NZIM Management Capability – What it really means

The Government, in particular the Minister for Economic Development Jim Anderton, is concerned about how the capability of New Zealand managers stacks up when compared with other countries. Accordingly, The Budget allocated $2.4 million to be spent over the next two years to help find out.
But before I go any further let’s be clear about the terminology. Business capability is the overall capability of business to perform. It includes individual management capability and embraces processes, practices and structure. The New Zealand Institute of Management has been focussing on the issue of management capability for the past two years. It has carried out number of research studies aimed at both understanding the current New Zealand situation and identifying where we need to improve, and last year NZIM introduced its annual Management Capability Index (MCI).
There are, of course, factors other than management capability that influence business and organisational performance, such as markets, competition, government policy, inflation, the labour market and so on. But the most important factor is how effectively management applies and practises its competencies to deal with external and internal threats and opportunities, to develop and motivate employees to innovate and achieve the highest levels of performance – that is management capability.
New Zealand Business Roundtable executive director Roger Kerr wrote in recent issue of the NZIM Wellington division newsletter, that if business is profitable, it follows that management is performing well. The NZIM MCI findings (that New Zealand managers perform to about two thirds of their capability) did not, he wrote, reflect the real position in New Zealand. He ignores the fact however, that it is an index reflecting how chief executives and general managers assess their own organisation’s current position. The vision is world-class business capability, not profitability or shareholder value at comfortable level of business growth. The aim is to achieve the highest possible organisational potential and through that, the country’s highest potential.
The US Baldrige business excellence model has for years been used as an international benchmark to link superior levels of organisational performance to strong leadership and management capability. Several New Zealand organisations have used it to lift their performance.
But while enlightened leadership and the adoption of particular management techniques deliver enhanced performance initially, this soon plateaus out at what might best be described as level of mediocrity. Management does not drive on to achieve world-class performance. Indeed, in more than 10 years, only two New Zealand enterprises have reached Baldrige world-class performance.
Management capability is the practice and application of management skills, abilities and knowledge – management competencies – to achieve superior results that are reflected in organisational/business performance. Management’s capability is what lifts performance above the average. Management’s capability leads and manages the enterprise and its people to achieve their potential.
Management capability is more than management skill. It is complex set of attributes that results in the effective application of the individual’s management skills, abilities and knowledge that brings about the highest levels of organisational performance.
Most management research focuses, unfortunately, on competencies. It doesn’t reveal the effectiveness of the application of management competencies that is management capability. The NZ Business Excellence Foundation, using the Baldrige business excellence model, and the NZIM MCI evaluation of management capability, indicates New Zealand organisations and management operate at about two thirds of their potential.
Business performance is the single most important measure of management capability. 30 percent weighting in the MCI reflects organisational performance results and performance relative to competitors. In the last MCI, New Zealand CEOs and GMs rated themselves at 63.5 percent. The overall MCI, reflecting their evaluation of all categories of leadership and management, was 66.2 percent. We have significant opportunity to lift our game.
The Government’s $1.2 million of budgeted funding for each of 2004/05 and 2005/06 to improve understanding and support action in the public and private sectors, is move to improve New Zealand’s management capability. The rationale is simple. Management capability drives business capability and so improves business performance.
NZIM welcomed the announcement and sees the initiative as supporting the work it has already done to identify and tackle the lifting of management capability in New Zealand. The NZIM MCI is vital to the process of lifting both government and industry awareness of the relationship between management capability and the country’s economic development.
But we need to understand why our managers see themselves as performing at only 66 percent of their potential. What, if anything, is unique about the New Zealand environment or culture that contributes to this, and what would motivate them or lift their performance and achieve both their full personal potential and the potential of their organisation? The Government initiative will help our understanding.
NZIM will work with the Government and other industry groups to help lift management capability, and to help businesses grow and build sustained competitive advantage.
But in addressing management capability there is demand and supply problem.
On the demand side, the Growth and Innovation Advisory Board’s recent research revealed that significant percentage of New Zealanders don’t believe we must grow economically. There is strong public perception that economic reforms didn’t deliver all they promised, or benefited selective people. Small and medium enterprises (SMEs) are collectively significant part of the economy but their collective culture will need to change to lift our game. As commentator Rod Oram wrote in the Sunday Star-Times (April 18): “Can we do it? Yes!…Do we want to do it? Maybe!…Do we believe we have to do it? No!”…
There needs to be an incentive to continually strive for superior performance. We are strongly competitive in sport because we get kick out of it. We don’t view business in the same light.
About 95 percent of New Zealand businesses employ less than 20 people. And while managers of these businesses benefit most from lifting their capability they invest relatively little in management training and development of their capability. Larger organisations tend to place high value on continuously developing their managers.
Management training and development is discretionary expense item. And when under pressure SMEs find it an attractive option to keep key people on the job. Cutting training has no immediate impact on business performance. And surveys show no strong link between business planning and training. Surveys also show that our managers focus on today, not the long term. Because training seldom delivers an immediate benefit, it is lower priority.
On the supply side, New Zealand’s education providers are driven by revenue, funding, academic and provider perspectives rather than market demands of need and applied learning. Industry must buy into this problem and play an active role. There needs to be linkage between demand and supply. The Government’s new initiatives are important in this respect.
At 66.2 percent the NZIM MCI last year identified areas for improvement. The next survey, under way now, will show the trends. CEOs, GMs and boards will be able to evaluate their performance, establish where they stand and identify where they need to improve. The MCI is structured to guide them in what they need to do.
Management capability can only be demonstrated in business and organisation performance. It is not so much their capabi

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