Leadership and Social Acumen

As I posted on my People Business blog at HR Circles last week, social networks are important in helping HR deal with global people management challenges. They provide significant benefits to other business leaders too.

One of the most provoking blog posts I’ve read this month is Gill Corkindale's Harvard Business blog on the leadership crisis in the UK. Looking at the prime minister, the chancellor and the government, the Bank of England and its governor, and a couple of football managers (you can probably guess which ones), Corkindale notes a long string of leadership failures. Most of them, to me, see to have developed through these leaders being too remote from their organisations – a lack of social connection.

Lisa Haneberg’s blog, Management Craft has alerted me to Ram Charan’s latest book, Leaders at all Levels. Charan's explanation of ‘social acumen’ may help leaders build the sorts of networks they need if they’re to avoid the sorts of problems that currently seem to be so common in the UK:

"Leaders who possess it are not loners or bookworms. They have an innate desire to work with diverse people and naturally cultivate a broad range of social networks that permeate the company, including subordinates, peers, and superiors. As these leaders develop their social acumen, their networks often extend beyond the business to include customers, suppliers, regulators, politicians, and various interest groups. The relationships tend to be durable because they are built on trust, and that trust allows information to flow both ways, exposing the leader to new ideas and different ways to see things. The social networks also allow him or her to energize and synchronize people's energy and actions and to do a better job managing a crisis than would otherwise be the case."

Social acument isn't yet a common topic in many leadership development programmes, although rotating leaders across the organisation or bringing them together into formal leadership courses, may provide the basis for some of these networks to evolve.

Carly Fiorina: People aren't the soft stuff

I've been attending (and presenting at) HR.com's VIEW conference (see my HCM blog for details). Carly Fiorina provided the opening keynote, and one of her points caught my attention. She said that people aren't the soft stuff - they're the software, ie the clever stuff.


I agree with her on people not being the soft stuff, and you'll find plenty on my HCM blog about this to. I also recommend Scott McArthur's blog, particularly this post.


However, in this post, I wanted to extend on Fiorina's point about people being the software. You could see:

• Human capital as the software sitting on each individual PC


• Organisation capital as the hardware - particularly the computer networks linking different PCs together


• Social capital as the intra and inter net, including web 2.0.

Social capital in Second Life

From my HCM blog:

I hope you like my new avatars (digital characters) on the right hand column of this blog - I suspect experienced bloggers will find them extremely annoying, but I hope I'm forgiven as a newbie for a bit of experimentation. I've also been doing a bit more playing around in Second Life (SL).

For those that don't know, SL is a three-dimensional, virtual reality world where you can meet interesting people, do amazing things, and live out your fantasies.

It's also increasingly an environment being explored by businesses for commercial purposes. The Sunday Times has recently conducted an SL conference with 90 participants from businesses which included ABN Amro, the BBC, BA, Cisco, Dell, FirstDirect, Shell and Reuters. The Times explain that one of SL's advantages for the workshop is that had the conference taken place in the real world it would have cost thousands and generated somewhere between 120 and 180 and tonnes of carbon. In addition,

"3D is closer to reality than 2D. Second Life offers more interaction. When you look at a web page on the normal internet you can’t see that a lot of other people are looking at that page. But in Second Life you can see people standing around you and you can interact with those people looking at the same information.”

The use of SL for HR purposes is also being explored.

In recruitment, organisations are conducting recruitment activities virtually, presenting themselves as innovative employers and simplifying interviews and assessment processes. The main focus to date has been on IT designers, animators, virtual-world builders and the like, but this is now starting to extend. Yell has recently launched a SL campaign alongside TMP with uniformed avatars wandering around SL and talking to other avatars about the company. Yell believe that SL users may provide the 'creativity and innovation' they seek within their workforce.

In learning, many organisations are running SL workshops, providing great opportunities for experiential learning which allow people to try out new ideas and practice new skills without fear of failure and embarrassment. Some are developing virtual campuses.IBM has embraced Second Life more than any other major company — it has more than 230 employees spending time in-world, and it owns some half-dozen islands. Some are open to the public, including a flashy recruitment office that links to its internet recruitment site. IBM even has a dress code for its employees' avatars (see Jay Cross' post IBM bringing decency to the wild frontier). The company says it may also look to develop it’s own in-house virtual world for the use of employees and clients.

Despite rising concerns about SL's potential (see, for example Don Taylor's post Second Life Backlash) this seems to be a medium for which business and particularly HR applications are going to grow and grow. SL and other similar virtual worlds may never become environments where businesses can mass market their products, but they provide interesting additions to the tools organisations can use to increase social interaction, including within their workforces.

Look out for our avatars next time you visit.

Jonin and Sandrain Allen.

