CFA South Africa September 10, 2009 Culture as a Strategic Advantage

FOCUS Consulting Group www.focusCgroup.com1

CFA South AfricaSeptember 10, 2009

Culture as a Strategic Advantage

James Ware, CFA

847.373.8853

[email protected]

www.focusCgroup.com 2

FOCUS Consulting Group

What is your firm’s competitive advantage?

1 2 3 4 5 6 7 8 9 10

32%

14%

7%

9%

2%

5%

16%

9%

2%

5%

1. Great people

2. Superior processes

3. Unique Investment philosophy

4. Work ethic

5. Creativity

6. Independent

7. Owner mentality

8. Ethical/Trustworthy

9. Leading edge IT

10. Focused, limited products



3 Key Measures of Competitive Advantage1. Trust: building it and maintaining it

2. Culture: defining and living it

3. Management: creating excellent teams

“What you can measure, you can manage.”



Overview of Culture

What is it? Defining Culture Why is it important? Benefits of Strong

Culture How do you Measure and Manage it? Metrics

Values Strategies



Culture: The beliefs, values and behaviors that differentiate one organization from another.

Value #3

Value #2 Value #1

X

XX

XX

XX

XX

X

X = Culture Carriers: behaviors and attitudes support the chosen valuesX = Culture Converts: monitor and coach these employees to better reflect all the chosen values X = Culture Outlyers: behaviors and attitudes do not reflect chosen values

Measures:Perfect = 100%

High = 72%Average = 40%Low = 18%



Benefits of Strong Culture

Attract and retain top talent. Hire for fit much more effectively. Orient new employees quickly into the culture. Promote and compensate based on values. Mentor and coach more effectively. Better weather the tough times. Improve decision making. Create a stronger brand and better story for

consultants and other external audiences.



Which of these values are most evident in the culture of your firm?

1 2 3 4 5 6 7 8 9 10

11%

8%

13%

8%

7%

10%10%

17%

3%

13%

1. Accountability

2. Balance (home/work)

3. Client satisfaction

4. Clear performance goals

5. Collaboration/teamwork

6. Employee fulfillment/development

7. Ethical/Integrity

8. Excellence/being best

9. Long term perspective

10. Quality/precision/improvement



Which of these values SHOULD be most evident in the culture of your firm?

1 2 3 4 5 6 7 8 9 10

12%

6%

9%

6%

3%

8%

22%

18%

7%8%

1. Accountability

2. Balance (home/work)


4. Clear performance goals

5. Collaboration/teamwork

6. Employee fulfillment/development


8. Excellence/being best

9. Long term perspective

10. Quality/precision/improvement



Culture Measurement: 3 keys

1. Cohesion: Are the staff members on the same page? Do they rally around the same set of values and behaviors?

2. Actual vs. Aspiratational: are the current values similar to the preferred values? Is the culture close to its “ideal state?”

3. Sludge: how much negativity is in the system? How much “bad behavior” lives in the culture?



Cohesion (Healthy)

Industry

08 09 High Average LowExisting Culture 22% 34% 72% 40% 18%

Aspirational Culture 53% 56% 69% 49% 32%

Cohesion is defined as the percentage of all votes that were for the top 10 healthy existing or aspirational values. Healthy values exclude sludge.



Strengthening of existing culture

2008 2009Bureaucracy/Territorial 53Risk-averse 42Slow moving/reactive 41Collaboration/Team 30Short-term focus 28Client Satisfaction 27Defensive 27Manipulate/Politics 24Balance (home/work) 21Ethical/Integrity 20

Collaboration/Team 36Risk-averse 36Slow-moving/reactive 36Expense control 34Bureaucracy/Territorial 31Client Satisfaction 31Accountability/Resp. 30Ethical/Integrity

23Commitment 22Defensive 22



Strengthening of aspirational culture

2008 2009Accountability/Resp. 53

Client Satisfaction 53

Collaboration/Team 45

Excellence/Being Best 40

Global (persp./leaders) 33

Creativity/Innovation 27

Ethical/Integrity 25

Long-term pers./Vision 23

Passion/Motivate 22

Quality/Precision/Imp. 22

Accountability/Resp. 58

Client Satisfaction 47

Excellence/BeingBest 42

Collaboration/Team 40

Creativity/Innovation 30

Ethical/Integrity 30

Global (persp./leaders) 26

Quality/Precision/Imp. 26

Candor/Honesty/Open 22

Adaptable/Nimble 21



Areas to Strengthen from 2009 survey

Value Asp.# votes

Extn# votes

Gap

Excellence/Being the best 42 9 33

Accountability 58 30 28

Creativity/Innovation 30 4 26



Sludge: Slows down decision-making and stifles creativity

GossipDramaDefensivenessDisrespectBlameEntitlementShort-term focusBureaucracy/territorialManipulation/politicsSlow-moving/reactive



