Human Capital Risk — Identifying Talent Beta for Mergers and Acquisitions and Private Equity

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Evaluate and identify human capital risk and the proper risk factor to mergers & acquisitions, private equity investment, and venture capital deals.

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  • The role of human capital in the growth and development of new technology-based ventures, based on longitudinaldata from 198 high-tech ventures implies strong relationship between strategy and team experience is a key determinant of the long-term performance of high-techentrepreneurial ventures. For small, technology-based new ventures, the team's technological experience appears to be themost important determinant of the success of a differentiation strategy.Among new ventures, neither innovation nor entrepreneurial teamheterogeneity was directly related to performance. However, the authors found that the interaction of innovation and teamheterogeneity had a profound influence on multiple measures of firm performance. Characteristics such as job tenure, age, education, or functional expertise are conjectured to be determinants ofstrategy and performance because they influence decision making. Furthermore, they may constitute critical intangibleresources, which can be valuable to the firm.The analysis of individual managers, especially those employed by entrepreneurial firms, can also be related to the economictheory of human capital (Becker, 1964; Rosen, 1987). This theory begins with the realization that wage differentials are due todifferences in productivity. Labor economists used this theory to reach a fundamental conclusion: labor is heterogeneous andan individual's human capital consists of his/her productive skills and technical knowledge and any other skills that might beuseful to the firm (i.e., the full set of characteristics that may enhance his or her salary).Assessing the relationship between human capital and firmperformance: evidence from technology-based new ventures.By Rod Shrader & Donald S. Siegel | Nov, 2007Numerous scholars in strategic management have assessed the relationship between the characteristics of managers and theperformance of large firms (e.g., Bantel & Jackson, 1989; Finkelstein & Hambrick, 1990, 1996; Gupta, 1984, 1988; Hambrick,1982, 1994; Hambrick, Cho, & Chen, 1996; Hambrick & Mason, 1984; Norburn & Birley, 1988; Szilagyi & Schweiger, 1984;Wiersema & Bantel, 1992; Amason et al., 2006 ). Much of this research is grounded in Upper Echelons theory (Hambrick & Mason, 1984), whichasserts that organizational outcomes (strategic choices and performance levels) are partially determined by key attributes oftop managers.In the entrepreneurship literature, it is well established that the strategies pursued by new ventures have a direct and stronginfluence on the financial performance of those firms (e.g., Lambkin, 1988; McDougall, 1987; Sandberg & Hofer, 1987). Forexample, new ventures offering differentiated products to niche markets often outperform other new ventures.In the strategy literature, strong links have also been found between the characteristics of TMTs and strategies pursued byestablished firms (e.g., Bantel & Jackson, 1989; Hambrick, 1982; Wiersema & Bantel, 1992). However, these insights have notyet been applied to research on new ventures. While these studies imply that managers and strategies each directly influencedperformance, another body of literature suggests that performance was best explained by the fit between managerialcharacteristics and strategies (e.g., Litschert & Ramaswami, 1991; Norburn & Birley, 1988; Pettigrew, 1992). In other words,superior performance results when managers have backgrounds and experience that are especially relevant to the particularstrategies of the firm. For example, a firm pursuing a strategy of radical innovation might require younger, more educatedmanagers (who might be willing to assume more risk), as well as executives with significant technical and marketingexperience, which would be useful in product development and commercialization.Given the theoretic reasoning outlined above, it is logical to conjecture that among high-performing new ventures there shouldbe a link between the backgrounds of team members and the competitive strategies of these firms. Furthermore, based ontheory and the consensus of the entrepreneurship literature, we expect to observe a positive connection between strategy-experience fit and performance, but not a direct link between team experience and performance.human capital theorysuggests that an experienced entrepreneurial team should be more productive than a less experienced team, since experienceis a valuable asset that has been shown to increase worker productivity and the economic value of the firm, as well asmanagerial compensation. Experience also allows managers to make more informed strategic choices.Such experience would provide insights into technical advances that might enhance product features.Copyright 2007, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
  • Traditionally, financial capital has been the primary perspective in assessing venture viability. To expand the venture evaluation horizon, we examined the effects of human capital, organizational demography, and interpersonal processes on partner evaluations of venture performance, defined as the presence of profit and growth. The results support this approach in analyzing venture teams, and we propose that this perspective be included in future venture viability assessment, and used for intervention to enhance venture success.Criteria that screen out ventures where there is a risk of failure due to unqualified managementCriteria that screen out management that may well be qualified but lack experience;Criteria that screen out ventures where basic viability of the project is in doubt;Criteria that screen out ventures where there is high exposure to competitive attack and profit erosion before the investment can be recouped;Finally, criteria that avoid ventures that lock up the investment so that it cannot be cashed out for long periods of time. [Criteria distinguishing successful from unsuccessful ventures in the venture screening processJournal of Business Venturing, Volume 2, Issue 2, Spring 1987, Pages 123-137Ian C. Macmillan, LauriannZemann, P. N. Subbanarasimha]Many business ventures are started by entrepreneurial teams, and an extensive theoretical literature suggests that the interpersonal process of these teams impact venture performance. Whereas some work has been done to identify key issues in how well such teams work together, there has been no in-depth research to develop an instrument to measure specific dimensions of interpersonal process effectiveness. This article documents the importance of venture business, develops a measure to evaluate venture team interpersonal process effectiveness, and shows the relationship of interpersonal process effectiveness and partner agreement on specific aspects of interpersonal process to reports of venture success. Over 190 venture dyads were surveyed such that each partner evaluated themselves and their partner on items describing team interpersonal process.We found four dimensions for team interpersonal process: leadership, interpersonal flexibility, team commitment, and helpfulness. Leadership involved partners who contributed to the leadership functions of problem-solving, setting quality standards, continually improving, and setting goals. Interpersonal flexibility described partner exchange with the other partner. Team commitment meant having enthusiasm for team performance and focusing on common team goals. The final element was helpfulness, which involved helping their partner beyond what was required and being friendly and cooperative.We defined successfully perceived ventures as those in which the two partners independently agreed on evaluating the business to be both growing and profitable.Venture businesses that were described by the partners as not growing and/or not profitable were defined as less successfully perceived ventures. Teams that evaluated themselves as more effective on team interpersonal process also regarded themselves as more successful venture businesses. The factors that were evaluated as more effective in successfully perceived ventures were leadership, team commitment, and their mutual interaction.Our agreement hypothesis held for all three interpersonal perception perspectives. The first agreement correlation is a comparison of partner self-evaluations. The more successfully perceived ventures rated themselves similarly; the less successfully perceived ventures did not.The second agreement correlation was a comparison of what partners thought of each other and is the source of many interpersonal assumptions (Wilmot 1979). Partners from successfully perceived ventures agreed with each other, whereas the less successfully perceived ventures did not.The third agreement involved a comparison of one partner's self-rating with how the other partner rated him/her. In addition to mere agreement, this represents an interpersonal verification or validity check between separate perceptual systems. As partners, this correlation suggests that you understand my contribution to the team in the same way that I understand my contribution to the team. When there is agreement on this perspective, miscommunication and interpersonal conflict may become less likely. As with the other two agreement indices, partners from successfully perceived ventures showed more agreement than partners in less successfully perceived ventures. An important notion is the use of these three perspectives to more fully utilize the team effectiveness instrument. Each of the perceptual perspectives is different, and a breakdown in one perspective may not always show in the others. However each view is critical to maintaining effective team interpersonal process.When using an interpersonal method with ventures, there are several issues we should consider. First team interpersonal process issues can be sensitive topics for discussion. In some cases, relationship building with a third party may be needed for this approach to be constructive.Second, a third party, familiar with team interpersonal process, should have a team meeting with the participants to establish a common vocabulary regarding our team concepts. Third, additional team interpersonal process items could be provided by the team to better fit the idiosyncrasies of each dyad. Team interpersonal process effectiveness in venture partnerships and its connection to perceived successJournal of Business Venturing, Volume 10, Issue 5, September 1995, Pages 393-411Warren E. Watson, Louis D. Ponthieu, Joseph W. Critelli]Specific human capital was negatively associated with the proportion of portfolio companies that went bankrupt [Human capital theory and venture capital firms: exploring “home runs” and “strike outs” Dimo P. Dimov, a, , and Dean A. Shepherd, b, 1aInstituto de Empresa, Department of Entrepreneurship, Pinar 7, 1°28006, Madrid, Spainb Leeds School of Business, University of Colorado, Campus Box 419, Boulder, CO 80309-0419, USAReceived 1 November 2002;  Revised 1 October 2003;  accepted 1 December 2003.  Available online 13 April 2004. ]
  • http://www.qfinance.com/mergers-and-acquisitions-best-practice/why-mergers-fail-and-how-to-prevent-it?page=2According to a multitude of studies conducted over a 30 year period covering more than 7,000 mergers and acquisitions, 55-77% failed to deliver on their financial promise. Carleton and Lineberry
  • http://altassetshedgefunds.net/private-equity-knowledge-bank/country-focus/europe/central-eastern-europe/article/nz3225.htmlPrice Waterhouseventure capitalists accept occasional investment failures and a certain degree of poor performance in their portfolio as two unavoidable hazards of operating in the venture capital world. Furthermore, it is a common view that time is more efficiently spent on maximising the gain from investments which perform well, and searching for new opportunities, rather than trying to save money already lost in companies that are performing badly or near to failure. Nevertheless it cannot be forgotten that two per cent of the European venture capital portfolio is written off every year, which means that the other investments have to work harder to deliver returns on target. What causes a deal to fail?Most venture capitalists believe that the major causes of failure and under-performance relate to misjudgement of the marketplace for the investee companies' products or problems with the management of the investee business. Sometimes the two issues are combined because management is unable to cope with change in their market place.(Bray et al., 1974; Boyatzis, 1982; Kotter, 1982; Thornton and Byham, 1982; Luthans et al., 1988; Howard and Bray, 1988; Campbell et al., 1970; Spencer and Spencer, 1993; Goleman, 1998; Goleman et al., 2002; Rosier, 1994; Boyatzis, 2008; Hopkins and Bilimoria, 2008; Koman and Wolff, 2008; Dreyfus, 2008; Williams, 2008; Sternberg, 1996; and the other papers in this issue)
  • Governance, decision making, culture; relationship (brand value, customers, suppliers, joint-venture), human capital (leadership, individuals, management capability, skills, knowledge, initiatives, decision making, and understanding)Hay Group assess about 70% of any organization’s value is made up of the human capital or intangible assets, the same group identified that only 25% of due diligence time was spent on quantify and assessing intangible assets.Majority of CEOs wish they had done more due diligence in the human capital if they were to ever truly realize share-holder growth or cost synergies Intangible assets include (governance: autonomy/control are real barriers to integration, leadership, culture, and the customer base)IQ: problem solving, pattern recognition, and memory. IQ is a limited subset of abilities needed to develop a successful careerIQ has a limited predictive value Person-jobPerson-organizationPerson-groupPerson-supervisorThere is little evidence that perceived fit during preentry periods is an accurate reflection of objective fit relationships. http://www.allbusiness.com/trends-events/investigations/11505132-1.htmlWhy should I work for youWhy should I continue to work for you
  • For all companies, the initial venture capital investment has been followed by a sharp increase in spending on research & development. Half the seed/start-up companies multiplied their efforts in this area by more than four times (median increase 370%), while half the expansion stage companies almost doubled the amount invested (median increase 95%). The median value of marketing expenditure for the seed/ start-up companies more than tripled after the investment. For the expansion stage companies, the median value of spending in this strategic area grew by almost the same amount – which makes marketing the type of expenditure with the largest post-investment growth for companies at this stage of development. Median training expenditure after the venture capital funding multiplied by a factor of more than four for the seed/ start-up companies and more than two for the expansion stage companies. Fig. 2.3.a: Percentage increases in expenditure between the time of the initial investment and the time of the survey – seed/start-upstage companies (source: NUBS/EVCA)
  • http://www.qfinance.com/mergers-and-acquisitions-best-practice/why-mergers-fail-and-how-to-prevent-it?page=2According to a multitude of studies conducted over a 30 year period covering more than 7,000 mergers and acquisitions, 55-77% failed to deliver on their financial promise. Carleton and Lineberry
  • Ultimately investment risk is a risk for a team to deliver as much as a market or financial projectionJust as financial capital is intended to reflect underlying or expected enterprise value. Valuation models have as much intangible as tangible. In reality market projections and discounted cash flow are fuzzy and flawed if not a greater leap of faith than an assessment of human capital. Human capital, like all capital, is an asset that can be depleted or enhanced, with the same upside and downside risk commonly associated with other capital. High human capital valuations positively relate to venture valuation.Because human capital is an asset that cannot be controlled, it must be managed wisely.Human capital represents a huge operating cost that must be managed efficiently because of its sheer magnitude; in the United States, for example, nearly 70% of all operating costs are ultimately attributable to people. At the same time—because human capital is also the only asset that cannot be owned—it must be managed wisely, but also with humanity. Consequently, a strategy that focuses exclusively on efficiency and cost containment can, at best, only be successful in the short-run. This creates a fundamental paradox. http://www.linezine.com/7.2/articles/lbhca.htmRisk management and innovationPeople in organizations are often afraid to take risks, because, in spite of what is said in the organization's values statement about encouraging innovation, they know that it is only acceptable to take risks as long as they ‘get it right’People with strong empathy who more accurately perceive the emotions of other people are better at handling change and build stronger social networks.Human capital can be measure, but like financial statements they measurements capture a snapshot in time
  • Proxy: a figure that can be used to represent the value of something in a calculation
  • Table built from “Validation of the Venture Evaluation Model in Korea” Rah, Joongdoug; Jung, Kyungjin; Lee JinjooVenture capitalists employ a sometimes haphazard process for assessing senior managers of prospective new venture investments prior to making a final investment decision. There is a crying need for empirical research and practical theory to examine the assessment methods for human capital, and thereby assist the venture capital due diligence process.There are three clusters of competencies that differentiate outstanding from average performers in many countries of the world. They are: Cognitive competencies, such as systems thinking and pattern recognition.Emotional intelligence competencies, including self - awareness and self-management competencies, such as emotional self-awareness and emotional self-control.Social intelligence competencies, including social awareness and relationship management competencies, such as empathy and teamwork. (Bray et al., 1974; Boyatzis, 1982; Kotter, 1982; Thornton and Byham, 1982; Luthans et al., 1988; Howard and Bray, 1988; Campbell et al., 1970; Spencer and Spencer, 1993; Goleman, 1998; Goleman et al., 2002; Rosier, 1994; Boyatzis, 2008; Hopkins and Bilimoria, 2008; Koman and Wolff, 2008; Dreyfus, 2008; Williams, 2008; Sternberg, 1996; and the other papers in this issue)The entrepreneur/founding management team must be willing to work closely with the venture capitalists after the initial investment has been made. As a consequence, one of the factors carefully considered in the final stages of project evaluation is the entrepreneur’s willingness and ability to do this and whether or not the “chemistry” between the entrepreneur and the venture capitalist is right.