Mintzberg on social capital

From my HCM blog:

I've already mentioned that one of Mintzberg's remedies for short termism is to get the analysts of the backs of the corporation. Others are to:

• Take corporate governance seriously
• Keep the mercenaries out of the executive suites.

But I think Mintzberg's last suggestion is potentially the most valuable.This is:

• Treat the enterprise as a community of engaged members, not a collection of free agents. We can start, for example, with compensation systems that encourage co-operative effort. Corporations are social institutions, which function best when committed human beings (not human "resources") collaborate in relationships based on trust and respect. Destroy this and the whole institution of business collapses.
  

Flooding and social capital

From my HCM Blog:

I came across an interesting article on the floods across the UK recently: "When the waters clear". The articles notes that flooding destroys organisational but not social capital:

"Floods and other disaster destroy physical and financial capital. But not relations between people and their networks - what's often called social capital.

Even truckloads of goodwill can't offset the trauma of being flooded. Indeed, unlike any other form of capital - social capital can actually increase at a time of crisis. People who come together learn the importance of appreciating the value of neighbourly support, often act with greater community spirit in the aftermath of a disaster. All of us can help by encouraging the victims of the flood to look for solutions that will improve their lives instead of looking for someone to blame. Blaming often weakens social capital and undermines the return to "normalcy". Instead of looking for a hidden meaning behind the flood we ought to be focusing on learning the lessons. We now know that floods are normal part of our life. What we have to figure out is how much of our resources we are prepared to devote to minimising their destructive impact on our lives."

Ie it is our reactions to crises like floods, not the floods themselves, that can damage us most.
I guess the same is true in organisations as well. It is a rare organisation that thinks about how it will react to challenges and particular failures in a way that will increase its social capital.

Examples of intangible capability

From my book:

In some ways, there is little new in these categorisations of value. For example, McKinsey’s 7’S’ model basically consists of different elements of human, organisational and social capital:

· Human capital = staff and skills
· Organisation capital = strategy, structure and systems
· Social capital = super-ordinate goals and style


The advantages of conceptualising these areas as forms of intangible value are firstly that this ensures a focus on the outcomes of people management activities, rather than the activities themselves. Secondly, this emphasizes that given their different nature, the three types of capital each need treating in different ways.

More recently, Dave Ulrich has identified eleven intangible capabilities he believes are important to business effectiveness and that I have categorised as follows:

Customer capital
· Customer connectivity: building enduring relationships or trust with targeted customers

Human capital
· Talent: attracting, motivating and retaining competent and committed people
· Leadership: embedding leaders throughout the organisation

Organisational capital
· Speed: making important changes rapidly
· Accountability: demanding high performance from employees
· Learning: generating ideas with impact
· Innovation: developing breakthrough products and processes
· Efficiency: managing costs

Social capital
· Shared mind-set and coherent brand identity: ensuring positive, consistent perceptions of the company among employees and customers
· Collaboration: working effectively across organisational boundaries
· Strategic unity: articulating and sharing a strategic viewpoint

Ulrich also describes how an organisation needs to pick intangibles that fit with its business strategy, emphasizing, for example:

· Collaboration if the business strategy is about managing alliances
· Learning if the strategy is about sharing knowledge across global business
· Talent if the employer is trying to grow in new industries
· Speed if the organisation is trying to compete on cycle time

The impact of Ulrich’s capabilities has been reviewed in Huselid’s research, described in chapter three. Huselid found that firms rated higher on these capabilities also invest more in R&D (an indirect measure of innovation); are more productive and more profitable. The ratio of market to book value was also found to be nearly four times larger in the highly rated firms.

The Work Foundation has recently conducted research placing 3000 companies in a league depending on how they handle customers and markets; shareholders and governance systems; stakeholder relationships; human resources practices and the management of innovation and creativity, which together, form an overall Company Performance Index (CPI). During a thirteen month period when the UK stock market grew by fourteen per cent, companies at the top of the Work Foundation’s index experienced a twenty six per cent gain in market value and companies at the bottom of the index gained just a six per cent increase. The Work Foundation has identified five ‘intangible factors of production’ that translate the five process areas of the CPI into productive action. Again, using my categorisations, these intangibles are:

Human capital
· Leadership: visible and accessible leadership and management, combined with high expectations from those in decision making roles

Organisation capital
· Structure: unique organisational structure resulting from geography, size and history, that enables continued success rather than being a specific driver of that success
· Process: a higher degree of informality and continued dialogue supported by simple – though not simplistic – processes that allow faster decision-making

Social capital
· Communication: openly sharing information between peers and networks or managers than need timely and accurate information in order to get the best job done
· Culture and Employee Relations: a distrust of the status quo, valuing quality rather than quantity, a focus on the long-term and on outcomes; a positive climate characterized – not codified – by pride; innovation and strong interpersonal relations,

The research found that that there are radical differences in these intangibles between top scoring and bottom scoring firms. High performing companies have a higher degree of dialogue and value quality rather than quantity. Poor performers tended to have a bureaucratic and hierarchical culture, with leaders more concerned with a narrow range of financially driven output metrics than how top managers behave and interact with others.

