Leadership Qualities: The Characteristics of An Effective Team

This article is part of our series on leadership qualities

When Martine Haas and Mark Mortensen published the findings of their research on teams and collaboration in Harvard Business Review, they landed on four enabling conditions for effective teams. A compelling direction, a strong structure, a supportive context and a shared mindset.

These are critical qualities for all high-performing teams, but the research missed out on the one that arguably matters most – the leadership team. Without effective leadership, the four enabling conditions cannot exist. Get the leaders right, and you can engineer a company culture that creates those conditions for the rest of the workforce.

So the question is: what makes an effective leadership team?

Contents:

1. The private equity context

2. Characteristic 1: Diversity

3. Characteristic 2: Sustainability

4. How to achieve diversity and sustainability with people analytics

The private equity context

At Leadership Dynamics, we use quantitative and qualitative data to study what makes an effective team. More specifically, we study what makes successful leadership teams in high-growth private-equity portfolio companies.

These teams operate under unique conditions. The PE context is one of strict time pressure to deliver to a  clear value creation plan. There is little room for error when hiring leaders or manoeuvring high potential employees for leadership roles because every delay or mistake becomes exponentially expensive as time goes on.

This article will detail the requirements of an effective leadership team in a PE context, and gives tips on how to build them.

Characteristic 1: Diversity

The need for diversity in all successful teams is reflected in Haas and Mortensen's enabling condition, "a strong structure". This includes a balance of technical and social skills but also a diversity of backgrounds and perspectives to avoid group-think.

In our work, we have found that high-performing leadership teams are made up of people with diverse skills and experience (domain and situational), but most importantly: diverse behaviours.

Diversity is critical to the way a team operates. If you have a C-suite of individuals who all over-index on the same functional capability, then you have a skills gap. If you have the same level of experience, then they have no one to learn from. And if you have the same behaviours, you will find a team that succumbs to group-think.

Group think in decision making is a danger to performance. Without alternative views, leadership teams fall into complacency and an "us vs them" way of thinking, which alienates other teams in the company, damaging its culture.

The issue is human nature. We all tend to be drawn to people who are like ourselves. So there needs to be a conscious effort to remove emotional attachment and "gut feel" from the hiring process.

Characteristic 2: Sustainability

Leadership sustainability is a key characteristic of an effective team. In a private equity context, this means the leadership team needs to be able to achieve the targets of the value creation plan, at every moment in the journey. 

As each year progresses, the requirements of a leadership team will change as the business evolves and grows. Skillsets required change, and as a C-suite gets larger, the interactions between leaders changes too. The CFO or COO you needed in year one, may not be the same CFO or COO you need in year 3.

Leadership sustainability is critical to a company's ESG responsibilities. It is  unreasonable for an investor to ask a leadership team to achieve the goals of a value creation plan if they have not assured themselves that the team has the capability to achieve those goals, in every year of the plan.

How to achieve diversity and sustainability with people analytics

The way to build a successful team is through a balance of highly skilled, experienced and diverse individuals.

Even today, companies rely too much on a CV and an interview to hire talent. The most emphasis is still placed on the history of performance and the "gut feel" of the interviewer. However, we know from our work that history and personality alone do not make a successful leader.

To ascertain how well a group of individuals will make a successful team, people analytics can help achieve diversity and sustainability in the following ways:

Assessing the functional balance

You can acquire a diversity of skills and experience in your team by looking at the functional balance.

A functional balance chart represents the experience of each leader in a leadership team in different kinds of functional roles within a business.

The chart includes two continuous axes, from Strategic roles to Tactical roles (y axis) and from Value Creation roles to Value Measurement roles (x axis).

Our research into functional balance is to understand the type of distribution of expertise in a senior leadership team that is most likely to facilitate the team’s success. By only looking at the data from the upper quartile of leaders 7,500 exits over the past ten years, we created functional archetypes for each C-suite role.

By mapping a current leadership team on to the chart, we can learn two things:

1. The balance of the team – whether there is a concentration in certain areas or a more even spread of experience and roles and what this can tell us about the likely success of the team.

2. The comparison of an individual’s current role with their functional experience – namely how close to their role’s functional archetype they land, and what this can tell us about their suitability to the role, and the sub-type of that role they are suited to.

Assessing individuals' behaviours

In order to get a deeper understanding of how well a person will perform in a given situation, we need to look at their behaviours. Most well-known psychometric tests focus on personality traits; but it is behaviours that underpin those traits.

Our behavioural assessment tool, PACE, stands for Pragmatism, Agility, Curiosity and Execution. These are the four overarching behaviours we have identified that are themselves made up of a number of sub-behaviours.

For example, Pragmatism is the synthesis of four sub-behaviours: practical, proactive, optimism and personal agency. Combined they make an individual who is focused on opportunities and believe in their capacity to make meaningful change and achieve their goals.

People who score high on Pragmatism are focused on low information environments, are able to take the initiative and are short term thinkers.

Knowing how those behaviours work together across a leadership team is key. A balance of people scoring differently on different behaviours will make up a more diverse and therefore effective team.

Paying attention to data relevance

People analytics tools work when they use data that is relevant to your market. Most well-known psychometric tests rely on surveys from the general population, which is too broad to have any relevance when hiring leaders.

More than 4000 executives have taken the PACE test, which has built a relevant dataset to create archetypes that suit each C-suite role. This is not to say there are some outliers who perform well outside of the archetypal profile, as they are made up of an average of PACE profiles.

Implementing a succession planning strategy

There must be a plan in place at all times to make sure the leadership team is fit for purpose to implement the value creation plan, and maintain leadership sustainability throughout the whole investment journey.

On average, an unplanned CEO change will typically add 18 months to an investment timeline, which is why teams must be prepared in advance for moments of leadership change. There needs to be somebody with the right functional experience and behaviours waiting in the wings for both unforeseen changes and changes mandated by the value creation plan.

The process is made much easier and more accurate with good use of people analytics. Objective data helps remove emotion from the equation and lets leaders think more like shareholders, so they can invest in the success of the business more than in the success of their own performance.

For a detailed guide, read our article: How to manage succession planning in private equity.