Harvard Business Review - Expertized! ? 4 harvard Business review ... Spotlight on influenCe. language

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HBR.ORG JulyAuGust 2013 reprinT r1307eSpotlight oN iNFlUENCEHow Experts Gain Influenceto increase their impact, functional leaders should develop four specific competencies. by Anette Mikes, Matthew Hall, and Yuval Millohttp://hbr.orghttp://hbr.org/search/R1307EArtwork Jessica Snow Board Game, 2011, acrylic on panel 18" x 18"SpotlightCopyright 2013 harvard Business sChool puBlishing Corporation. all rights reserved.2 harvard Business reviewJulyAugust 2013Spotlight on influenCeAnette Mikes is an assistant professor in the accounting and management unit at harvard Business school. Matthew hall is a reader in accounting at the london school of economics. How Experts Gain InfluenceTo increase their impact, functional leaders should develop four specific competencies. by Anette Mikes, Matthew Hall, and Yuval Millon 2006 the risk management chiefs of two British financial institutionswell call them Saxon Bank and Anglo Bankwere in similar situations. Each reported directly to the CEO and had, in theory, the same influence in their organiza-tions. But by 2011 Saxons risk manage-ment group, unified around a common purpose, was deeply engaged in critical work throughout the bank, while An-glos, divided into two specialized and loosely con-nected groups, had little visibility outside specific areas of expertise. Our close study of these two banks offers lessons for other functional experts in search of influence, from management consultants and internal auditors to HR and marketing executives. We have identified four competenciestrailblazing, toolmaking, team-work, and translationthat help functional leaders or groups in any organization compete for top man-agements limited time and attention, and ultimately increase their impact. Saxon and Anglo werent twins: Saxon focused on consumer lending in a geographically concentrated, Yuval Millo is a professor of social studies of finance and management account-ing at the university of leicester, in the united Kingdom.mature, and competitive market and was therefore seen as risk-averse. Operating functions, including a relatively large risk management group, were cen-tralized. Anglo focused on riskier corporate lending in geographically dispersed emerging markets. Its risk function consisted of two groups: corporate risk management, dedicated to companywide risk moni-toring and regulatory compliance, and country-level (local) risk management embedded in the busi-ness units, which advised on big deals and lending strategy. Despite those differences, we think the influence-building strategy Saxons chief risk officer (CRO) and her team pursuedthat is, their embrace of all four competenciescould also have worked for Anglos risk managers, had the two groups been able to combine their strengths. trAilblAziNgfinding new opportunities to use expertise Individuals and functions high in this competency cast a wide net in order to identify and frame issues that top management is not adequately addressing. This gives them a great advantage in the internal competition for key decision makers attention.JulyAugust 2013harvard Business review3For arTicle reprinTs call 800-988-0886 or 617-783-7500, or visiT hbr.orghttp://hbr.orgIn some firms, the job of risk management is to police the business for compliance; in others, it helps the organization identify uncertainties and convert them into manageable risks. At Saxon, however, the CRO went further. In her initial years at the bank, she made a habit of spending one day a week talking to staff deep in the organization, and her team mem-bers followed suit. They felt that they had to under-stand the banks strategy and the businesses opera-tions because, as one senior risk officer explained, you cant talk about the risks in the business with-out actually telling the story of what the business is doing. In this way, Saxons risk management group identified several internal and external issues that corporate needed to consider.Saxons CRO also demandedand was granteda seat at the weekly executive committee meetings and the monthly board meetings, which gave her visibility and a regular opportunity to assert a risk management perspective in the discussion of im-portant decisions. Moreover, she had direct access to nonexecutive directors, who used her expertise as ammunition with which to challenge top man-agement. As one nonexecutive director commented, You want to have a really feisty CRO who just tells you the truthone who calls a spade a spade. All those things significantly expanded the groups mandate.At Anglo, the local risk managers had close re-lationships with business unit managers; a good understanding of specific products, industries, and countries; and the authority to shape the lending portfolios size and composition. They scanned the environment and talked to business generators regularly so as to catch wind of developments that could affect their portfolio risk. But because their mandate was concerned more with revenue growth and credit risk control than with operational effi-ciency, their scanning activity was necessarily nar-rower than that of their counterparts at Saxon. More-over, Anglos corporate risk team was on the lookout for regulatory issues and techniques to ensure com-pliance with capital adequacy standardsnot for new ways to advance risk management throughout the firm. toolMAkiNgdeveloping and deploying tools that embody and spread expertise Identifying important