  • Total Risk = Financial Risk + Performance Loss Risk is 80% EQ Most of the Peformance Risk must also be EQTherefore, to analyze Performance Risk, we analyze EQthen we quantify performance risk as EQ and Culture fitSo we can quantify the risk attributable to performance by measuring EQ and culture fitwe are saying that polar opposite culture match equals 100 % risk and minimal EQ = 100% performance risk. So, if EQ is low and culture is mismatched then performance risk is highwe need to know how badly performance can be affected by culture fit and EQfor example, if the company can produce 100 widgets/hour at the time of the financial risk analysis, how low could production go if EQ and culture fit are the worst possible?Maybe the current beta is only capturing 20% of the total risk. If the financial is low it does not account for performance risk. Doesn’t the performance beta need a higher impact on risk? you are not taking into account 80% of the perfomance.Larry Bird exampleWhat Does Weighted Average Mean?An average in which each quantity to be averaged is assigned a weight. These weightings determine the relative importance of each quantity on the average. Weightings are the equivalent of having that many like items with the same value involved in the average. Investopedia explains Weighted AverageTo demonstrate, let's take the value of letter tiles in the popular game Scrabble. Value:              10    8    5    4      3    2     1     0Occurrences:    2     2    1    10    8    7    68    2  To average these values, do a weighted average using the number of occurrences of each value as the weight. To calculate a weighted average:1. Multiply each value by its weight. (Ans: 20, 16, 5, 40, 24, 14, 68, and 0)2. Add up the products of value times weight to get the total value. (Ans: Sum=187)3. Add the weight themselves to get the total weight. (Ans: Sum=100)4. Divide the total value by the total weight. (Ans: 187/100 = 1.87 = average value of a Scrabble tile)Organizations have cultures (sociological – culture emerges from collective behavior) and organizations are cultures (anthropological – culture resides in individual interpretations)What are Competencies“Competency” is the name given to the specific characteristics necessary to perform a given job well. They differentiate levels of performance in a given job, role, organization, or culture. Any characteristic—cognitive, physical, or emotional—that leads to outstanding performance in a given job is considered a competency for that job.What enables a person to exhibit competency behaviors include:Skills - things a person knows how to do well (e.g., reading a profit-and-loss statement).Knowledge - what a person knows about a particular substantive area (e.g., basic accounting principles).Values – what behaviors a person sees as important or not important (e.g., coaching less important than getting the task done)Self-image - the way a person sees him or herself—the “inner self”, or internal concept of identity (e.g., seeing oneself as an expert or leader).Traits - relatively enduring characteristics of a person’s behavior (e.g., being a good listener, conscientious, outgoing).Motives – focuses the individual on behaviors that he/she finds intrinsically satisfying. Motives are non-conscious (e.g. we are not necessarily aware of them – auto-pilot).
  • Culture"the single best predictor of overall excellence was a company's ability to attract, motivate and retain talent. CEOs said that corporate culture was their most important lever in enhancing this key capability."7“The more I study organizational profitability, the more I am convinced of the power of culture….” Bruce Pfau of the Hay Group, who led the study, In a follow-up, in-depth study, the contrast between cultural priorities in the top companies in the Fortune survey versus average performers studied by Hay was remarkable:Top Performer Priorities1. Teamwork2. Customer focus3. Fair treatment of employees4. Initiative and innovationAverage Performer Priorities1. Minimizing risk2. Respecting the chain of command3. Supporting the boss4. Making budgetThe top performers consciously manage their corporate culture and attempt to link it with systems into a congruent, mutually reinforcing package. This is the same thing we found in our study of 110 top performers reported in The 8 Practices of Exceptional CompaniesUsing this method, Boyatzis (2006) replicated significant findings regarding tipping points in an international consulting firm. The profits from accounts of senior partners were analyzed for seven quarters following assessment of their competencies. Senior partners using competencies above the tipping point more than doubled the operating profits from their accounts as compared to the senior partners below the tipping point. The measure of competencies was the average perceived frequency of use of each competency by others around the senior partner, using a 360-degree competency questionnaire. He showed that this method was superior to a simple median split or continuous analysis of the relationship between the frequency of competencies shown and financial performance of the senior partners, leaders, of this firm.Knowing the point at which a person’s use of a competency tips them into outstanding performance and provides vital guidance to managers and leaders. It helps those coaching others know which competencies are the closest to added value in stimulating outstanding performance. The tipping point is sometimes referred to as a trigger point. The tipping point for each competency would be a function of the organization environment. For example, the manager of an office of a strategy consulting company would have a tipping point of Adaptability at the maximum level. To show sufficient ability he/she would have to be using it “frequently and consistently.” Their business, projects, and clients change each year. They typically have high turnover in consulting staff as well. Meanwhile, the manager of a basic chemical processing plant may have a tipping point of only “occasional or often” of adaptability. The certainty of their product line and predictability of their production processes does not create as much uncertainty as the consulting business. They probably have less turnover in the chemical plant as well, requiring even less adaptation to new staff. Analysis of tipping points should become a standard feature of competency assessment studies in the future. Boyatzis (2006) also confirmed the earlier argument about the importance of clusters. It was shown that the dramatic increase in profit contributed to the company occurred when senior partners were using an assortment of the competencies from each cluster above the tipping point. It did not seem to matter which of the competencies were being using above the tipping point form each cluster. This allows for the differences in style observed from outstanding leaders while confirming the importance of competencies as predictors of performance.
  • Source: Daniel Goleman, “What Makes a Leader?”, Harvard Business Review 1998Human capital represents a huge operating cost that must be managed efficiently because of its sheer magnitude; in the United States, for example, nearly 70% of all operating costs are ultimately attributable to people. At the same time—because human capital is also the only asset that cannot be owned—it must be managed wisely, but also with humanity. Consequently, a strategy that focuses exclusively on efficiency and cost containment can, at best, only be successful in the short-run. This creates a fundamental paradox. http://www.linezine.com/7.2/articles/lbhca.htmRisk management and innovationPeople in organizations are often afraid to take risks, because, in spite of what is said in the organization's values statement about encouraging innovation, they know that it is only acceptable to take risks as long as they ‘get it right’People with strong empathy who more accurately perceive the emotions of other people are better at handling change and build stronger social networks.Human capital can be measure, but like financial statements they measurements capture a snapshot in timeThe quality of the management team is on of the most important criteria in predicting new companies’ success (Timmons and Gumpert 1982)Capable of sustained intense effortEvaluates and reacts to risk wellArticulate in discussing ventureFamiliarity with target marketAttention to detail“Criteria Distinquishing Successful Venture in the Venture Screening Process”, MacMillan, Ian; Zemann, Lauriann; Subbanarasimha, P.N.Top 5 criteria commonly essential that the responding venture capitalist would reject the plan regardless of any other characteristics, no matter how redeeming.Capable of sustained intense effort 5-10 years 64%Thoroughly familiar with market 62%At least 10 times return in 5-10 years 50%Demonstrated leadership in past 50%Evaluates and reacts to risk well 48%Two most significant rejections as critically flawedCapable of sustained intense effort 5-10 AND At least 10 times return in 5-10 years 84%Capable of effort AND Functionally balanced management team 80%Demonstrated leadership in past AND Familiar with target market 80%Capable of effort AND Demonstrated leadership 79%Able to evaluate risk AND Familiar with target market 77%“Criteria Used By Venture Capitalists to Evaluate New Venture Proposals”, MacMillan, Ian; Siegel, Robin; Subbanarasimha, P.N.
  • Not to mention the lost productivity that impacts the team and product when viewed as a project: quality, the budget, scheduleOn performanceIf we look at an investment as an investment into a project, not operations, then 90% of all projects fail and we see VCs have a portfolio failure of 25% and another 25% as underperforming and unlikely to get much attention, some figures estimate 38 of 40 investments private equity portfolio
  • Original CapCorp Portugal 2006 and Jason Associate, Expert Talent Advisory, Evaluating+talent+in+private+equity.pdf
  • Spencer, L.M., Jr,. 1997Egon Zehnder InternationalOngoing Hay Group researchHay Group nursing leadership studies, 2003 & 2006Hunter, Schmidt & Judiesch, 1990Goleman, 1998Spencer & Spencer, 1993Boyatzis, 1999Pesuric & Byham, 1996
  • Evaluating+talent+in+private+equity.pdf Source: Management Assessment Methods In Venture Capital, Geoffrey H. Smart, Claremont Graduate UniversityJob Analysis •Job analyses are typically conducted prior to an interaction with the candidate. •The purpose of job analysis is to answer the question, “What human capital is specifically needed for this venture to survive and grow?” •Subsequent methods are used to collect data to evaluate whether target managers have the human capital attributes that result from the job analysis.Documentation Analysis •Documentation analysis refers to the collection and review of written documentation about the target managers. •Includes resumes, legal records, tax information, and publications written by or about the managers. Past-Oriented Interviews •A past-oriented interview is a structured interview in which the interviewer discusses specific accomplishments and failures in the candidate’s career history. •Structured interviews lead to mean validity coefficients over three times as high as unstructured interviews Reference Interviews •Reference interviews are discussions with those who have observed the behaviour of the target managers: –personal references, –supervisors, –co-workers, –industry players, –current employees, –lawyers, –accountants, –bankers, or other investors. Assessment Centres •Assessment centres are multi-day sessions where candidates are tested on their skills relative to the job for which they are applying. •This Method has never been used. It is possible to be used in seed capital operations, with the managers consent. Work Samples •Work samples provide insights into “hypothetical”behaviour. The venture capitalist “quizzes”the target managers on various aspects of the business: –“What would you do if...” –“How would you...?” –“What do you know about this industry?” –“What are your plans for...?” •This format measures how target managers behave on their best behaviour, not how they typically act.Psychological Testing •Occasionally administered to candidates for lower-level or middle-level positions. •For senior-level positions, the use of psychological testing is more problematic.
