Several years ago, my colleague Dave Ulrich and I looked at how leaders build value by building employee confidence in the future. Our findings bear revisiting as companies begin to emerge after the devastation of the last 18 months and work to create new value.
Company valuation or market value has two parts: tangible value, like cash flow and earnings, and intangible value. Intangible value is based on the market’s perception of whether a company is likely to keep its promises about future growth. Over the last 20 years, intangible value has grown as a percent of total market valuation. Even during the worst of the recession last year, companies with similar size and earnings had different market valuations. That’s in part because investors have more confidence in the future of some companies than others.
When contemplating the power of intangibles, leaders must figure out what they can and should do to create intangible value, and to make intangibles tangible. This challenge confronts leaders in publicly traded and privately held firms, at the top and throughout the organization, and in line and staff roles. Wherever they are, leaders have the responsibility to build and protect intangible value.
We see a pattern in how leaders successfully increase confidence in their organizations’ intangibles that results in sustained/restored confidence, beginning with the basic essentials at Level 1 and proceeding to more complex concepts.
Level 1: Keep Your PromisesDeliver Consistent and Predictable Results
Level 2: Articulate a Compelling Strategy Envision the Future
Level 3: Invest in Core Competencies Put Your Money Where Your Strategy Is
Level 4: Improve Organization Capabilities Build Value Through People and Organization
Organization capabilities are the ways an organization applies people and processes to the tasks of competition. These capabilities essentially become the organization’s identity. They define what it is good at doing and, in the end, what it is. Here are seven of the most basic capabilities an organization needs to emphasize:
• Talent: We are good at attracting, motivating, and retaining competent and committed people.
• Speed: We are good at making important changes happen fast.
• Shared mindset: We are good at ensuring that customers and employees have positive images of and experiences with our organization.
• Accountability: We are good at the disciplines that result in high performance.
• Collaboration: We are good at working across boundaries to ensure both efficiency and leverage.
• Learning: We are good at generating and generalizing ideas with impact.
• Leadership: We are good at embedding leaders throughout the organization who deliver the right results in the right way–who carry our leadership brand.
Of the four levels of intangible value, organization capabilities are the most difficult for a competitor to duplicate. They delight customers, they engage employees, they establish reputations among investors, and they provide long-term sustainable value. Business leaders must take responsibility for creating intangible value within their organizations in order to restore a healthy economy that we feel safe investing in.
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Norm Smallwood is co-founder of The RBL Group, a strategic HR and leadership systems advisory firm. He is author, with Dave Ulrich and Kate Sweetman, of the 2009 Harvard Business Press title, The Leadership Code: Five Rules to Lead By.