and “external relationships” were the only two factors where capability exceeded 70. “Innovation in products and services” has historically been weak. At lower than 65 it demands particular board and management focus.
The remaining factors are assessed at between 66 and 70, and as such represent what can best be described as level of management mediocrity. An index rating of 68.6 is just not good enough. It suggests that many of New Zealand’s top managers are not achieving the potential of the organisations they lead.

International comparisons
Other countries are beginning to use the NZIM MCI. By doing so we have the opportunity to benchmark New Zealand management’s capability against them. In 2005, the All India Management Association conducted the MCI in India for the first time. The overall 2005 index for India was 76.4, versus New Zealand’s 70.3.
India had no management capability factors below 70, and was significantly higher than New Zealand in “innovation in products and services”, “performance leadership”, “visionary and strategic leadership”, “organisational capability” and in the most heavily weighted factor – “results and comparative performance”.
In all categories, except “financial management”, India performed higher than New Zealand. India’s very strong strategic focus on lifting management performance through management education and training is clearly paying off.
The Malaysia Management Association used the MCI for the first time in 2006. At 71.2 the 2006 MCI for Malaysia is 2.6 points higher than New Zealand. Malaysia is stronger than New Zealand in all factors except “financial management”, where New Zealand is significant 5.4 points higher.
New Zealand consistently ranks highest in “financial management” and lowest in “innovation in products and services”, with significant 14 point gap between them. Malaysia also is highest in “financial management”, but its lowest factor “performance leadership” is only 6.7 points lower. India is highest in “external relationships” and its lowest factor, “innovation in products and services”, is only 5.6 points lower. So both India and Malaysia demonstrate more balanced management performance than New Zealand.

Important issues
The 2006 MCI results raise some important issues for New Zealand management.
The most heavily weighted (15 percent) management capability factor is “visionary and strategic leadership”. This dropped the most in the 2006 survey (-3.7 percent). This factor rates management on the following criteria:
• Articulates clear and inspiring vision, actively fosters and encourages ownership of the vision by staff and ensures the vision is well understood, and motivates the employees to work towards achieving goals.
• The vision and supporting goals underpin and guide decisions and behaviours.
• Contributes effectively, with the board, to establishing strategies, objectives and plans with view to growing the business, while meeting the needs of shareholders, taking account of employee, supplier, customer and other stakeholder interests.
• Demonstrates an international/global perspective and good understanding of global markets and global thinking.
New Zealand chief executives rate themselves at 67; Malaysian chief executives at 72 and Indian at 78.
“People leadership” was the second largest drop in the 2006 survey (-3.1). This factor rates management on the following criteria:
• Attracts, retains, develops, motivates and leads an effective team capable of achieving company objectives.
• Human resource planning is an integral part of the annual business planning process.
• Provides enhanced leadership – acts as role model, committed to developing subordinates and leading people.
• Strong on empowerment – allows scope for people to grow.
• Maintains culture supportive of Gen X & Y values… not stifled by structure and hierarchy.
• Grows people (grows their CV). Demonstrated ability to work effectively with, and achieve results through, diverse range of people.
• Creates stimulating culture. New Zealand chief executives rate themselves at 67.5 while Malaysian chief executives rate themselves at 71 and Indian at 75.
“Innovation in products and services” is consistently the lowest response by New Zealand chief executives. It has never been above 66.4 and had dropped for the past two surveys. This factor rates management on the following criteria:
• Creates the climate for and encourages continuous innovation in products and services.
• Innovation is recognised by everyone as important for all aspects of the business and for all its processes – innovation is part of the culture.
• Innovation leads the business to new dimensions of performance.
• Innovation creates new value for the business, its customers and its shareholders.
New Zealand chief executives rate themselves at 64.5, Malaysian at 72 and Indian at 73.

The big questions
The 2006 MCI results leave New Zealand with two important questions that top management must address:
1)Why is New Zealand top management’s capability not rated higher?
2)What specific initiatives would lift New Zealand’s top management performance, and through that the performance of New Zealand organisations?
Both boards and CEOs must go in search of some answers.

2006 New Zealand MCI

(on base of 100)
1) Visionary & strategic leadership:67.1
2) Performance leadership:69.6
3) People leadership:67.5
4) Financial management:78.5
5) Organisation capability:66.9
6) Application of technology & knowledge: 69.7
7) External relationships:73.1
8) Innovation – products and services:64.5
9) Results & comparative performance:66.8
2006 NZ Management Capability Index:68.6

Doug Matheson is former NZIM national chairman and author of the Management Capability Index.

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