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Making Your People Outperform Theirs

Stocks in this article: GOOG MSFT AAPL

To measure executive quality, ask executive search firm partners to rank-order industry competitors by leadership capabilities. Or, better yet, have the firm conduct a deep assessment of your first- and second-tier executives. Ask them to compare each executive's leadership capabilities to an industry benchmark.

High Performance Organization

There are several ways to assess organization effectiveness. The first is to measure efficiency. This can be done by using available industry measures such as profit per employee or SG&A per employee. Both are reasonably good reporting measures, but they are at too high a level to improve efficiency. Improving efficiency requires that measures, and accountability, be pushed as low as possible -- ideally down to the first-level supervisor.

A second way to assess organization effectiveness is to measure engagement. Engagement evaluates whether a company is getting all it can out of its workforce.

One way to measure engagement is by examining turnover. But be careful, measuring overall turnover is meaningless. The McDonald's system employs over a million people and experiences about 160% turnover. In Japan, that number is much lower. In upscale U.S. locations that number is much higher. Also, the 160% number does not tell us if the turnover is healthy or unhealthy. For low performers, high turnover is better. For high performers, low turnover is better. Turnover data must be used thoughtfully to be a valid measure of engagement.

A second measure of engagement is an engagement survey. There are many engagement surveys. Questions across surveys may vary, but overall results are almost the same. Thus, the choice of survey is not very important. More important is that you choose one and stay with it. Managers like to see how their scores change over time.

Executive Team Performance

As the business world becomes more and more complex, heroic leaders like Henry Ford or Lee Iacocca are growing increasingly rare. Most successful companies today are led by effective executive teams. What is an effective executive team and how might one measure that?

Start by clarifying the expected performance outcomes. These may include: profit, revenue growth, customer satisfaction, share, etc. Then, let team members define the results the team must produce to deliver the performance outcomes.

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