business issues is only the first step. Developing tools that help corporate-level executives analyze and interpret those issues is an-other matter. The visibility of Saxons CRO in high-level governance forums required her to present her perspective in a distinctive yet accessible language. To do this, she and her group came up with tools such as a quarterly risk report, which was presented to the board. Toolmaking was often the groups opportunistic response to a perceived issue that warranted further discussion. For example, noticing that the quarterly risk report was prompting forward-looking ques-tions from the board, the group decided to introduce formal future-oriented reporting practices, which in turn led to more new tools: scenario planning tem-plates and early-warning indicators. Anglos corporate risk team developed many companywide risk tools for regulatory compliance. The managers, recruited from other banks famed for model-based, heavily quantitative risk management, were concerned about the lack of a common risk Compliance Champions (strength: toolmaking) play an important regu-latory role but do not shape their or-ganizations agendas or actions. their tools reflect mainly their own exper-tise and are therefore not regarded as central to the day-to-day running of the business. anglos corporate risk managers are an example.Business Partners (strengths: trailblazing, teamwork, translation) gain the ear of decision makers by producing usable analysis and inter-pretation. But influence of this type is limited because it depends on the managers personal involvement with senior executives. anglos local risk managers are an example.technical Champions (strengths: trailblazing, toolmaking) make their tools so easily understandable and relevant that they themselves are not needed to make sense of the information. Consultants generally fall into this category. this common type of expert does not appear in our two banks.Engaged toolmakers (strengths: trailblazing, toolmaking, teamwork, translation) develop tools that em-body and disseminate their expertise throughout the firm but ensure that they remain necessary for interpret-ing, communicating, and acting on the information. saxons risk manag-ers are an example.influential experts We found that individuals who combine all four compe-tenciesengaged toolmakersare best equipped to gain organization-wide influence, but other types of experts, who exhibit only some of the competencies, can still be influen-tial, depending on the structure, strategy, and management style of their companies. 4 harvard Business reviewJulyAugust 2013Spotlight on influenCelanguage and the consequent difficulty of aggregat-ing the banks risks at the group level. Nonetheless, they pushed for the development of advanced tools, such as economic capital models, even though regu-lators allowed (and Anglo had previously adopted) less technically challenging and more user-friendly compliance approaches. Meanwhile, Anglos local risk managers dis-tanced themselves from this effort. They had their own valuable tools and heuristics for judging the risk of deals and portfolios in their domains, but these were carefully guarded, not disseminated through-out the company. tEAMworkusing personal interaction to take in others expertise and convince people of the relevance of your own Functions that engage heavily in toolmaking need to enroll supporters and users. One approach is to co-opt people into collaborating on the creation or im-provement of the tools, seeking out their feedback and incorporating it into the design. Saxons risk management group, for example, gave divisional managers early versions of the scenario planning templates. The managers could then discuss them with their senior staff, provide feedback, and see their own influence on the final templates. The risk management group also sought out allies and col-laborators in other functions. For example, the sce-nario planning templates were deliberately attached to a planning tool already used by corporate finance, making it much easier to persuade busy managers to adopt them. The early-warning system benefited from cooperation with the chief economists team and with the business lines. Anglos corporate risk management group did not collaborate with the general managers on its eco-nomic capital tools. Rather, it positioned them as a regulatory requirement of the Basel II capital accords and claimed that they were superior to existing capi-tal measurement practices used in planning and per-formance management. But the business managers were convinced neither of the new tools necessity nor of their superiority. As one senior risk manager commented, The businesses are coming back and saying, Guys, wake up! Thats not the way we run the bank.Anglos senior local risk managers were better at teamwork. They understood the sales organiza-tion and were motivated to act in partnership with it; their bonuses depended both on revenue growth and loss minimization. They also had decision au-thority on deals, which gave them a double handle over the sales organization: They could stop enthusi-astic salespeople from taking on overly risky invest-ments and guide them toward desired ones. This approach was predicated on the local risk managers business judgment and the trust between them and the salespeople. But while these one-to-one relation-ships were effective deal by deal, they did nothing to extend risk managements influence throughout the organization. trANSlAtioNpersonally helping decision makers understand complex content To remain