The Work Foundation's report concluded that achieving high performance is about developing best fit between a company’s strategic choices over their business goals and the practices they choose to achieve these goals. It also noted that:

"The exact ‘fit’ will depend on a myriad of external and internal factors such as history of the organisation, its geography, its sector and its position within that sector."

Whilst these lists of human, organisation and social capital may appear to be very similar to a list of best practices, there is a crucial difference in that they are actually the results of best practices rather than the practices themselves. For example, developing leadership skills is a practice; the ability to lead change is an intangible capability.

But there can be overlap. For example, organisation capital exists to support people in the organisation – either by enabling business processes, supporting customer activities or by directly improving financial performance (for example an intangible capability to meet forecast projections). But organisation capital can also support people management so, for example, developing leadership skills could be organisation capital, as well as a practice, if the organisation is as effective as GE in developing senior executives and ensuring smooth succession into top jobs. The key issue in understanding whether something has intangible value is whether it is something that is so strongly valued that investors would pay for the organisation to have it.

One definition of social capital

I love this international development blog's definition of social capital: "the sum total of all the unselfish acts* that it's members perform". (* I'm not sure yet whether this includes acts of enlightened self interest or only altruism.)

Social capital

From my book:

Social or relational capital is an emergent property arising from the organisational system – the organisation and the people working in the organisation. Social capital includes the network of relationships and features of social life within an organisation, the knowledge tied up and shared in these relationships, the ability to work together with other people in value creation, the corporate culture, beliefs lived and values demonstrated by employees. It provides the glue that holds organisations together. Social capital is even less tangible than human capital and demonstrates even more attributes of complex systems. How is this for a paradox: it is not owned by the people but leaves when they leave and is not contained within the organisation but does not exist in the same way without it:

‘Social capital is owned jointly by the parties in a relationship, and no one player has, or is capable of having exclusive ownership rights’

(Nahapiet and Ghoshal)

It cannot be managed but it can be influenced, mainly through conversation. I also think that there are some signs of a positive feedback loop here. As social capital along with other intangibles becomes more important, so it needs to be increasingly socially constructed which needs effective conversations. This increases the importance of social capital, which requires it to be socially constructed, ad infinitum.

Organisation capital

From my book:

Organisation or structural capital is the infrastructure that supports people to do their work. It includes elements like the fitness of the organisation structure, operational and management processes, procedures, routines, general use of information, IT systems and databases, existence of a knowledge centre, explicit knowledge and know-how. Some of these elements may be legally protected and become intellectual property rights, legally owned by the firm, for example patents, copyrights, design rights, trade secrets, trademarks and service marks. Organisation capital has the advantage of being fully owned by the company – it remains in place when the employees leave - and is therefore to some extent easier to manage and change than human capital.

Human capital

From my book:

Human capital exists as a resource and a capability, at individual and organisational levels. Individual human capital can be acquired by attracting and selecting staff with the right skills and experience. It can be developed through learning. Human capital can be converted into an organisational resource by aligning people with the organization, engaging its owners and investors, so that they will choose to make it available to the organisation. This can then be leveraged by applying it to meet business requirements.

What's this Social Business thing about?

I've been blogging about human capital management (HCM) for a few months now, and have explained that I see this, not as the management of people AS human capital, but the management of people FOR human capital. HCM is an approach that invests in the accumulation and development of human capital as an intangible basis for ongoing competitive advantage.

However, I actually believe that there are three main intangibles in an organisation, which are human, organisation and social capital. And out of these, I think it is social capital that provides the greatest opportunity for business competitiveness. This is partly because of the new possibilities provided by social media, and the new expectations of the millennial generation. It's also because it's becoming increasingly apparent that the traditional way of managing organisations isn't working very well.

I'm defining the social business (I'm calling it the new social business to differentiate it from those organisations devoted to dealing with social causes) as an organisation that takes advantages of these opportunities.

This is an area that I don't think many people know much about, and I will admit to feeling fairly unknowledgeable about it myself. So whereas in my other blog, I feel about to comment as an expert about human capital, I have set up this one to support a personal journey of learning. But I hope that readers will want to take this journey with me as well.

And I also hope that my understanding of HCM, and aspects such as best fit,intangibility and complexity, as well as specific tools, such as the HCM value matrix, described within my book, will help me add something new to this field.