  • IQ: problem solving, pattern recognition, and memory. IQ is a limited subset of abilities needed to develop a successful careerIQ has a limited predictive value Technical skills and IQ make up only 1/3 of the variance, the remaining 2/3 emotional intelligenceWhat is a competency? A competency is defined as a capability or ability (Boyatzis, 1982, 2008; McClelland, 1973, 1985). It is a set of related but different sets of behavior organized around an underlying construct called the “intent.” The behaviors are alternate manifestations of the intent, as appropriate in various situations or times. Self-awareness: This set includes the skills of emotion identification, accurate self assessment, and self-confidenceSelf-management: This set includes the skills of emotional self-control, adaptability, stress management, and motivation/optimismSocial awareness: This set includes the skills of empathy, reality testing, and social responsibilityRelationship management: trust honest, communication and assertiveness, cooperation and collaboration, conflict management and negotiation, and influence on and development of others.Before you can use your self-awareness and social awareness before you can fully use your self-management and relationship management to meet your goalsEach area leads to development and achievement in the next areaCompetence is the collective power of your self-awareness and self-management skills. It's how you use emotional intelligence in situations that are more about you personally. Self-Awareness. Can I accurately identify my own emotions and tendencies as they happen? Self-Management: Can I manage my emotions and behavior to a positive outcome? Social Competence is the combination of your social awareness and relationship management skills. It's more about how you are with other people. Social Awareness: Can I accurately identify your emotions and tendencies as I interact with you? Relationship Management: Can I manage the interaction I have with others constructively and to a positive outcome? Emotional IntelligenceWhat do they love about their jobs?What changes would they like to see made?What is working well?What is going on beneath the surface?What problems are obvious to everyone but are not being addressed?List executives and managers, by name, to understand the culture and effectiveness. Need to know how people in management positions are doing. What do they do well and what could they do differently that would make them more effective? EQ requires high intelligence, engage people in complex work, or bring people into frequent contact with others in doing their work.Jobs of medium complexity, clerical or mechanical are 12xs better than the bottom and 85% more productive than the average. More complex jobs: insurance, sales, and management of financial accounts top performers are 175% more productive than those considered average. Bobwallonlien.com simons management systems/studies/commentsKnowing your feelings and using them to make life decisions you can live with. Being able to manage your emotional life without being hijacked by it -- not being paralyzed by depression or worry, or swept away by anger. Persisting in the face of setbacks and channeling your impulses in order to pursue your goals. Empathy -- reading other people's emotions without their having to tell you what they are feeling. Handling feelings in relationships with skill and harmony -- being able to articulate the unspoken pulse of a group, for example.The EQi provides a good sense of how people assess their own EI, the MSCEIT measures ones EI abilities, and the ECI measures how others assess one's EI.Emotional Competence Inventory 360, from Daniel Goleman EQi, the BarOn Emotional Quotient Inventory, from Dr. BarOnThe MSCEIT, from John Mayer, Peter Salovey, and David CarusoEmotional Intelligence Appraisal, Me Edition Index of Emotional Intelligence SEI, Six Seconds Emotional Intelligence Assessment
  • The primary cause of career derailment in executives are attributable to deficits in emotional competencies.  The three most important “derailers” are the inability to adapt to change, difficulties working as a member of a team, and poor interpersonal relationships.In leadership, almost 90% of what distinguishes “outstanding leaders” from the rest is attributable to emotional intelligence.  It is becoming referred to as “The 90% Factor” in discussions of leadership success.62% of employees who said they have an effective manager intend to stay on the job.  Only 17% of employees who said they have an ineffective manager said they intend to stay.  Based on a survey of 10,000 US workers and 1000 workers each in India, China, Brazil, the UK, and Germany.  25% rated their managers as neither effective nor ineffective.Studies of people in high-IQ professions that require advanced degrees such as Ph.D.’s and M.B.A.’s for entry into a field, groups up of highly intelligent and trained professionals, IQ and training do not differentiate star performers.  Emotional intelligence accounts for as much as 80% of the variance in differentiating star performers from average performers in these populations.   A long-term study of Ph.D. scientists found that social and emotional abilities were four times more important than IQ and training in determining overall career success and level of personal prestige in the scientists’ chosen field of study.At Met Life, a group of job candidates were hired who had failed the normal screening process but score high on optimism.  The outsold a group of pessimists by 21% the first year and 57% the second year.  They even outsold average agents by 27%.Sales reps for a computer company who were hired for emotional competence were 90% more likely to finish their training than reps hired on the basis of other criteria.A study of military leaders found that their individual emotional intelligence where highly related to the presence of emotionally intelligent group norms in the teams they led and that those norms were significantly related to the team’s performance.The most effective leaders in the US Navy are warmer, more outgoing, expressive emotionally, and sociable.Supervisors in a manufacturing environment were trained in emotional competencies.  This resulted in a 50% decrease in time lost due to accidents; formal grievances dropped from 15 to 3 per year; and, the plant exceeded its annual financial goals by more than a quarter of a million dollars.Accurate self-awareness, a core emotional competency, was associated with superior performance in several hundred managers in a dozen companies.
  • 1993 post-merger
  • Without EI, a person with high IQ, great experience and smart ideas won’t be a great leaderIQ itself is not a great predictor of job performance. IQ represents just 4–25% of variance Technical skill is acquired through study and experience and is usually the top criteria for promotionWhile IQ intelligence is being smart about ideas, processes, facts, tests and techniques, Emotional Intelligence (EI) is being smart about people.
  • Without EI, a person with high IQ, great experience and smart ideas won’t be a great leaderIQ itself is not a great predictor of job performance. IQ represents just 4–25% of varianceYou are born with a set IQ, that can not change over your lifetimeTechnical skill is acquired through study and experience and is usually the top criteria for promotion, Technical skill is acquired through study and experience and is usually the top criteria for promotion, Theoretical Framework — An Overview of Emotional IntelligenceTwentieth-century research in emotional intelligence began with the 1920’s when Edward Thorndike identified his concept of social intelligence. This concept of social intelligence is one of three groups of intelligences (abstract, concrete, and social) identified by psychologists of that time. Thorndike (1920) defined social intelligence as “the ability to understand and manage men and women, boys and girls—to act wisely in human relations” (p. 228). Thorndike’s definition included interpersonal and intrapersonal intelligences in the definition of social intelligence. Psychologist David Wechsler, a student of Thorndike and developer of one of the first IQ measurement instruments – the Wechsler Adult Intelligence Scale – recognized the importance of studying non-cognitive factors. In 1943, Wechsler proposed that non-intellective abilities are crucial in predicting one’s ability to succeed in life. Wechsler referred to “non-intellective” and “intellective” factors as meaning affective, personal, and social factors. Wechsler wrote (as cited by http://www.a2zpshchology.com, 2002):The main question is whether non-intellective, that is affective and cognitive abilities, are admissible as factors of general intelligence. (My contention) has been that such factors are not only admissible but necessary. I have tried to show that in addition to intellective there are also definite non-intellective factors that determine intelligent behavior. If the foregoing observations are correct, it follows that we cannot expect to measure total intelligence until our tests also include some measures of the non-intellective factors.In the past 20 years, the field of psychology broadened the “non-intellective” paradigm of these early psychologists. Howard Gardner (1983) introduced the idea of multiple intelligences including “personal intelligences” which encompasses intrapersonal intelligence (knowing yourself) and interpersonal intelligence (knowing how to get along with others). In the past five years, emotional intelligence has received much attention as an aspect that is potentially useful in understanding and predicting individual performance and success in the workplace. Miller (2000) stated that emotional intelligence is the complex and multifaceted ability to be effective in all the critical domains of life, including job success. Daniel Goleman has been one of the leaders in defining the competencies related to emotional intelligence. Goleman (1998) described emotional competence as “a learned capability based on emotional intelligence that results in outstanding performance at work” (p. 4). Further, emotional competencies are job skills that can be learned, and thus people have the potential to become skilled at these competencies (Cherniss & Goleman, 2001).The emotional intelligence framework Goleman first designed in 1998 consisted of five domains of emotional intelligence that included 25 competencies. His framework of emotional competencies in the workplace reflects statistical analyses by his colleague Richard Boyatzis that collapse the 25 competencies into 20 and the five domains into four: Self-Awareness, Self-Management, Social Awareness, and Relationship Management (Boyatzis, Goleman, & Rhee, 2000; see Figure 1). Primal Leadership: Realizing the Power of Emotional Intelligence (Goleman, Boyatzi, and McKee, 2002) reduced the 20 competencies to 18 competencies that focused on upper-level leadership and management roles, versus the 20 competencies that reflect those needed by the typical employee.Experienced partners in a multinational company who scored above the median on nine or more of the 20 emotional intelligence competencies delivered $1.2 million more profit from their accounts than did other partners.An analysis of more than 300 top-level executives from 15 global companies showed that six emotional competencies distinguish stars from the average: influence, team leadership, organizational awareness, self-confidence, achievement drive, and leadership.Competence research in over 200 companies and organizations worldwide suggests that about one-third of the difference in productivity of top performers was due to technical skill and cognitive ability, while two-thirds was due to emotional competence.At L’Oreal, sales agents selected on the basis of certain emotional competencies significantly outsold salespeople selected using the company’s old selection procedure.In a national insurance company, insurance sales agents who were weak in emotional competencies such as self confidence, initiative and empathy sold policies with an average premium value half of those who were very strong in at least five of eight key emotional competencies.In a large beverage firm, when they began selecting employees based on emotional competencies such as initiative, self-confidence, and leadership, two-year defection rates dropped from 50% to only 6%.Research by the Center for Creative Leadership has found that the primary causes of derailment in executives involve deficits in emotional competence (handling change, teamwork, and interpersonal relations).Emotional competence training of supervisors in a manufacturing plant resulted in a reduction of lost-time accidents by 50 percent, for grievances from an average of 15 per year to three per year, and the plant exceeded productivity goals by $250,000.The most successful store managers in a retail chain were those best able to handle stress. Success was based on net profits, sales per square foot, sales per employee, and per dollar inventory investment.New sales representatives at Met Life who scored high on a test of “learned optimism” sold 37% more life insurance in their first two years than pessimists.A study of 130 executives found that how well people handled their own emotions determined how much people around them preferred to deal with them.For sales representatives at a computer company, those hired based on their emotional competence were 90% more likely to finish their training than those hired on other criteria.At a national furniture retailer, sales people hired based on emotional competence had half the dropout rate their first year.14. For sales reps at a computer company, those hired based on their emotional competence were 90% more likely to finish their training than those hired on other criteria (Hay/McBer Research and Innovation Group, 1997). 15. At a national furniture retailer, sales people hired based on emotional competence had half the dropout rate during their first year (Hay/McBer Research and Innovation Group, 1997). 16. For 515 senior executives analyzed by the search firm Egon Zehnder International, those who were primarily strong in emotional intelligence were more likely to succeed than those who were strongest in either relevant previous experience or IQ. In other words, emotional intelligence was a better predictor of success than either relevant previous experience or high IQ. More specifically, the executive was high in emotional intelligence in 74 percent of the successes and only in 24 percent of the failures. The study included executives in Latin America, Germany, and Japan, and the results were almost identical in all three cultures. 17. The following description of a “star” performer reveals how several emotional competencies (noted in italics) were critical in his success: Michael Iem worked at Tandem Computers. Shortly after joining the company as a junior staff analyst, he became aware of the market trend away from mainframe computers to networks that linked workstations and personal computers (Service Orientation). Iem realized that unless Tandem responded to the trend, its products would become obsolete (Initiative and Innovation). He had to convince Tandem’s managers that their old emphasis on mainframes was no longer appropriate (Influence) and then develop a system using new technology (Leadership, Change Catalyst). He spent four years showing off his new system to customers and company sales personnel before the new network applications were fully accepted (Self-confidence, Self-Control, Achievement Drive) (from Richman, L. S., “How to get ahead in America,” Fortune, May 16, 1994, pp. 46-54). 18. Financial advisors at American Express whose managers completed the Emotional Competence training program were compared to an equal number whose managers had not. During the year following training, the advisors of trained managers grew their businesses by 18.1% compared to 16.2% for those whose managers were untrained. 19. The most successful debt collectors in a large collection agency had an average goal attainment of 163 percent over a three-month period. They were compared with a group of collectors who achieved an average of only 80 percent over the same time period. The most successful collectors scored significantly higher in the emotional intelligence competencies of self-actualization, independence, and optimism. (Self- actualization refers to a well-developed, inner knowledge of one's own goals and a sense of pride in one's work.) (Bachman et al., 2000). Talisayon (2001-2002), in a discussion of schools of the future, cited the importance of emotional intelligence in the curricula and believes that in the near future the schools will teach the fundamentals along with teaching people how to live life. Goleman (1995) cited educational follow-up studies that found emotional intelligence as an important variable:The careers and lives of 95 Harvard students were followed to middle age. The researchers found that success (measured by salary, productivity, and status), life satisfaction, and happiness with friendships, family, and romantic relationships were not correlated with their collegiate grades.The careers and lives of 450 boys from a slum near Harvard were followed to middle age. The researchers found that IQ was generally correlated with socioeconomic status but emotional skills (such as the ability to handle frustrations, control emotions, and relate to other people) were even more highly correlated.Valedictorians from Illinois high schools in 1981 were studied. By their late twenties, the group’s performance was only average; only one-fourth were performing at par with successful young people their age, and many of the rest were not doing as well.
  • Project
  • This is the same thing we found in our study of 110 top performers reported in The 8 Practices of Exceptional Companies
  • MOTIVATION: Something that energizes, direct, and sustains behaviors. The following are traits of human nature: To be curious To be active To initiate thought and behaviorTo make meaning from experienceTo be effective at what we valueINTRINSIC MOTIVATION: Internal desires to perform a particular task, people do             Certain activities because it gives them pleasure, develops a particular skill, or             It’s morally the right thing to do. Intrinsic motivation occurs when the learning activity and the learning environment elicit motivation in the student.We do not motivate students but rather create, through our teaching, opportunities that can evoke motivation in students.The following help to create intrinsic motivation:When the goals and rewards of the learning are meaningful to the learnerWhen the learning is important to the studentWhen the learning assists the learner in obtaining valued accomplishmentsWhen the learning assists the learners in integrating themselves with the world, with others, and promotes self-awarenessEXTRINSIC MOTIVATION: Factors external to the individual and unrelated to the             Task they are performing.  Examples include money, good grades, and other             Rewards.  ·        Intrinsically motivated students are bound to do much better in classroom activities, because they are willing and eager to learn new material.  Their learning experience is more meaningful, and they go deeper into the subject to fully understand it.  On the other hand, extrinsically motivated students may have to be bribed to perform the same tasks. ·        How can we motivate students intrinsically?
  • Harvard Business School psychologist Teresa Amabile observed, “Intrinsic motivation is conducive to creativity, but extrinsic motivation is detrimental.The Motivation to WorkHerzberg reasoned that because the factors causing satisfaction are different from those causing dissatisfaction, the two feelings cannot simply be treated as opposites of one another. The opposite of satisfaction is not dissatisfaction, but rather, no satisfaction. Similarly, the opposite of dissatisfaction is no dissatisfaction.Achievement without recognitionRecognition to last it has to be attached to achievementWhile at first glance this distinction between the two opposites may sound like a play on words, Herzberg argued that there are two distinct human needs portrayed. 1st, there are physiological needs that can be fulfilled by money, for example, to purchase food and shelter. 2nd, there is the psychological need to achieve and grow, and this need is fulfilled by activities that cause one to grow.
