How Strong Leadership Builds Measurable Enterprise Value
Four Leadership Value-Drivers to Shore-Up Now
(A New White Paper Published by ALPS Leadership, October 2, 2019)
Introduction and Overview:
Up to a certain point a company’s value is largely determined by how well it is managed. The fundamentals of business dictate that organizations that lack basic management disciplines will not only fail but are likely to fail quickly. But beyond that certain point, the organization’s success factors are no longer a function of good management. When well managed companies fail to thrive or struggle to grow, the problems always point to weak leadership.
In today’s metrics-driven world, it is easy to relegate leadership as a soft-skill component of good management: the human face we put on tools and systems. But leadership is not cosmetic – it is integral to the quality of an organization’s performance. Leadership isn’t a secret sauce, it is a function of human competence that cultivates and perpetuates competent human performance in order to reliably accomplish what matters most to the organization. To discount the value of strong, highly-effective leadership is to put yourself as a leader and your organization in peril.
Being results-focused is critical to building a strong bottom line, but building real enterprise value requires the demonstrated ability to maintain a sustainable competitive advantage. This is the role leadership. The emphasis on good management as a foundation for organizational health, performance and success is certainly well founded, but no degree of management can offset poor or ineffective leadership.
While enterprise value is a principal concern of publicly traded companies, it is even more important to private company owners who are or will be eventually be interested in maximizing the proceeds from a sale or other planned exit strategy. Ownership is transferable and shareholders can be taken-out and replaced by transaction, but leadership is integral to an organization’s current and future value and must be durable to withstand the stresses of the transition process and the stabilization and growth that needs to follow.
Having a high concentration of any vital factor, be it customers, supply chain – or leadership adds a significant level of risk that will ultimately depress the take-over price. Leadership should not be comprised of just one individual. Very small companies might have one person serving in many key roles, including leadership, but most organizations can benefit from transforming their management teams into leadership teams by focusing on developing leadership competencies and setting standards that encourage and reward better leadership behaviors.
Business owners – whether they function as leadership or not – can and must ensure that their organization is not just well managed, but is equipped to meet the challenges of a VUCA* (volatile, uncertain, complex and ambiguous) world by developing strong leadership as a basis for sustainable value growth. Traditional management is largely ineffective in adapting organizations to the fluid forces rampant in every sector of every industry – and is entirely ineffective in developing the human capital required to perform to ever-increasing demands.
*According to Harvard researchers Robert Kegen and Lisa Lahey the increasing influence of VUCA forces (a term coined initially by US War college as the worldwide conditions emerging at the end of The Cold War and now is broadly seen as the situational reality facing modern business) requires a more adaptive leadership style. The reactive tendencies that underpinned the long-standing perspective of “command and control” are ineffective in a VUCA environment, and must be replaced by leadership driven by creative tendencies. In essence, command-and-control, which is based on having staged contingencies to deal with escalating opposing force, breaks down and fails in part because of the predictable and typically rigid approach – versus more creative and agile measures that can readily adapt to unpredictable conditions.
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ALPS White Paper – How Strong Leadership Builds Measurable Enterprise Value