Sludge Analysis 2008: 34% of the total votes were for the ten sludge

factors versus the 17% industry average 2009: 22% vs. 16% for industry average Top five sludge factors (# of votes):

2008 Sludge 2009 Sludge

Bureaucracy/

Territorial

53 Slow moving/

Reactive

36

Slow moving/

Reactive

41 Bureaucracy/

Territorial

31

Short term 28 Defensive 22

Defensive 27 Short term 20



From Values to Strategies

In the following slides, choose the strategy that you think creates the greatest competitive advantage



1) The team is mostly comprised of individual contributors/free agents and stars or 9) The team is mostly comprised of team-players and loyal types

1 2 3 4 5 6 7 8 9

15%

2%

6% 6%

19%

10%

23%

4%

15%

Mean = 5.7292

1. Very strongly first statement

2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight

9. Very strongly second statement



1) Leadership mostly focuses on asset gathering 9) Leadership mostly focuses on investment process and alpha creation

1 2 3 4 5 6 7 8 9

9%

0%

2%

0%

30%

13%

23%

6%

17%

Mean = 6.7234


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) The investment team mostly uses a consensus approach to investment decision making 9) The investment team mostly relies on “expert” opinion for decision making

1 2 3 4 5 6 7 8 9

9%

4%

19%

4%

13%

6%

19%

13%13%

Mean = 5.3191


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) The investment team is large and has depth or 9) The investment team is lean and nimble

1 2 3 4 5 6 7 8 9

6%

4%

11%

2%

21%

9%

21%

6%

19%

Mean = 5.9787


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) The team believes and practices one investment philosophy 9) The team is flexible and uses multiple philosophies

1 2 3 4 5 6 7 8 9

39%

18%

10%

0%

12%

6%

10%

0%

4%

Mean = 3.5714


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) The firm is responsive to clients, offering them what they want or 9) The firm is internally driven, offering clients what they SHOULD want

1 2 3 4 5 6 7 8 9

19%

6% 6%

0%

19%

4%

32%

4%

9%

Mean = 5.4894


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) Leadership is results oriented, emphasizing bottom line or 9) Leadership is mission driven, emphasizing the “why” behind the numbers

1 2 3 4 5 6 7 8 9

11%

2%

13%

2%

26%

17%

13%

0%

17%

Mean = 6.0213


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




1) The investment strategy relies heavily on process with little human judgment or 9) The investment strategy relies heavily on analysis by individuals, using lots of judgment

1 2 3 4 5 6 7 8 9

2%

4% 4% 4%

23%23%

17%

8%

15%

Mean = 6.6875


2. Choice Two

3. Choice Three

4. Choice Four

5. Neutral/Balanced

6. Choice Six

7. Choice Seven

8. Choice Eight




3 Key Behaviors of Top Investment Firms Curiosity Candor Accountability



Above the line: Curious and Open

Below the line: Defensive and Closed

Fear-based

“CREATIVE”Driver: desire to learn

Tru

st-B

ased

CorporateDrama

Victim: Poor me…

Villain: You’re to blame! Hero: I’ll save the day!

“DESTRUCTIVE”Driver: need to be right



Candor Mastery – How do you score?0 No mastery: I lie and manipulate the truth to get what I want.

1. I am honest in what I say but I withhold in order to get certain outcomes.

2. I am honest in ALL I say and don’t have any withholds.

3. I speak candidly and am able to differentiate FACT from STORY.



F exercise: 8 is the correct answer!

1 2 3 4 5 6 7 8 9

3%

0%

5%

8%

0%

28%

35%

8%

15%

1.

2.

3.

4.

5.

6.

7.

8.

9.



Candor Mastery – How do you score?0 No mastery: I lie and manipulate the truth to get what I want.