  • Project
  • Culture are: values, norms, assumptions, expectations, and definitions that characterize organizations, “how things are done around here”Sustained success has less to do with market forces than company values; less to do with competitive position than personal beliefs; less to do with resource advantages than vision – culture is sometimes created by the initial founder, sometimes developed consciously by management teams who decide to improve their company’s performance in systemic ways, and sometimes, in the absence of direction, a culture becomes becomes the way to manage the mismanagement.Organizations have cultures (sociological – culture emerges from collective behavior) and organizations are cultures (anthropological – culture resides in individual interpretations
  • Mental mapsHardwiringStress effectBrain (amygdala highjack)Managing in a matrix – everything is a matrixWith over twenty of years of research there are a number of assessments that have been created based on the Competing Values Framework. The Culture and Management Competency assessments have well over 100,000 data points and have been used with thousands of organizations going through culture change. 
  • Cameron and Quinn identified four types of organizational cultureThe Clan CultureThe Adhocrary CultureThe Market CultureThe Hierarchy CultureEvaluates organizations by values ofLeadership, effectiveness, organizational theory, and Total Quality Management programsCategorizes organizations by degree ofInternal focus and integrationFlexibility and discretionExternal Focus and differentiationStability and controlcurrent Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management). Map and find disconnect, like most you can baseline, you talk about what should be continued, what should be startedCompeting Value Framework. It is a very useful model in interpreting awide variety of organisational phenomena. The authors have chosen this model for studyingorganisational culture because the Competing Value Framework is also the foundation of theOrganizational Culture Assessment Instrument (Cameron and Quinn, 2006). The last one is avery agile instrument to analyse the organisational culture in the case study research.Quinn
  • Culture are: values, norms, assumptions, expectations, and definitions that characterize organizations, “how things are done around here”Sustained success has less to do with market forces than company values; less to do with competitive position than personal beliefs; less to do with resource advantages than vision – culture is sometimes created by the initial founder, sometimes developed consciously by management teams who decide to improve their company’s performance in systemic ways, and sometimes, in the absence of direction, a culture becomes becomes the way to manage the mismanagement.Organizations have cultures (sociological – culture emerges from collective behavior) and organizations are cultures (anthropological – culture resides in individual interpretations)
  • For all companies, the initial venture capital investment has been followed by a sharp increase in spending on research & development. Half the seed/start-up companies multiplied their efforts in this area by more than four times (median increase 370%), while half the expansion stage companies almost doubled the amount invested (median increase 95%). The median value of marketing expenditure for the seed/ start-up companies more than tripled after the investment. For the expansion stage companies, the median value of spending in this strategic area grew by almost the same amount – which makes marketing the type of expenditure with the largest post-investment growth for companies at this stage of development. Median training expenditure after the venture capital funding multiplied by a factor of more than four for the seed/ start-up companies and more than two for the expansion stage companies. Fig. 2.3.a: Percentage increases in expenditure between the time of the initial investment and the time of the survey – seed/start-upstage companies (source: NUBS/EVCA)
  • software developers with high EI levels can develop effective software three times faster than otherssales consultants with high EI generate twice the revenue of colleagueshiring sales staff with high EI rates halved the first-year dropout rate for a national furniture retailerexperienced partners in a multinational consulting firm who were assessed on their EI levels delivered 139 per cent more profit from their accounts than other partnersoil refinery managers who participated in the Hay Group EI development program over two years showed a 20 per cent increase in performance compared to colleagues.
  • the team development process is predominantly teleological (focused on a specific end) and non-linear. For example, if the relationship between team practice and team performance were linear, each practice session would be followed by a noticeable and predictable improvement in performance. But in reality, any team member knows that you may see no improvement over three sessions and then, in the fourth, everything comes together perfectly. This teleological and non-linear model is a major departure from psychodynamic or progressive theories of group development that were heavily influenced by evolution theories (Akrivou, McLeod, and Boyatzis, 2006). complex systems that move through phases of equilibrium and disequilibrium. Three specific features characterize complex systems: 1) they are self-organizing—emergent events start a new dynamic process through the pull of PEA; 2) they are non-linear and discontinuous—Gersick (1991) called this discontinuity “punctuated equilibrium,” described as moments of discontinuous, revolutionary change interspersed with periods of equilibrium-seeking behavior; 3) they move through degrees of “multileveledness” through interaction among social levels (Boyatzis, 2006 a). 2006a and 2006b in references: which is this? OKThe desire to maintain the current state requires deliberate investment of energy in the exercise—it must also be intentional. Desired sustainable changes in a team’s norms, shared beliefs, purpose, roles, and identity are, on the whole, discontinuous. That is, they appear as emergent or catastrophic changes. This is a property of complex systems (Casti, 1994). The experience of these changes may be one of surprise or discovery (Boyatzis, 2006a). If a team member is mindful of the group’s dynamics, changes may be anticipated and so appear more as a set of smooth transitions. For example, an observant team member may notice a particularly close, personal relationship developing among three team members and not be surprised when these three people begin to act toward team issues as a coalition (with the same perspective on issues). But to a less observant team member, the appearance of a coalition within the team may seem puzzling and sudden. As a complex system, team development has moments of surprise even for the most observant members or coaches.A resonant relationship between the head coach and the owner helps intentional change processes at community and organization levels. In the multi-level context in which a football team plays, one owner, Robert Kraft, enjoyed the media and worked with the press. As a result the community was behind the team (Halberstam, 2005). The other, Art Modell, ran into conflicts and eventually the hatred of the community when he decided to move the team to Baltimore. Many say it was a decision based, in part, on Modell’s lack of connection to the community.In this example, we observe a chain of resonant relationships that link desired change from the individual player level to the community level. If any one of those is missing, the team performance suffers and their ability to improve performance or sustain current performance is dramatically reduced.Teams need leaders, both formal and informal. They need leaders within the team to create purpose and excitement, and provide social glue. They need leaders outside the team to help communicate and link across levels, as I discussed earlier in this chapter, a task that Hackman (2003) called “bracketing.” Team researchers, such as Hackman and Wageman (2005), even contend that many teams need rotating leaders for leadership development purposes, equanimity a feeling of equality  within the team, and shared responsibility for team norms and performance.Resonant leaders are able to build trusting, engaged, and energizing relationships with others around them (Boyatzis and McKee, 2005). Just as teams need resonant or effective leaders to perform and develop, and multiple resonant leaders to function across the multi-level system within which they operate, it is also clear that teams need coaches who are resonant and can help move information, emotions, and relationships across levels. The leaders can be the coaches, but it is likely that the team needs both resonant leaders and coaches. If team has no resonant leadership, it is adrift in many ways. Dissonance can become its modus operandi. Then the team begins to dissolve. Meaning “mental composure”? How would this be helped by rotating leadership? Does he mean “equality”? OK
  • What is EI?What is Emotional Intelligence (EI) ? Daniel Goleman is one of the most recognized authors and experts in the area of Emotional Intelligence. In his 1995 book he defines Emotional Intelligence as: ...the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships.In other words, Emotional and Social Intelligence is being smart about yourself and about other people. It includes both understanding people and doing something with that understanding. EI measures behavioral competencies, not ability; behavior, not personality or propensityLeft side or our own emotionsRight other the emotions of othersTop emotional awareness Bottom the actions and responses of manage ourselves and our relationship with othersEnables us to meet tough challengesEQ is the distinguishing factor that draws others to us or repels themThe higher people rise in the ranks of management, the more likely they are to have distorted self-perceptions.  Senior level managers are likely to rate themselves as much higher on emotional and social competencies than their peers and direct reports rate them.
  • The personal qualities you bring to work influence what you do and say, what you do and say and how you go about it has an impact on people around you and this impact, positive and negative, makes a difference to business results“In most complex jobs a top performer is 127% more productive than an average performer, competency research in over 200 organizations worldwide attributes 1/3 of this difference to technical and cognitive ability, and 2/3 to emotional competence.” Hunter, schmidt & Judiesch, 1990 and Goleman, 1998“High scoring consulting partners delivered $1.2 million more profit from their accounts than their peers” Boyatzis, 1999“After supervisors in a manufacturing plant received training in emotional competencies –how to listen better and help employees resolve problems on their own – lost-time accidents were reduced by 50%, formal grievances were reduced from 15 to 3 per year, and the plant exceeded productivity goals by $250,000."Pesuric & Byham, 1996Left side or our own emotionsRight other the emotions of othersTop emotional awareness Bottom the actions and responses of manage ourselves and our relationship with othersEnables us to meet tough challengesEQ is the distinguishing factor that draws others to us or repels themAdaptive Leadership: Who you are on the job Emotional Intelligence: Self-Awareness: The ability to be aware of how one's own emotions and behavior are influenced by and impact others enhances everything that leaders take on. Self-Management: Leaders who are able to control their own reactions to their environment have a bigger impact. This means they use their awareness to turn situations to their benefit. Social Awareness: Leaders who recognize and respond to the emotions, feelings, and others' experience operate more effectively in the workplace. Relationship Management: Leaders with adequate social skills model and improve the way in which individuals treat one another. This boosts performance by serving as a relationship catalyst in their organizations. Conditions that allow others to perform at their best
  • What is EI?What is Emotional Intelligence (EI) ? Daniel Goleman is one of the most recognized authors and experts in the area of Emotional Intelligence. In his 1995 book he defines Emotional Intelligence as: ...the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships.In other words, Emotional and Social Intelligence is being smart about yourself and about other people. It includes both understanding people and doing something with that understanding. EI measures behavioral competencies, not ability; behavior, not personality or propensityThe higher people rise in the ranks of management, the more likely they are to have distorted self-perceptions.  Senior level managers are likely to rate themselves as much higher on emotional and social competencies than their peers and direct reports rate them.
  • They know what they can handle and what they can’tAble to motivate themselves and improve their own performanceManage disruptive emotions to behave more effectivelyThey take an active interest in others and understand individual perspective and group dynamicsThey bring out the best in others, whether as a leader or an individual team memberHelps bring out the best in yourselfHave a positive impact on your organizationContribute to organizationIt enables you to choose different behaviors depending on the situation, your strengths, and your role
  • Self-Awareness 1/1Self-Management ¼Social Awareness1/2Relationship Management 1/5More items below average What is EI?What is Emotional Intelligence (EI) ? Daniel Goleman is one of the most recognized authors and experts in the area of Emotional Intelligence. In his 1995 book he defines Emotional Intelligence as: ...the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships.In other words, Emotional and Social Intelligence is being smart about yourself and about other people. It includes both understanding people and doing something with that understanding. EI measures behavioral competencies, not ability; behavior, not personality or propensityThe higher people rise in the ranks of management, the more likely they are to have distorted self-perceptions.  Senior level managers are likely to rate themselves as much higher on emotional and social competencies than their peers and direct reports rate them.
  • What is the project cost to human capitalReplacementWorkload adjustmentQuality, timeInterview: person-job, person-team, person-manager, and another one we’ll get to later: person-cultureon-boardingTrainingCoachingScalability
  • MSCEIT– performance measure, assessing how a person managers their emotions, but really a measure of how a person processes internally. Didn’t see it relevant to connected to job and live outcomesRuevan Bar-On (EQI) mainly self-assessment – personality theory to come up with how a person handles their emotions, scales and items are very internallyESCI – history of McBurr’s/Hay Group’s work on competency theory on inductive by performance distinction, than back into what are these things or competency. Start from performance, not personality. The competency should be directed to job outcomes (EI: play well with others) application is the real value addPersonality theory (stress, anxiety are things that are harder to sort out), EI is neuro-endocrine circuit and biological basis for these clustersIntelligent but don’t seem play well with others, people who play well, but can’t manage their own emotions, people who do both, and people who do neither
  • This is the same thing we found in our study of 110 top performers reported in The 8 Practices of Exceptional Companies
  • Evaluates organizations by values ofLeadership, effectiveness, organizational theory, and Total Quality Management programsCategorizes organizations by degree ofInternal focus and integrationFlexibility and discretionExternal Focus and differentiationStability and control“The single-best predictor of overall excellence was a company’s ability to attract, motivate and retain talent.” CEOs, in referring to this study, said that corporate culture was their most important lever in enhancing this key capability.Identify the team culture is an insight into norms, values, work styles, communication, and work environment1 Clarity They are clear about where the organization is going and what their contribution is 2 Standards There is a continual emphasis on improvement and excellence 3 Flexibility There are no unnecessary rules and procedures and good ideas are acted upon 4 Responsibility They are empowered to get on with their job and held accountable for it 5 Rewards They receive appropriate recognition for their level of contribution 6 Team Commitment There is pride and trust in the organizationEvaluates organizations by values ofLeadership, effectiveness, organizational theory, and Total Quality Management programsCategorizes organizations by degree ofInternal focus and integrationFlexibility and discretionExternal Focus and differentiationStability and controlMap and find disconnect, like most you can baseline, you talk about what should be continued, what should be startedCompeting Value Framework. It is a very useful model in interpreting awide variety of organisational phenomena. The authors have chosen this model for studyingorganisational culture because the Competing Value Framework is also the foundation of theOrganizational Culture Assessment Instrument (Cameron and Quinn, 2006). The last one is avery agile instrument to analyse the organisational culture in the case study research.Quinn
  • The framework consists of 2 dimensions, discretion, and dynamism from a focus on stability, order, and control. For example, some organization are effective because they are changing, adaptable, and organic, whereas other organizations are effective because they are stable, predictable, and mechanistic. This dimension ranges from versatility and pliability on one end to steadiness and durability on the other end.The second dimension differentiates a focus on an internal orientation, integration, and unity from a focus on an external orientation, differentiation, and rivalry. That is, some organizations are effective because they have a harmonious internal characteristics, whereas others are effective because they focus on interacting or competing with others outside their boundaries. This dimension ranges from cohesion and consonance on one end to separation and independence on the other.Together these two dimension form four quadrants, each representing a a distinct set of effectiveness indicators and represent what people value about an organization’s performance and what they define as good, right, and appropriate. However, these dimension have also been found to accurately describe how people process information, what core values are used for forming judgments and taking actions. They represent opposite or competing assumptions, each continuum highlights a core value that is opposite from the value on the other end of the continuum and also contradictory on the diagonalCorrelation between the clan and market quadrants is -.43The correlation between the adhocracy and hierarchy quadrants is -.68Adhocracy to market -.10; market to hierarchy -.18; clan to hierarchy -.34; clan to adhocracy -.23
  • Focusing too little or too much in a particular value creation quadrant will impede effective value creation.It is quite common however for organization to fall into the trap of either focusing inadequately or excessively on one quadrant at the expanse of other quadrants.