influential, experts need to help others use their tools and interpret the results. Although the quarterly report Saxons risk management group produced contained output from complex risk mod-els, the CRO and her officers took great care to keep it free of technical jargon. For example, the first three or four pages were dedicated to a self-evident traf-fic light representation of risks. They also worked alongside board members and business managers as they considered the tools and their outputs. Feed-back was unanimously positive. The result was in-creasing visibility for the risk function in important organizational debates and decision making. idea in brieftHE QuEstiOnfunctional experts often vie for attention from top man-agement in an effort to have more influence on decision making in their organizations. Whats the best way for them to accomplish that?tHE AnAlysisthe authors studied three sets of risk managers at two uK banks from 20062011 and noted differences in how the managers used and shared their expertise.tHE FindinGsinfluence came from four competencies: trailblazing, toolmaking, teamwork, and translation. the managers who combined all four had the greatest visibility and impact.JulyAugust 2013harvard Business review5For arTicle reprinTs call 800-988-0886 or 617-783-7500, or visiT hbr.orghttp://hbr.orgNotably, in response to the deteriorating economic conditions in 2007, the CRO presented the groups scenarios to the executive risk committee, which ended up using them, and the CROs interpretation of them, to frame the uncertainties the bank faced. Anglos local risk managers, as weve noted, could communicate well with business unit managers individually. However, they transferred only the knowledge their tools generated, not the tools them-selves. The banks corporate risk managers did try to promulgate tools but used technical jargon instead of translating concepts into the language of the busi-nesses. When the group tried to promote economic capital forecasting to provide a common language for aggregating risks at the group level, general manag-erswho typically used income-statement rather than balance-sheet forecasts to frame their decision makingshunned the idea. patterns of influence In combining all four competencies, Saxons risk managers were what we call engaged toolmakers (see the sidebar Influential Experts). This helped them gain influence throughout the organization over the five-year period we studied (which hap-pened to coincide with a global financial crisis, mak-ing it even more important for the risk function to have a strong voice). They consistently scanned the company and the external environment for opportu-nities to make a difference and then developed the toolssuch as the quarterly risk report, the scenario templates, and the early-warning systemto formal-ize and spread their expertise. While keeping control of the overall design and implementation of these tools, the CRO and her officers incorporated busi-ness managers insights and made sure everyone could understand the findings. As a result, the group began to help frame important debates about criti-cal issues, from the performance evaluation of divi-sional heads to Saxons response to the credit crisis.In contrast, Anglos corporate risk management group was seen as necessary for regulatory compli-ance but not relevant to running the business; the tools it developed did not gain traction. Local risk managers were admired for their knowledge of how the operating units really functioned and had strong connections with local leaders, but their organiza-tional influence was limited to those personal interac-tions. (The exhibit Combine All Four Competencies for the Biggest Impact shows how the three groups can be differentiated along the four competencies.)Ultimately, of course, you cant build or wield in-fluence without support from top management, and experts roles and the nature of their influence must fit the organizations strategy and structural needs. In some situations, for example, the cultivation of just two competencies might be enough. For experts who interact with business managers by means of spreadsheets, reports, and databases, toolmaking and translation will make their work a natural and welcome part of organizational debate and action. Those who aspire to interact with business manag-ers in a partnership role, without disseminating their tools widely, can use teamwork and translation to re-main relevant and effective. A selective approach to the competencies can help experts raise their profile. Nonetheless, we believe that those who are strong in all four are likely to be the most influential. hbr reprint r1307eHiGHHiGH HiGHHiGHlOwMEdiuMtrAilblAziNg toolMAkiNgtrANSlAtioN tEAMworksAxOns Risk MAnAGERsAnGlOs lOCAl Risk MAnAGERsAnGlOs CORPORAtE Risk MAnAGERsMEdiuMCombine All Four CompetenCies For the biggest impACtthis diagram shows the degree to which risk managers at two financial institutions demonstrate the four competencies we have identified as crucial for helping experts gain visibility and influence. saxon Banks were high in all four, and so they had a strong voice in the banks decision making. anglo Banks were divided into two groupscorporate and localeach of which was high or medium in only some of the competencies. as a result, those managers had limited organizational influence. 6 harvard Business reviewJulyAugust 2013Spotlight on influenCe For arTicle reprinTs call 800-988-0886 or 617-783-7500, or visiT hbr.orghttp://hbr.org/search/R1307Ehttp://hbr.org


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