1. I am honest in what I say but I withhold in order to get certain outcomes.

2. I am honest in ALL I say and don’t have any withholds.

3. I speak candidly and am able to differentiate FACT from STORY.

4. I speak candidly differentiating FACT from STORY and I hold my story lightly not needing to be right.

5. I speak candidly differentiating FACT from STORY, holding my story lightly, and not blaming or criticizing when I speak.

6. I model and live candor such that people around me move toward candor in their lives because of my presence.



Accountability

Accountability = 100% responsibility + Making and keeping clear agreements



Thank you South Africa for inviting me! Questions, Comments?



Decision Rights

Time

LevelOf Buy-in

Leaderdecides

Leader decidesw/input

Subgroupdecides

Subgroupdecidesw/input

Majorityvote

Consensusw/fallback

Alignment



Culture Cohesion (Healthy)

Industry Firm A High Average Low

Existing Culture 22% 72% 40% 18%

Aspirational Culture 53% 69% 49% 32%

Cohesion is defined as the percentage of all votes that were for the top 10 healthy existing or aspirational values. Healthy values exclude sludge.



Top 10 Values – Existing & Aspirational1. Bureaucracy/territorial2. Risk averse3. Slow moving/reactive4. Collaboration/teamwork5. Short-term focus6. Client satisfaction7. Defensive8. Manipulation/politics9. Balance (home/work)10. Ethical/integrity

1. Accountability/Responsibility


3. Collaboration/Teamwork

4. Excellence/being the best

5. Global (perspective, leadership)

6. Creativity/Innovation


8. Long-term perspective/Vision

9. Passion/Energy/Motivate

10. Quality/Precision

Red font = sludge valueGreen font = Top 10 match between existing and aspirational value



Sludge Analysis

34% of the total votes were for the ten sludge factors versus the 17% industry average

Top five sludge factors (% votes): Bureaucracy/territorial (8%) Slow-moving/reactive (6%) Short-term focus (4%) Defensive (4%) Manipulation/politics (4%)



Manager Scorecard (Focus 14)

US Equity Team: Scorecard 1 2 3 4 team Ldr. Gap USEquity Industry Gap1. We have a clear purpose. I know what our team is trying to achieve. ___ 5 5 4 5 4.75 5 0.25 4.79 3.90 0.892. I know my role on the team and what is expected of me. ___ 5 4 4.5 4 4.38 4.5 0.13 4.40 4.00 0.403. I have the resources to do my work well. ___ 4 5 4.5 5 4.63 4 (0.63) 4.52 3.70 0.824. We have the right team members to accomplish our goals. ___ 3 4 3 4 3.5 3 (0.50) 3.42 3.50 (0.08)5. I feel valued and appreciated for my work. ___ 4 4 3.5 5 4.13 3 (1.13) 3.94 3.70 0.246. I trust and respect the people on our team. ___ 3 4 2 4.5 3.38 5 1.63 3.65 4.30 (0.65)7. I experience a high level of candor and openness on our team. ___ 4 4 4.5 4.5 4.25 4 (0.25) 4.21 3.70 0.518. My opinions matter on this team. ___ 4 5 4.5 5 4.63 5 0.38 4.69 4.00 0.699. I have clear performance goals that measure my success on this team. ___ 3 2.5 3 4 3.13 3 (0.13) 3.10 3.30 (0.20)10. In the past 3 months, I have received performance feedback from my manager. ___ 4 3 2 5 3.5 3 (0.50) 3.42 3.70 (0.28)11. We make and keep clear agreements on this team. ___ 4 2 2 4 3 4 1.00 3.17 2.90 0.2712. My work allows me to use my talents and abilities. ___ 4 5 3 5 4.25 4 (0.25) 4.21 4.00 0.2113. Leadership encourages my development and growth. ___ 4 4.5 4 4 4.13 4 (0.13) 4.10 3.70 0.4014. I feel that my work is important to reaching our firm’s goals. ___ 4 5 5 5 4.75 5 0.25 4.79 4.40 0.39

3.73 3.93 3.5 4.53 4.03 4.04 0.009 4.03 3.77

Industry = 45 investment firms

FOCUS Consulting Group www.focusCgroup.com37

U.S. InstituteNovember 12, 2008

Leadership & Talent Development

James Ware, CFA

847.373.8853

[email protected]

Jamie Ziegler

847.853.8251

[email protected]

CFA South Africa September 10, 2009 Culture as a Strategic Advantage

Documents

healthy values

focus consulting groupwhat

aspirational culture

aspirational values

culture outlyers

culture carriers

preferred values

set of values