  • Reach consensus on the current cultureReach consensus on the desired future cultureDetermine what the changes will and will not meanIdentify illustrative storiesdevelop a strategic action plandevelop an implementation planOrganizations have cultures (sociological – culture emerges from collective behavior) and organizations are cultures (anthropological – culture resides in individual interpretationsBrief Description: The tool consists of 6 questions, each with 4 alternative answers, used to assess 6 key dimensions of the organization: Length of Administration: 10 to 15 minutes to complete and controlThe analysis of integration values jointly OCAI is made up of 16 items, one for eachintegration value, excepted for solidarity and trust which have 3 items. For each ones therespondent must indicate the level of importance of each integration values in his/herorganizational culture on Likert scale from 1 to 5.
  • Current Organizational Culture (by the employees)The desired Organizational Culture (by the employees)The required Organizational Culture (by management). Map and find disconnectDevelop strategy: what should be continued, what should be startedEvaluates organizations by values ofLeadership, effectiveness, organizational theory, and Total Quality Management programsCategorizes organizations by degree ofInternal focus and integrationFlexibility and discretionExternal Focus and differentiationStability and controlcurrentCompeting Value Framework. It is a very useful model in interpreting awide variety of organizational phenomena. The authors have chosen this model for studyingorganizational culture because the Competing Value Framework is also the foundation of theOrganizational Culture Assessment Instrument (Cameron and Quinn, 2006). The last one is avery agile instrument to analyze the organizational culture in the case study research.Quinn
  • The OCAI questionnaire is made up of 6 items; each of these has 4 alternatives. Each itemanalyses one of the following aspects: dominant characteristics, organisational leadership,management of employees, organisational glue, strategic emphases, and criteria of success. The4 alternatives describe the characteristic behaviour of every type of organisational culture forevery item. The score is expressed dividing 100 point among the 4 alternatives. The alternativemost similar to the organisation is given the higher number of points for each item. This is theipsative rating scale.The Measurement Skill Assessment Instrument (MSAI) of Whetten and Cameron (2005) isthe instrument used for the analysis of competencies for managing diversity. The original MSAIhas been modified appropriately for the research about diversity. MSAI is linked with OCAI. Infact, it identifies 3 clusters of competencies, for a total of 12 clusters, for each type oforganisational culture (figure 3). The original objective of MSAI was to verify if the currentcompetencies of management were useful to shape the current organisational culture to the idealone.These competencies are very general, so they can be valid also to implement the integrationvalues. This is the reason for which, in the theoretical model, the competencies proposed by18Whetten and Cameron have been grouped into the seven individual areas in which developcompetencies for managing diversity, proposed by Cox and Beale (1997). Collett and Mora(1996) have shown in a study with about 40.000 executives in more than 8.500 enterprises thatthe instrument matches the Competing Value Framework.
  • Organizational Culture Assessment Instrument (OCAI). The purpose of the OCAI is to assess six key dimensions of organizational culture. In completing the instrument, you will be providing a picture of how your organization operates and the values that characterize it. No right or wrong answers exist for these questions, just as there is no right or wrong culture. Every organization will most likely produce a different set of responses. Therefore, be as accurate as you can in responding to the questions so that your resulting cultural diagnosis will be as precise as possible. You are asked to rate your organization in the questions. To determine which organization to rate, you will want to consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, you’ll want to focus on the cultural unit that is the target for change. Therefore, as you answer the questions, keep in mind the organization that can be affected by the change strategy you develop.  The OCAI consists of six questions. Each question has four alternatives. Divide 100 points among these four alternatives depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, in question one, if you think alternative A is very similar to your organization, alternative B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points to B and C, and five points to D. Just be sure your total equals 100 points for each question. Note, that the first pass through the six questions is labeled “Now”. This refers to the culture, as it exists today. After you complete the “Now”, you will find the questions repeated under a heading of “Preferred”. Your answers to these questions should be based on how you would like the organization to look five years from now.Scores given to each quadrant are totalled and the averages are transposed onto the graph. The graphs are a visual representation that can be easily interpreted and compared with other outcomes. In order to be able to determine not only the current Organisational Culture, but the Organisational Culture that is desired by the employees as well, a set of two questionnaires has been handed out. One to fill out bearing in mind the situation as it has been for the last couple of years. The second and identical questionnaire, to complete when thinking of what would be the perfect working environment as the respondent would like to experience it. The questionnaire has been distributed amongst IS personnel at the six DHL IS entities: Danzas NL, Danzas Belux, VGL NL, VGL Belux, DHL NL, DHL Belux. Or locationwise: Rotterdam Boompjes, Grimbergen, Driebergen, Ternat, Hoofddorp en Diegem. A total number of 222 sets of questionnaires were handed out throughout the Benelux IS departments. When analysing the outcome there are three different kinds: - the current Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management).
  • The Competing Values Framework Assessment 2:The Measurement Skill Assessment Instrument (MSAI) Concept Measured: management competencies. The Objective of MSAI was to verify if the current competencies of management useful to shape the current organizational culture to the ideal needs. Brief Description:The tool consists of 87 Questions. MSAI is linked with OCAI. Infact, it identifies 3 clusters of competencies, for a total of 12 clusters, for each type of organizational culture.Length of Administration 30 minutes 2 self-assessment and per person 360 degree feedbackMeasurement Skill Assessment Instrument (MSAI) of Whetten and Cameron (2005) isthe instrument used for the analysis of competencies for managing diversity. The original MSAIhas been modified appropriately for the research about diversity. MSAI is linked with OCAI. Infact, it identifies 3 clusters of competencies, for a total of 12 clusters, for each type oforganisational culture (figure 3). The original objective of MSAI was to verify if the currentcompetencies of management were useful to shape the current organisational culture to the idealone.
  • For all companies, the initial venture capital investment has been followed by a sharp increase in spending on research & development. Half the seed/start-up companies multiplied their efforts in this area by more than four times (median increase 370%), while half the expansion stage companies almost doubled the amount invested (median increase 95%). The median value of marketing expenditure for the seed/ start-up companies more than tripled after the investment. For the expansion stage companies, the median value of spending in this strategic area grew by almost the same amount – which makes marketing the type of expenditure with the largest post-investment growth for companies at this stage of development. Median training expenditure after the venture capital funding multiplied by a factor of more than four for the seed/ start-up companies and more than two for the expansion stage companies. Fig. 2.3.a: Percentage increases in expenditure between the time of the initial investment and the time of the survey – seed/start-upstage companies (source: NUBS/EVCA)
  • • Management Assessment Methods In Venture Capital, Geoffrey H. Smart, Claremont Graduate University • Management Appraisals in the Private Equity Industry-Joe Haim- EgonZehnder International in The role of EgonZehnderin due diligence for “bankable management” • “Win With A Players”–GHSmartfor Private Equity InvestorsThe CEO says, “Okay, prove to me EI works”What do I do?I say: “Do you have an employee that you wish you could clone? Somebody who’s great.”They usually say yes immediately. So I ask them: “Tell me about this person. What makes them different? What kind of impact do they have on the people around them?”Their description proves the case.I never have to justify emotional or social intelligence competencies. All I have to do is label them.Richard Boyatzis, 2008
  • http://www.qfinance.com/mergers-and-acquisitions-best-practice/why-mergers-fail-and-how-to-prevent-it?page=2
  • Competing Values:OCAI16,406 executives, 13% top managers, 45% upper middle; 39% middle1,600 (334 higher education, 86 public utilities, the rest made up of businesses that included many Fortune 500)MSAI 40,000-person data set, 8,816 casesESCI 7 years of data42,000 respondents, 4,014 participants, 273 organizations55% males, 34% female51% 30-49, 15% 50+Since the 60s 6million assessment, 555,000 individuals, 52,000 executives, 4,900 organizations, 50 countries, 40 languagesQuantityESCI/ECI 1 - 200$225200 – 499$200500-999$1751,000-4,999$1605,000-9,999$14010,000+$120  Additional Services Workforce AuditsSpecial composites or data analyses are available. They range in price from $225 to $1,000 depending on the complexity and scope of the request. We will provide you with an estimate for all requests. Data Re-runs or ReprintsPDF Report: $35Hard Copy Report: $60 plus shipping and handling Rush OrdersRush Fee: 35% of total order Payment Policy We accept Master Card, Visa and American Express. We also accept Purchase Orders (minimum order requirements apply). Orders are not refunded once a participant has been registered in our database (e-mail invitations have been sent).  Full Service Administration The prices above are based on Full Service administration managed by our processing center in Boston. Services include: Project set-up including e-mail communications, project timelines and means of notification and deliveryRegister participants Send invite e-mails to participants to begin the processTrack survey responses; communicate survey response rate and survey statusSend reminder e-mailsRespond to inquires from participants and ratersScore, generate and produce reportsDeliver 1 color hardcopy and/or PDF reports to designated contactGenerate composite reports for all orders of 5 or more participants (no extra charge)
  • Organizational Culture Assessment Instrument (OCAI). The purpose of the OCAI is to assess six key dimensions of organizational culture. In completing the instrument, you will be providing a picture of how your organization operates and the values that characterize it. No right or wrong answers exist for these questions, just as there is no right or wrong culture. Every organization will most likely produce a different set of responses. Therefore, be as accurate as you can in responding to the questions so that your resulting cultural diagnosis will be as precise as possible. You are asked to rate your organization in the questions. To determine which organization to rate, you will want to consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, you’ll want to focus on the cultural unit that is the target for change. Therefore, as you answer the questions, keep in mind the organization that can be affected by the change strategy you develop.  The OCAI consists of six questions. Each question has four alternatives. Divide 100 points among these four alternatives depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, in question one, if you think alternative A is very similar to your organization, alternative B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points to B and C, and five points to D. Just be sure your total equals 100 points for each question. Note, that the first pass through the six questions is labeled “Now”. This refers to the culture, as it exists today. After you complete the “Now”, you will find the questions repeated under a heading of “Preferred”. Your answers to these questions should be based on how you would like the organization to look five years from now.Scores given to each quadrant are totalled and the averages are transposed onto the graph. The graphs are a visual representation that can be easily interpreted and compared with other outcomes. In order to be able to determine not only the current Organisational Culture, but the Organisational Culture that is desired by the employees as well, a set of two questionnaires has been handed out. One to fill out bearing in mind the situation as it has been for the last couple of years. The second and identical questionnaire, to complete when thinking of what would be the perfect working environment as the respondent would like to experience it. The questionnaire has been distributed amongst IS personnel at the six DHL IS entities: Danzas NL, Danzas Belux, VGL NL, VGL Belux, DHL NL, DHL Belux. Or locationwise: Rotterdam Boompjes, Grimbergen, Driebergen, Ternat, Hoofddorp en Diegem. A total number of 222 sets of questionnaires were handed out throughout the Benelux IS departments. When analysing the outcome there are three different kinds: - the current Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management).
  • Organizational Culture Assessment Instrument (OCAI). The purpose of the OCAI is to assess six key dimensions of organizational culture. In completing the instrument, you will be providing a picture of how your organization operates and the values that characterize it. No right or wrong answers exist for these questions, just as there is no right or wrong culture. Every organization will most likely produce a different set of responses. Therefore, be as accurate as you can in responding to the questions so that your resulting cultural diagnosis will be as precise as possible. You are asked to rate your organization in the questions. To determine which organization to rate, you will want to consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, you’ll want to focus on the cultural unit that is the target for change. Therefore, as you answer the questions, keep in mind the organization that can be affected by the change strategy you develop.  The OCAI consists of six questions. Each question has four alternatives. Divide 100 points among these four alternatives depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, in question one, if you think alternative A is very similar to your organization, alternative B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points to B and C, and five points to D. Just be sure your total equals 100 points for each question. Note, that the first pass through the six questions is labeled “Now”. This refers to the culture, as it exists today. After you complete the “Now”, you will find the questions repeated under a heading of “Preferred”. Your answers to these questions should be based on how you would like the organization to look five years from now.Scores given to each quadrant are totalled and the averages are transposed onto the graph. The graphs are a visual representation that can be easily interpreted and compared with other outcomes. In order to be able to determine not only the current Organisational Culture, but the Organisational Culture that is desired by the employees as well, a set of two questionnaires has been handed out. One to fill out bearing in mind the situation as it has been for the last couple of years. The second and identical questionnaire, to complete when thinking of what would be the perfect working environment as the respondent would like to experience it. The questionnaire has been distributed amongst IS personnel at the six DHL IS entities: Danzas NL, Danzas Belux, VGL NL, VGL Belux, DHL NL, DHL Belux. Or locationwise: Rotterdam Boompjes, Grimbergen, Driebergen, Ternat, Hoofddorp en Diegem. A total number of 222 sets of questionnaires were handed out throughout the Benelux IS departments. When analysing the outcome there are three different kinds: - the current Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management).
