As disruption accelerates at an unprecedented rate and growth cycles become shorter and shorter, a pressing question has emerged: “How can we grow a business in such a disruptive, uncertain, and complex world?”
The 10-year growth cycles of previous decades are gone. Now cycles have shrunk to 18–24 months… and some people predict that 12-month growth cycles are just around the corner. That cycle would be ten times faster than what we had before!
GROWTH IS TRANSFORMATION
Business growth isn’t linear. Typically, growth increases exponentially until it flattens.
Since what we used to experience as a single, long growth cycle is now a series of short growth cycles, we must start working on the next cycle while still navigating the current one. This crazy pace is not easy.
Transitioning between shorter cycles involves greater disruption, complexity, and uncertainty. Far too few companies are prepared for this.
Making the quantum leap from the end of one growth cycle to the start of the next isn’t for the faint of heart. Long-term, sustainable growth requires numerous transformations.
TRANSFORMATION THROUGH LEADERSHIP EFFECTIVENESS
Transformation means different things to different people, but it plays a critical role in business. Recent studies have shown that increasing Leadership Effectiveness is essential to thriving businesses.
The Leadership Circle conducted a study with 486 top executives (and later validated it with 2,000 executives) to determine the relationship between Leadership Effectiveness (as evaluated by the rest of the executive team) and six categories of business performance, such as revenue growth, market share, and profitability (1).
The findings are represented in the image below, which shows the strong, positive correlation between Leadership Effectiveness and business performance (R=0.61). As Leadership Effectiveness increases, so does business performance.
From a statistics point of view, this means that Leadership Effectiveness scores explain 38% of all the variation in evaluators’ ratings of business performance.
From a business point of view, it suggests that Leadership Effectiveness provides 38% leverage to overall business performance.
This is larger than most companies’ profit margin, yet Leadership Effectiveness remains underutilized and unmeasured.
Other studies corroborate these results. McKinsey found that Leadership Effectiveness strongly correlates with the Organizational Health Index (OHI) (R2=0.78) and that companies with top-quartile leadership effectiveness have a 3.5x greater average return to shareholders (TRS) or twice the EBITDA compared to companies with bottom-quartile Leadership Effectiveness (2).
These incredible findings have empowered companies to start measuring Leadership Effectiveness at individual, team, and organizational levels to boost their growth.
Leadership Effectiveness has been developed into an integrated framework for breakthrough performance. It builds cognitional capability and capacity to create the outcomes that matter most.
Effective Collective Leadership is your one competitive advantage that no one can copy
LEADERSHIP EFFECTIVENESS AS A COMPETITIVE ADVANTAGE
Unfortunately, most companies don’t use Leadership Effectiveness as a measurable Key Performance Indicator, despite its proven impact on business growth.
Comparing the top 10% of the highest-performing businesses to the bottom 10% of the lowest-performing businesses, the average Leadership Effectiveness score of the top 10% is at the 80th percentile, while the bottom 10% is at the 30th percentile.
The comparison suggests that the line between effective and ineffective leadership would be drawn at the 50th percentile.
Leadership Effectiveness above the 50th percentile is a competitive advantage.
Companies with Leadership Effectiveness below the 50th percentile are at a competitive disadvantage.
SCALING UP COMPLEXITY
In any organization, when we look at the collective Leadership Effectiveness of the leadership team, we can predict the long-term future growth of the business.
Of course, in every new growth level as you scale your business, you face a higher level of complexity. You manage more employees, face fiercer competition, and deal with the accelerated pace of change that brings instability and disruption.
The higher complexity of context requires a higher complexity of mind. The gap between our existing complexity of mind and the complexity of the next growth level is our development gap.
In the Leadership Circle, we call complexity of mind ‘the Inner Operating System’ (IOS). This is the inner game that runs the outer game.
If you don’t upgrade the operating system of your mobile device, after a while you’ll notice that new apps run slowly or don’t run at all. Our IOS is the invisible controller of the capacity and capability we have to lead our teams to the next level.
This is one of the reasons a company’s growth stalls between cycles. To scale up to the next level of growth, you have to upgrade your IOS. This is the key to increase your Leadership Effectiveness, first for yourself, then for your top leadership team, and then for the extended leadership teams.
If your company is still growing despite collectively playing the ‘ineffective leadership’ inner game, don’t be fooled. You haven’t reached the limits of your complexity of mind yet. You will eventually hit the level that caps out your leadership.
An organization not developing leaders faster than the pace of change is "planning" for strategic failure
GROWTH TRANSFORMATION JOURNEY
To wrap up, let’s summarize the major points:
Hyper-growth is composed of multiple growth phases.
You need to transform your individual and collective Leadership Effectiveness to scale up to the next level of growth.
This requires upgrading your Internal Operating System so that your complexity of mind will match the higher complexity awaiting you at the next growth level.
When we help leadership teams around the globe increase their Leadership Effectiveness, it shows in the business results. This is a game-changer for every company when growth has stalled.
Excellent
References:
(2) McKinsey Org Solutions, Relationship between Leadership and average TRS, December 2015 (MID)
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