Michael Shiel - Leadership

To figure out what real practical leadership is, it is helpful to understand what it is for. Think about this: your shareholders are concerned that their money is achieving the best possible return, bearing in mind the level of risk they are taking. So, one of the measures they might use to judge the performance of your firm is return on capital employed (ROCE). They want to be assured that they are getting the most out of the firms assets, which they have already paid for. If you want to get more capital for the firm, you will have to convince them that they will get an adequate return on that too.

The people in your firm constitute another asset, but it does not appear on the balance sheet and so we are tempted to pay less attention to the return the firm gets on them. If you look at your sources of competitive advantage, you may see a strange irony in this practice. In the 21st century, access to financial capital is seldom a real competitive advantage; with global capital markets glutted and constantly in search of opportunity, its a buyers market; its the people with the ideas who are in demand. Equally, access to capital equipment is no real source of advantage either; for example, the most profitable airlines in the world have access to the same aircraft from the same two major manufacturers as do the chronic loss-makers. So what makes the difference? Over the course of the last century, the competitiveness of firms has increasingly depended on the people in them, and correspondingly less on privileged access to finance, machinery or raw materials.

This is almost a reversal of the situation in the great industrial era; at that time, the idiosyncratic and individualistic nature of workers was an impediment to the efficient functioning of the enterprise. Employees had to be homogenised, controlled and, above all, measured. In effect, they became a commodity. Management thinkers at the start of the 20th century believed in the necessity of standardising work and removing the opportunities for creativity and individual initiative; this was the sole preserve of a superior being at the top of the organisation. By the start of this century, finance and equipment had been commoditised and the role of people had become critical to the survival and prosperity of firms.

The problem that this poses is that many of our approaches to management belong to an earlier era. We still pay attention to measures such as return on financial capital, and rightly so. But the big strategic question for any company boss is: Are you paying attention to your principal competitive asset? To the one aspect of your firm that can set you apart from all the others in your market, and prevent you from being a me too firm with, at best, average industry returns?.

Of course, you may say that superior products and service are what will create superior performance, but where do you think they come from? Where do you think the next generation of products and services will come from, as your competitors imitate the best aspects of your current offering and, in the process, threaten to eat your lunch.