  • Organizational Culture Assessment Instrument (OCAI). The purpose of the OCAI is to assess six key dimensions of organizational culture. In completing the instrument, you will be providing a picture of how your organization operates and the values that characterize it. No right or wrong answers exist for these questions, just as there is no right or wrong culture. Every organization will most likely produce a different set of responses. Therefore, be as accurate as you can in responding to the questions so that your resulting cultural diagnosis will be as precise as possible. You are asked to rate your organization in the questions. To determine which organization to rate, you will want to consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, you’ll want to focus on the cultural unit that is the target for change. Therefore, as you answer the questions, keep in mind the organization that can be affected by the change strategy you develop.  The OCAI consists of six questions. Each question has four alternatives. Divide 100 points among these four alternatives depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, in question one, if you think alternative A is very similar to your organization, alternative B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points to B and C, and five points to D. Just be sure your total equals 100 points for each question. Note, that the first pass through the six questions is labeled “Now”. This refers to the culture, as it exists today. After you complete the “Now”, you will find the questions repeated under a heading of “Preferred”. Your answers to these questions should be based on how you would like the organization to look five years from now.Scores given to each quadrant are totalled and the averages are transposed onto the graph. The graphs are a visual representation that can be easily interpreted and compared with other outcomes. In order to be able to determine not only the current Organisational Culture, but the Organisational Culture that is desired by the employees as well, a set of two questionnaires has been handed out. One to fill out bearing in mind the situation as it has been for the last couple of years. The second and identical questionnaire, to complete when thinking of what would be the perfect working environment as the respondent would like to experience it. The questionnaire has been distributed amongst IS personnel at the six DHL IS entities: Danzas NL, Danzas Belux, VGL NL, VGL Belux, DHL NL, DHL Belux. Or locationwise: Rotterdam Boompjes, Grimbergen, Driebergen, Ternat, Hoofddorp en Diegem. A total number of 222 sets of questionnaires were handed out throughout the Benelux IS departments. When analysing the outcome there are three different kinds: - the current Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management).
  • Organizational Culture Assessment Instrument (OCAI). The purpose of the OCAI is to assess six key dimensions of organizational culture. In completing the instrument, you will be providing a picture of how your organization operates and the values that characterize it. No right or wrong answers exist for these questions, just as there is no right or wrong culture. Every organization will most likely produce a different set of responses. Therefore, be as accurate as you can in responding to the questions so that your resulting cultural diagnosis will be as precise as possible. You are asked to rate your organization in the questions. To determine which organization to rate, you will want to consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, you’ll want to focus on the cultural unit that is the target for change. Therefore, as you answer the questions, keep in mind the organization that can be affected by the change strategy you develop.  The OCAI consists of six questions. Each question has four alternatives. Divide 100 points among these four alternatives depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, in question one, if you think alternative A is very similar to your organization, alternative B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points to B and C, and five points to D. Just be sure your total equals 100 points for each question. Note, that the first pass through the six questions is labeled “Now”. This refers to the culture, as it exists today. After you complete the “Now”, you will find the questions repeated under a heading of “Preferred”. Your answers to these questions should be based on how you would like the organization to look five years from now.Scores given to each quadrant are totalled and the averages are transposed onto the graph. The graphs are a visual representation that can be easily interpreted and compared with other outcomes. In order to be able to determine not only the current Organisational Culture, but the Organisational Culture that is desired by the employees as well, a set of two questionnaires has been handed out. One to fill out bearing in mind the situation as it has been for the last couple of years. The second and identical questionnaire, to complete when thinking of what would be the perfect working environment as the respondent would like to experience it. The questionnaire has been distributed amongst IS personnel at the six DHL IS entities: Danzas NL, Danzas Belux, VGL NL, VGL Belux, DHL NL, DHL Belux. Or locationwise: Rotterdam Boompjes, Grimbergen, Driebergen, Ternat, Hoofddorp en Diegem. A total number of 222 sets of questionnaires were handed out throughout the Benelux IS departments. When analysing the outcome there are three different kinds: - the current Organisational Culture (by the employees); - the desired Organisational Culture (by the employees); - the required Organisational Culture (by management).
  • Human Capital Risk — Identifying Talent Beta for Mergers and Acquisitions and Private Equity

    1. 1. Human Capital Risk Tangible) Intangible) Human)Capital) Market) Financial) Legal) Identifying Talent Beta for Mergers and Acquisitions and Private Equity www.TobyElwin.com
    2. 2. ① The Art of Financial Projection ② The Human Capital Risk Factors ③ The Evaluation of Human Capital ④ Identifying and Managing Risk 2
    3. 3. •  Market Potential •  Financial Health •  Pro Forma Statements •  Beta ① The Art of Financial Projection ②  The Human Capital Risk Factors ③  The Evaluation of Human Capital ④  Identifying and Managing Risk 3
    4. 4. The Art of Financial Projection benefits the bankers, lawyers, and accountants •  US sources place merger failure rates as high as 80%, with evidence indicating that around half of mergers fail to meet financial expectations. •  A much-cited McKinsey study presents evidence that most organizations would have received a better return on their investment if they had merely banked their money instead of buying another company. •  Consequently, many commentators have concluded that the true beneficiaries from M&A activity are those who sell their shares when deals are announced, and the marriage brokers—the bankers, lawyers, and accountants—who arrange, advise, and execute the deals. 4
    5. 5. Investment firms often employ a haphazard process for assessing senior managers of prospective new venture investments prior to making a final investment decision. These human capital processes lead to real risk: 1.  25% of VCs portfolio is a write-off, another 25% are considered underperforming 2.  Annually Europe’s VC community writes-off 2% of their portfolio 3.  Most venture capitalists believe that the major causes of failure and under-performance relate to: •  misjudgment of the marketplace for the investee companies' products or •  problems with the management of the investee business Sometimes the two issues are combined because management is unable to cope with change in their market place Tangible   Intangible   Human  Capital   Market   Financial   Legal   While equity specialists are right to focus on what they do best - the new deals - there is an opportunity to do more to ensure that prompt action is taken to correct poor performance or potential failures. Collective hindsight indicates that private equity need to be more proactive in taking action to: 1.  Investigate and correct problems and 2.  Work with advisers if they have insufficient resources in-house 5
    6. 6. 1.  Observable Behavior? 2.  360 Degree Feedback? 3.  Psychometric Assessment? 4.  References? 5.  Work Samples? Human capital is as critical as financial, market, and legal risk Source: http://www.flickr.com/photos/batiks/2991619928/ Financial Risk 1.  Income Statement 2.  Balance Sheet 3.  Cash Flow Statement Assessing the business Assessing the talent Legal Risk 1.  Litigation 2.  Intellectual Property/ Patent 3.  Material Contracts Human Capital Risk Market Risk 1.  Discounted Cash Flow 2.  Market Projection 3.  Pro Forma Statements 6
    7. 7. ①  The Art of Financial Projection ② The Human Capital Risk Factors ③  The Evaluation of Human Capital ④  Determining and Measuring Risk i.  The Cost of Human Capital ii.  Capability iii.  Motivation Risk iv.  Culture 7
    8. 8. The successful management of integrating people and their organizational cultures is key to achieving desired outcomes across merger & acquisition Studies like the one conducted by the Chartered Management Institute in the UK have identified a variety of people factors associated with unsuccessful M&A. These include: –  underestimating the difficulties of merging two cultures; –  underestimating the problem of skills transfer; –  demotivation of employees; –  departure of key people; –  expenditure of too much energy on doing the deal at the expense of post-merger planning; –  lack of clear responsibilities, leading to post merger conflicts; –  too narrow a focus on internal issues to the neglect of the customers and the external environment; –  insufficient research about the merger partner or acquired organization. People factors drive merger & acquisition (M&A) failure just as clearly Tangible   Intangible   Human  Capital   Market   Financial   Legal   8
    9. 9. Just as other assets have their own class of risk, human capital has specific domain risk Human capital, like other capital, should never be regarded as a static quantity, but a highly volatile resource that can rarely be stored for future use. Burn rate is a common start-up problem, but too few think about human capital burn rate. Human capital, regardless of the methods of accounting and reporting human capital, is a major operation expense ~70% Human capital risk is made up of three domains: 1.  Compliance – Financial or reputational damage to the organization due to failures to meet legal or regulatory requirements. 2.  Productivity – Loss of productivity or output due to under-skilled or under- motivated employees; or an organizational culture that does not encourage discretionary effort (the extra contribution over and above what is required to keep the boss off your back) from employees. 3.  Growth – Failing to maximize organizational capability or to identify and achieve internal or external opportunities for innovation or major growth or development of the business. 9
    10. 10. Value-creation capabilities culture tools do emphasize are also those that the market appears to consider important •  There is a high statistical correlation between the variables of a qualitative culture assessment and contemporaneous cross-sectional variations in the market-value-to-book-value ratios of publicly traded companies •  A quantitative culture assessment is also powerful in predicting future market values. Investing in a (value-weighted) portfolio of firms that are in the top quintile based on culture rankings as well as the returns required to compensate investors for the risk they bear from investing in these top- quintile portfolios Culture Measures Proxies Control •  Quality •  Efficiency •  Gross margin •  Asset turnover Compete •  Profit •  Speed •  Economic Value Added (EVA) •  Change in EVA growth Create •  Growth •  Innovation •  Sales growth •  Standard deviation of market model errors Collaborate Knowledge Community •  Future growth values •  Sales/number of employees 10
    11. 11. Human capital posses risk across the majority of evaluation criteria Evaluation Criteria Detail Evaluation Need Investment risk •  Entrepreneur’s track record •  Market growth rate, and •  Prospect of return •  Human capital •  Market analysis •  Financial analysis Management risk •  Capability of entrepreneur’s sustained effort •  Market familiarity, and •  Risk-reacting ability •  Human capital •  Human capital •  Human capital Implementation risk •  Entrepreneur's clear idea, •  Functioning prototype, and •  Demonstrated market acceptance Human capital Leadership risk Management ability of the entrepreneur Human capital Competitive risk •  Proprietary product •  Market competition •  Intellectual property/patent •  Market research Bail-out risk Possibility of financial liquidating Financial 1.  Critically flawed ventures have at least one criterion concerning the personality or experience of the leader and the team. 2.  The quality of entrepreneur ultimately determines funding decision 3.  The investment risk comes down to a bet on people 11
    12. 12. Is there a formula for human capital risk? Knowledge = awareness and familiarity of technical understanding acquired through experience or education; gained with training Skills = a particular aptitude, tendency to do something well; acquired, learned, or developed competency; gained through proficiency Ability = the capacity or unique mental and physical requirements needed to perform Human capital risk = .2*(.2k +.5s+.3a)+.8*[(M+C)/2] k = knowledge s = skills a = ability M = motivation C = culture (alignment) Performance = pro forma risk + human capital risk Motivation = the reason or reasons one has for acting or behaving in a particular way; the general desire or willingness of someone to do something Culture = values, norms, assumptions, expectations, and definitions that characterize, “how things are done” 12
    13. 13. What experience does he have? How does he work best? How does he work with others? What type of teams has he led? Human capital risk includes if leadership is able to get the team to deliver to the projections Has he done it before?How well does he know the industry? How can we better understand how the team performs? How can we know the team can deliver? 13
    14. 14. Human capital’s identification of outstanding leaders provides quantifiable business results 1.  Almost 90% of what distinguishes “outstanding leaders” from the rest is attributable to emotional intelligence*: •  62% of employees who said they have an effective manager intend to stay on the job  •  Only 17% of employees who said they have an ineffective manager said they intend to stay 2.  Based on a survey of 10,000 US workers and 1,000 workers each in India, China, Brazil, the UK, and Germany 25% rated their managers as neither effective nor ineffective. 3.  Studies of people in high-IQ professions that require advanced degrees, like PhDs or MBAs, for entry into a field or groups of highly intelligent and trained professionals, find that IQ and training do not differentiate star performers.  Emotional intelligence accounts for as much as 80% of the variance in differentiating star performers from average performers in these populations.   14
    15. 15. ②  The Human Capital Risk Factors i.  The Cost of Human Capital ii.  Competency iii.  Motivation Risk iv.  Culture •  The cost of replacing a senior manager is up to 1.5x the annual salary plus benefits •  The leader has a an impact of 30% •  An investment is an investment on a team delivering a project and upwards of 90% of all projects fail 15
    16. 16. Human capital assessments across investment process Pre-Investment Due Diligence Post-Investment Management Exit Appraise and Value Acquisition Target Validate: Target Evaluation (Financial and Human Due-Diligence) Define: Post-Investment Priorities Define: Strategic Roadmap Optimize: Management Structure and Effectiveness With Investor Team: •  Interview Workshops •  Building Job Analysis Process •  Structuring Interviews •  Evaluating Human Capital Dimensions •  Executive Search for CEOs/ COOs With Investment Targets: •  Reference Interviews With Investment Target: •  Management Appraisal (Evaluate target company senior management to provide buyer with effective understanding of core capacities) With Investment Target: •  Executive Search search for CEO, COO, CTO, Head of Marketing & Sales, etc. •  Management Appraisal Assess and benchmark top and middle management •  Board Consulting and Advisory Search Identify non-executive directors and fund advisors to ensure perspective and integrity in strategy oversight 16
    17. 17. The return on human capital investment creates can differentiator real portfolio return 1.  High scoring consulting partners delivered $1.2 million more profit from their accounts than their peers 2.  In a study of 300 top-level executives from 15 global companies 85-90% of leadership success was linked to human capital skills 3.  In a multinational study of 515 senior executives human capital scores were high in 74% of successful hires, but only high in 24% of failed hires 4.  After supervisors in a manufacturing plant received training in emotional competencies, how to listen better and help employees resolve problems on their own, reported: •  lost-time accidents were reduced by 50%, •  formal grievances were reduced from 15 to 3 per year, and •  the plant exceeded productivity goals by $250,000Studies into the doctor-patient relationship show that doctors’ demonstration of empathy reduces hospital litigation issues. 5.  In most complex jobs a top performer is 127% more productive than an average performer. 6.  Competency research in over 200 organizations worldwide attributes 33% of this difference to technical and cognitive ability, and 66% to human capital capability 7.  At L’Oreal, sales professional with high emotional scores sold $91,370 more than lower- scoring peers 8.  Schools whose head teachers have high human capital scores demonstrate the best national inspection results 9.  Nurses and nurse managers with higher scores are responsible for: •  lower staff turnover •  higher frequency of professional practice behaviors •  higher staff, patient and doctor satisfaction 17
    18. 18. ②  The Human Capital Risk Factors 1.  The Cost of Human Capital 2.  Competency 3.  Motivation Risk 4.  Culture 1.  IQ 2.  Technical Skills 3.  Emotional influence 18
    19. 19. What are Competencies? §  “Competency” is the name given to the specific characteristics necessary to perform a given job well. They differentiate levels of performance in a given job, role, organization, or culture. §  Any characteristic—cognitive, physical, or emotional—that leads to outstanding performance in a given job is considered a competency ! for that job. 19
    20. 20. What enables a person to exhibit competency behaviors? §  Skills - things a person knows how to do well (e.g., reading a profit-and-loss statement). §  Knowledge - what a person knows about a particular substantive area (e.g., basic accounting principles). §  Values – what behaviors a person sees as important or not important (e.g., coaching less important than getting the task done) §  Self-image - the way a person sees him or herself—the “inner self”, or internal concept of identity (e.g., seeing oneself as an expert or leader). §  Traits - relatively enduring characteristics of a person’s behavior (e.g., being a good listener, conscientious, outgoing). §  Motives – focuses the individual on behaviors that he/she finds intrinsically satisfying. Motives are non-conscious (e.g. we are not necessarily aware of them – auto-pilot). 20
    21. 21. What skills are important when you evaluate a person or when you evaluate a team that you are investing in? Realistic self-image Self-confidence Self-control Adaptability Stress management Motivation Optimism Empathy Reality testing Social responsibility Trust Honesty Communication Assertiveness Cooperation Collaboration Conflict management Negotiation Influence on others Development of others •  How you manage yourself and others •  How you work and collaborate with others • IQ? • Technical Skill? • Market Knowledge? • Business Acumen? 21
    22. 22. Some methods to assess human capital include the following Method Hours Median SD Low High Work samples 63.9 60.6 4.0 290.0 Reference interviewing 19.8 22.1 0.0 134.5 Past-oriented interviewing 16.8 19.9 0.0 100.0 Documentation analysis 3.7 4.4 0.0 22.0 Job analysis 3.6 15.8 0.0 100.0 Psychological testing 0.1 0.9 0.0 8.0 Total time allocated to human capital evaluation methods 120.1 110.2 14.9 448.0 Summary of Time Allocated to Human Capital Evaluation Methods by Venture Capitalists (N = 86) Note: Respondents performed written job analyses in 21.4% of the cases. Psychological tests were used in 3.0% of the cases. 22
    23. 23. The evaluation on an individual relies on how he motivates himself and others Technical Skill IQ Your cognitive intelligence and your personality are two traits that theorists believe you are born with and these traits do not change much. Technical skills are an accumulation of skills acquired over time – there is not shortcut for experience and there is no capability to have 100% of technical skill 23
    24. 24. Technical Skill IQ The current default assessment for human capital is to measure technical skills and IQ to project success IQ is a very poor predictor of job success.  Various studies estimate that IQ alone accounts for as little as 4% to 10% of success at work. Only 10% of job terminations result from technical deficiencies, that is, the inability to do the job.  90% of terminations are due to attitude or behavior problems or difficulties with relationships on the job.Studies show IQ and training do not differentiate star performers of people in high-IQ professions that require advanced degrees, such as Ph.D.’s and M.B.A.’s for entry into a field, groups made up of highly intelligent and trained professionals. The higher people rise in the ranks of management, the more likely they are to have distorted self-perceptions.  Senior level managers are likely to rate themselves as much higher on self- awareness and social competencies than their peers and direct reports rate them. 24
    25. 25. There is something more than IQ or technical skill is critical to top performers and for high-performing teams ? Technical SkillIQ Communication: being able to listen, converse, and present Adaptability: creative responses to setbacks and obstacles Personal management: motivation to work, pride, a desire to develop Interpersonal effectiveness: teamwork, co-operation, the skills to negotiate Organizational effectiveness: leadership potential, the desire to make a contribution 25
    26. 26. People are born with a set IQ that can not change over their lifetime and a person’s technical skill is acquired through study and experience Personality? Leadership? Disposition? Technical SkillIQ How do others view me? IQ is measured Technical skill is accumulated •  VCs allocate 3 times more to work samples, than to reference interviews and past-oriented interviews. •  VCs invest an average of 120 hours to assess talent in each deal. 26
    27. 27. Ability and personality can not be developed, but we can measure and develop emotional intelligence Emotional Intelligence Technical SkillIQ 27
    28. 28. ②  The Human Capital Risk Factors i.  The Cost of Human Capital ii.  Competency iii.  Motivation Risk iv.  Culture •  Achievement •  Quality •  Performance •  Delivery 28
    29. 29. The single best predictor of overall excellence was a company's ability to attract, motivate, and retain talent “The more I study organizational profitability, the more I am convinced of the power of culture….” Bruce Pfau, the Hay Group The contrast between cultural priorities in the top companies in the Fortune survey versus average performers: Top Performer Priorities 1. Teamwork 2. Customer focus 3. Fair treatment of employees 4. Initiative and innovation Average Performer Priorities 1. Minimizing risk 2. Respecting the chain of command 3. Supporting the boss 4. Making budget The top performers consciously manage their corporate culture and attempt to link it with systems into a congruent, mutually reinforcing package. •  Many scholars in entrepreneurship have focused on examining relationships between salient characteristics of entrepreneurs and the performance of new ventures and these individual attributes can be viewed as aspects of the entrepreneur's human capital. •  An entrepreneurial team is a group working together to launch a new business venture often resembles a more established firm and include several people with diverse experience and skills in a variety of functional areas. •  High potential, high growth firms are typically launched and grown by teams of entrepreneurs, not individuals. •  Employees with high human capital (i.e., more education and experience) help firms implement new technologies more effectively. 29
    30. 30. Human capital risk to deliver a goal in a finite time period with an expected level of quality is project risk Motivation 1.  Intrinsic 2.  External Satisfaction 1.  Achievement 2.  Recognition 3.  Work itself 4.  Responsibility 5.  Advancement 6.  Growth This investment is on a team to deliver a project. The risk is for a team to have the motivation and ability to deliver: •  On time, •  In scope, •  On budget While managing: •  Cost, •  Risk, •  Customer Satisfaction 30
    31. 31. Human capital risk is motivation risk and job satisfaction risk Source: http://maaw.info/ArticleSummaries/ArtSumHerzberg6803.htm Factors that lead to extreme dissatisfaction Factors that led to extreme satisfaction Self-Actualization Esteem Belonging Safety Physiology 31
    32. 32. ②  The Human Capital Risk Factors i.  The Cost of Human Capital ii.  Competency iii.  Motivation Risk iv.  Culture •  The way things get done •  Internal focus and integration •  Flexibility and discretion •  External Focus and differentiation •  Stability and control 32
    33. 33. The second investment is on a team can deliver and teams rely on culture to get things done Emotional Intelligence Technical SkillIQ What is culture? 1.  Ethics: Dominant characteristics of the organization 2.  Risk: The explicit values foundational for decisions and actions 3.  Trust: The dominant work environment 4.  Accountability: The unwritten performance expectations 5.  Integrity: Specific behaviors that are valued 6.  Alignment: Leaders who walk the walk and who talk the talk 7.  Rewards: Criteria of success ? 33
    34. 34. How do I work the best? How do I handle stress? What environment do I excel in? How do I expect others to perform? 91% of 1,200 senior executives at global companies surveyed agreed that “culture is as important as strategy for business success.”* 34
    35. 35. What is the culture, how does culture affect performance, will CEO / Executive Team Founder / Executive Team CFO / Executive Team VC / Executive Team 1.  As is Organizational Culture - by the employees; 2.  As desired Organizational Culture - by the employees; 3.  As required Organizational Culture - by management 35
    36. 36. Culture The second investment is on a team can deliver and teams rely on culture to get things done Emotional Intelligence Technical SkillIQ What is culture? 1.  Ethics: Dominant characteristics of the organization 2.  Risk: The explicit values foundational for decisions and actions 3.  Trust: The dominant work environment 4.  Accountability: The unwritten performance expectations 5.  Integrity: Specific behaviors that are valued 6.  Alignment: Leaders who walk the walk and who talk the talk 7.  Rewards: Criteria of success Culture 36
    37. 37. ①  The Financial Projection ②  What are the Human Capital Risk Factors ③ The Evaluation of Human Capital ④  Identifying and Managing Risk i.  Self-awareness ii.  Management iii.  Measure Human Capital 37
    38. 38. ③  The Evaluation of Human Capital •  How you manage and motivate yourself •  How your intentions are perceived •  How you motivate others i.  Self-awareness ii.  Management iii.  Culture 38
    39. 39. High-IQ professions that require advanced degrees for entry into a field, such as PhDs and MBAs, reveal IQ and training are not what differentiates star performers How one manages their self- awareness and their relationships matters in: •  Conflict Management •  Coaching and Mentoring •  Influence •  Inspirational Leadership •  Teamwork 39
    40. 40. Social Awareness Self- Management Relationship Management Emotional intelligence is the distinguishing factor that draws others to us or repels them from us and the key to this begins with self-awareness Self-Awareness We can assess and measure the four quadrants and we can assess the impact emotional intelligence has on productivity and bottom line results. Competencies are measured as an assessment of observed behaviors. 40
    41. 41. Emotional Intelligence is the term for how you manage yourself and others and how you react and adapt to challenge Personal Competence Social Competence Awareness Self-Awareness •  Emotional Self-Awareness Social Awareness •  Empathy •  Organizational Awareness Actions Self-Management •  Achievement Orientation •  Adaptability •  Emotional Self-Control •  Positive Outlook Relationship Management •  Conflict Management •  Coach and Mentor •  Influence •  Inspirational Leadership •  Teamwork Competencies measured by Emotional Intelligence (EI) 41
    42. 42. ③  The Evaluation of Human Capital i.  Self-awareness ii.  Management iii.  Culture •  Communication •  Self-perception •  Alignment •  Drive •  Delivery 42
    43. 43. What is leadership and can we measure it? Strategy: •  Vision: Inspired leaders take their employees and the organization in new directions. This requires the ability to envision a new reality for others that they can see and they want to pursue. •  Business Acumen: Reflect an up to date understanding of the broader business world, the industry, and the organization by watching how the organization’s current strategy impacts its marketplace position. •  Courage to Lead: Stand strong in the face of adversity and take necessary risks to achieve results. •  Planning: Anticipate upcoming events in order to set appropriate goals and get things done. Action: •  Decision-Making: Effective leaders make sound decisions that consider multiple options, seek input from others when appropriate, and that are reached in a timely manner. •  Communication: When leaders create an open environment where thoughts are expressed freely and information flows easily they increase the potential of their organization. •  Mobilizing Others: It is essential that leaders are able to motivate and influence those around them. By mobilizing others, leaders move the organization as a whole towards obtainable and, sometimes seemingly, unobtainable results. Results: •  Risk-Taking: Leaders must be able to maneuver through situations that require them to “push the envelope” and risk their status in the organization. Leaders who are willing to stand behind a chosen course achieve results. •  Results-Focus: Leaders who produce results keep their "eyes on the prize"; they focus on the end result and do what it takes to get there. •  Agility Leaders: Consistently produce results and constantly adapting to their surroundings. The business world requires leaders to respond quickly to uncertainty and change in order to function effectively. A technical ability does not have a positive correlation to effective leadership 43
    44. 44. What do I think of myself? How do I work best? How do I work with others? How do I influence others? Ultimately, any investment is an investment on an individual and their ability to motivate themselves and their team How do others view me? What motivates me? 44
    45. 45. View of the 360 feedback 45
    46. 46. View of team results 46
    47. 47. The theoretical constructs for Emotional Intelligence tools 47
    48. 48. ③  The Evaluation of Human Capital i.  Self-awareness ii.  Management iii.  Culture •  How things get done •  Tolerance •  Standards •  Expectations •  Rewards 48
    49. 49. Culture is an attribute of the organization measured separately from other organizational phenomena 3 strategies are available: 1.  Holistic Approach where the investigator becomes immersed in the culture and engages in in-depth participant observation or tries to become "native" in the organization; 2. Metaphorical or Language Approaches in which the investigator uses language patterns in documents, reports, stories, and conversations to uncover cultural patterns, just as detectives use fingerprints, voice prints, or word prints to detect personal identity; and 3. Quantitative approaches in which the investigator uses questionnaires or interviews to assess particular dimensions of culture.  A quantitative approach allows multiple viewpoints to be considered in evaluating the attributes of an organization's culture.  To discuss comparisons quantitative approaches must be used. Competing Values Framework adopts the definition of culture represented by the functional, sociologic tradition. Culture is an attribute very useful for predicting which organizations succeed and which do not. •  Focus: collective behavior •  Investigator: Diagnostician, stays neutral •  Observation: Objective factors •  Variable: Independent (culture predicts other outcomes) not dependent (understand culture by itself) •  Assumption: organizations have cultures as opposed to organizations are cultures 49
    50. 50. Teams rely on an ability to work within a specific environment and an ability to collaborate with others Flexibility and Discretion InternalFocusandIntegration Clan An organization that focuses on internal maintenance with flexibility, concern for people, and sensitivity to customers Adhocracy An organization that focuses on external positioning with a high degree of flexibility and individuality ExternalFocusandDifferentiation Hierarchy An organization that focuses on internal maintenance with a need for stability and control Market An organization that focuses on external positioning with a need for stability and control Stability and Control *According to Bain & Company in an article published in Harvard Management Update (January 2008), How you work and collaborate with others:How you manage yourself and others: Emotional Intelligence Competing Values Framework 50
    51. 51. Culture eats strategy for breakfast - the Competing Values Framework Long-Term Change Fast Change Incremental Change Transforming Change Orientation: Collaborate Culture Type: Clan Orientation: Compete Culture Type: Market Orientation: Control Culture Type: Hierarchy Orientation: Create Culture Type: Adhocracy Individuality Flexibility Discretion External Focus Positioning Differentiation Internal Focus Integration Maintenance Stability Control 51
    52. 52. Value creation requires recognizing the inherent tensions that exist in different forms of value creation Irresponsible country club Oppressive sweatshop Stifling bureaucracy Tumultuous anarchy Orientation: Control Attributes: •  Micromanagement •  Procedural rigidity •  Over-regulation •  Ironbound tradition Individuality Flexibility Discretion External Focus Positioning Differentiation Internal Focus Integration Maintenance Stability Control Orientation: Collaborate Attributes: •  Excessive discussion •  Unproductive participation •  Emotional dominance •  Individualism Orientation: Create Attributes: •  Unguided opportunism •  Ungrounded vision •  Program of the week •  Premature responses Orientation: Compete Attributes: •  Over-exertion •  Tyrannical goal focus •  Unproductive conflict •  Blind ambition Slow death Catastrophic failure Irrelevance and Extinction Stagnation Ignore 52
    53. 53. An organizational culture assessment looks at an organization’s strength, congruence, and type to understand where there are areas of concern or areas of success The Competing Values Framework: 1.  Evaluates organizations by values of leadership, effectiveness, and organizational theory 2. Categorizes organizations by degree of: •  Internal focus and integration •  Flexibility and discretion •  External Focus and differentiation •  Stability and control 53
    54. 54. Most measurement devices used to assess organizational performance do not account for the inherent tensions Competing Values takes these tensions into account: •  Dominant Characteristics of the Organization •  Organizational Leadership •  Management of Employees •  Organizational Glue •  Strategic Emphases •  Criteria of Success Disparate tensions in a firm •  Managing for the short-run as well as the long-run •  Managing predictability as well as innovation •  Managing for fast pay out as well as future strength 54
    55. 55. Sample Organizational Culture Assessment life cycle of an internationally respected company over 20 years 55
    56. 56. Sample Competing Values Plotted Board of Directors Founder 56
    57. 57. Map and find disconnect, review, identify what should be continued, what should be stopped, what should be started, and what should be continued 57
    58. 58. Competing Values Framework - Organizational Culture Assessment Instrument (OCAI) 58
    59. 59. Scope, plan, manage, and measure 59
    60. 60. Competing Values Framework - Management Skills Assessment Instrument (MSAI) 60
    61. 61. ①  The Financial Projection ②  Human Capital Risk Factors ③  The Evaluation of Human Capital ④ Identifying and Managing Risk i.  As is ii.  As required iii.  As desired 61
    62. 62. ④  Identifying and Managing Risk i.  As is ii.  As required iii.  As desired •  Technical Skills •  Work Samples •  References •  Interviews •  Due Diligence 62
    63. 63. Poor human capital shows up in business and operations areas are an impact on real costs 1. Compliance costs: •  Employment Liability •  Organization and team loss of institutional knowledge •  Remaining personnel are overworked •  Remaining employee’s being poaching •  Delay in Services/Production •  Dissatisfied Customers •  Employee Theft •  Improper Use of Equipment 3. Productivity Costs: •  Candidate Interviews (Multiple) •  Candidate Screening •  Candidate Testing •  Time to market •  Product quality •  Testing •  Budget costs •  Opportunity costs •  Institutional momentum •  Knowledge management 2. Growth costs: •  Inventory Anomalies •  Job Errors •  Lost Intellectual Capital •  Lost Sales •  Potentially Unrealized Sales •  Reduced Morale •  Reduced Reputation •  Executive Search Fees •  Lost Training Expenses •  New Hire Processing •  New Hire Training •  New Hire Orientation •  Personnel Costs •  Recruiter’s Salary •  Recruiting Bonuses •  Relocation Fees •  Separation Pay 63
    64. 64. ④  Identifying and Managing Risk i.  As is ii.  As required iii.  As desired •  Identify talent •  Integrate talent •  Continuous training •  Constant motivation 64
    65. 65. Talent life cycle ways to leverage Emotional Intelligence and Competing Values Framework Recruit: •  Candidate hire from external job post to start date (by day) •  Annual recruiting FTE (include announcement, interviews, and on-boarding) •  Candidate competing value primary and secondary score •  Total hours job open, by title, to replace a position •  Total hours job open, to recruit for a job requisition •  Current Organization Culture Assessment Instrument score •  Emotional Intelligence behavioral interview assessment Train: •  Emotional and Social Competency Inventory score •  Percentage of hiring managers with job competency assessment method (JCA) training •  Percentage of human resource staff with JCA •  Management Skills Assessment Instrument score •  Competing value primary and secondary score of every employee •  Preferred Organization Culture Assessment Instrument score •  Return on training investment by employee: 1 month after training, 3 months after training, 1 year after training, measured against training goals Retain: •  Turnover per year •  Tenure of talent departing, measured against current staff •  Time in position (grade) of talent departing, against current staff •  Average training hours of talent departing, measured against current staff •  Emotional and Social Competency Inventory score 65
    66. 66. ④  Identifying and Managing Risk i.  As is ii.  As required iii.  As desired •  How you integrate •  How you collaborate •  How you motivate •  How you produce •  How you meet uncertainty •  Emotional intelligence •  Social intelligence •  Cognitive intelligence 66
    67. 67. Making a good organizational marriage currently seems to be a matter of chance and luck. How private equity organizations raise money based on “gut feel” is beyond my understanding of risk. To change human capital from a risk to an organization competitive advantage happens from a greater awareness of the people issues involved, and consequently, a more informed integration strategy. Some basic guidelines for more effective management include: 1.  Extension of the due diligence process to incorporate issues of cultural fit; 2.  Greater involvement of human resource professionals; 3.  Conduct culture audits before the introduction of change management initiatives; 4.  Increased communication and involvement of employees at all levels in the integration process; 5.  The introduction of mechanisms to monitor employee stress levels; 6.  Fair and objective reselection processes and role allocation; 7.  Provide management with the skills and training to sensitively handle M&A issues such as insecurity and job loss; 8.  Create a super ordinate goal that will unify work efforts. 67
    68. 68. Some human capital assessment milestones Pre-Investment Due Diligence Post-Investment Management Exit Appraise and Value Acquisition Target Validate: Target Evaluation (Financial and Human Due-Diligence) Define: Post-Investment Priorities Define: Strategic Roadmap Optimize: Management Structure and Effectiveness With Investor Team: •  Emotional and Social Competency Inventory •  Organizational Culture Assessment Inventory With Investment Targets: •  Organizational Culture Assessment Inventory analysis by reference, resume assessment With Investment Target: •  Organizational Culture Assessment Inventory “now” •  Management Skills Assessment Instrument •  Emotional Intelligence observations With Investment Target: •  Emotional Skills Competency Inventory •  Emotional Intelligence Coaching With Investor Team •  Emotional Intelligence coaching Combined Teams •  Organizational Skills Assessment Instrument “preferred” strategy 68
    69. 69. Appendix – Sources 1 of 4 Title Source Looking for The Return of Unassisted M&A Deloitte Consulting A Review of the Competing Values Framework International Journal of Business and Management Why HR Can Make or Break Your M&A Towers Perrin M&A In Challenging Times CFO Research Services The validity of employment interviews: A comprehensive review and meta-analysis. Journal of Applied Psychology Structured and unstructured selection interviews: Beyond the job-fit model. G.R. Ferris, Research in personnel and human resources management: Vol. 4 A meta-analytic investigation of the impact of interview format and degree of structure on the validity of the employment interview. Journal of Occupational Psychology, 61 (4), 275-290. Wiesner, W.H., & Cronshaw, S.F. (1988). The structured interview: Additional studies and a meta- analysis. Journal of Occupational Psychology, 62 (3), 191-199.] Wright, P.M, Lichtenfels, P.A., & Pursell, E.D. (1989). Criteria used by venture capitalists to evaluate new venture proposals. Journal of Business Venturing, 1, 119-128. MacMillan, I.C., Siegel, R., & Narasimha, P.N. (1985). Venture capital at the crossroads. Bygrave, W.D. & Timmons, J.A. The Art and Science of Human Capital Valuation Geoffrey H. Smart Venture Capitalists Valuations of Start-up Teams Entrepreneurship Theory and Practice 69
    70. 70. Appendix – Sources 2 of 4 Title Source Venture Capital a 27 Year Perspective Gary Kalbach, El Dorado Ventures Human Capital Risk Mitigation and Investment Protection VPI Strategies and Conduit Careers Why Mergers Fail and How to Prevent It Susan Cartwright Surviving Due Diligence Steven Kopits Politics of Valuation Steven Kopits Trends in Terms of Venture Financings in Silicon Valley Fenwick & West LLP Experienced entrepreneurial founders organizational capital and venture capital funding Science Direct Who are the Active Investors in the VC Human Capital Journal of Financial Economics When Do Incumbents Learn from Entrepreneurial Ventures? Corporate Venture Capital and Investing Firm Innovation Rates Gary Dushnitsky & Michael Lenox Personnel Selection and Assessment Warren Bobrow, PhD The Validity and Utility of Selection Methods in Personnel Psychology: Practical and Theoretical Implications of 85 Years of Research Findings Psychological Bulletin, 1998, Vol. 124 The Global War on Talent Journal of International Management The nature of information and overconfidence on venture capitalists' decision making Andrew L. Zacharakis and Dean A. Shepherd 70
    71. 71. Appendix – Sources 3 of 4 Title Source A lack of insight: do venture capitalists really understand their own decision process? Andrew L. Zacharakisa and G. Dale Meyerb What Drives Private Equity Fund Performance? Ludovic Phalippou and Maurizio Zollo Navigating your portfolio through turbulent waters Grant Thornton Minimizing Legal Risk in Private Equity Investments – Key Protections Holding Redlich Human capital theory and venture capital firms: Exploring "home runs" and "strike outs” Journal of Business Venturing 20 Survey of the Economic and Social Impact of Venture Capital in Europe Quarterly Review and annual European Buy-out Review Quarterly Review and annual European Buy-out Review Ernst & Young Lessons learned from past mistakes - the cost of failure and under-performance. European Venture Capital Association' Venture Capital Investment Increases In Q2 2009 But Remains At Mid 1990 Levels PriceWaterhouseCoopers and National Venture Capital Association Management Assessment Methods in Venture Capital: Towards a Theory of Human Capital Valuation Geoffrey H. Smart Venture Capitalists’ Evaluations of Start-up Teams: Trade-offs, Knock-out Criteria, and the Impact of VC Experience Entrepreneurship Theory & Practice Using repertory grid to identify intangibles in business plans Enrique Diacuteaz De Leoacute; Paul Guild 71
    72. 72. Appendix – Sources 4 of 4 Title Source Evaluating Talent in Private Equity Jason Associates Venture Capitalists Decision Criteria in New Venture Evaluation Journal of Business Venturing The ROI of Human Capital: Measuring the Economic Value of Employee Performance Jac Fitz-enz Dance With The One That Brought You? Venture Capital Firms And The Retention Of Founder-CEOs Strategic Entrepreneurship Journal Valuation of the Venture Evaluation in Korea Korea Advanced Institute of Science and Technology Creation of Innovation Firms a Human Capital Perspective Eduardo Couto and José Bilau Human Capital Study Accenture, Dr. Nick Bontics Human Capital Benchmarking PriceWaterhouseCoopers Hay Group, Competing Values Company, Diagnosing and changing organizational culture. Cameron & Quinn The role of the CFO in an active M&A Market Deloitte The Biggest Risk of All London Business School Richard Boyatzis 72
    73. 73. Assessment specifics Instrument Time Data Collection Stage Intended Group Emotional Intelligence 1 – 3 Hours Observation 1, 2 team, target OCAI 1 – 2 Hours Research 1, 2 target ESCI 1 Hour Electronic 3 target Emotional Intelligence Variable Coaching 2, 3 team, target OCAI – now 15 Minutes Electronic 2 target OCAI – preferred 15 Minutes Electronic 3 team, target Instrument Database Organizations Emotional Intelligence 322,433 OCAI 15,080 1,484 ESCI 62,055 273 73
    74. 74. Sample data 74
    75. 75. @TobyElwin email@TobyElwin.com http://TobyElwin.com 75 q  Community Persona design q  Scope: or how to manage projects for organization success q  How to launch and manage your social media identity Blog Resources @TobyElwin.com Contact But I don’t want to go among mad people,” Alice remarked “Oh, you can’t help that”, said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice “You must be,” said the Cat, “or you wouldn’t have come here.” Alice’s Adventures in Wonderland, by Lewis Carroll

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