Management Audit

Recognizing potential, future-proofing the company

The management audit is a tool for assessing the leadership skills, competencies and potential of a company’s managers – both individually and as a whole, in relation to the strategic direction of the company in question.

Various diagnostic elements (tests, tasks) are used. The core element is always a semi-structured, fully structured or unstructured interview, conducted by psychologically trained consultants.

Short & clear: Our quick summary for those in a hurry:

  • The management audit is a procedure that enables companies to obtain an objective and valid overview of the competencies, skills and potential available in management within a short period of time.

  • Frequent reasons for management audits are strategic realignments, mergers and acquisitions (as part of due diligence or post-merger integration), reorganizations, a change in the board of directors or the desire to give top management the opportunity to assess their personal situation.

  • The preparation of a management audit includes a precise clarification of the assignment as well as transparent and comprehensive communication with the participants about the objectives, content and consequences of the audit.

  • The implementation of the audit and the assessment of the candidates should be based on as many different diagnostic instruments as possible (interview, tests, simulative exercises).

  • A respectful approach to the candidate and transparent communication of the assessments immediately after the audit are further success factors.

  • After the actual audit, the evaluation of the results is discussed with the Management Board/top management in the manager conference and summarized in a management summary

  • A successful audit also means that the results of the audit are translated into measures, e.g. by creating individual development plans together with the participants.

Definition: What is a management audit?

A management audit is a systematic procedure that aims to assess and record the competencies, skills and potential of managers. This is done with the aim of securing and increasing the strategic success of a company.

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Management appraisal and strategic goals

The assessment of managers in a management audit (usually referred to as a management appraisal ) is always based on the company’s strategic objectives. Ideally, not only individual managers are assessed, but an overall view of management is also taken; the potential contribution of the management team to the company’s success is evaluated in order to derive areas of action for personnel development and future recruiting.

Advantages / disadvantages of a management audit

Advantages:

Disadvantages:

DIN 33430 Standard

Like all psychological diagnostics and psychological aptitude diagnostics procedures, a management audit should be based on the standards for psychological testing procedures (DIN 33430).

Similar to the
ISO 9001
DIN33430 (the corresponding ISO standard is ISO 10667) is not a product standard that contains content specifications, but a process standard that describes the necessary steps of a psychological test.

Differentiation from the assessment center

In practice, the terms “assessment center”, “management audit”, “individual assessment”, “development center”, “management assessment” and “executive assessment” are often used interchangeably. In fact, it is not always easy to draw the line:

Even though a management audit is very similar to an assessment center, especially an individual assessment(management assessment), there are some features that distinguish a management audit from an assessment center:

Goal & possible uses of a management audit

The initiator of a management audit is either the company management (Management Board and/or Supervisory Board) or the HR department. Typical reasons for and objectives of a management audit are

Merger or amalgamation

When two companies merge or when a company is acquired as part of an M&A process, there are many functions in the new structure that are duplicated. In order to leverage the synergies of the acquisition or merger, a management audit is used to find the best person for the respective position. Here, a management audit is part of the post-merger integration.

Companies often proceed in such a way that positions are eliminated and new ones created for which the previous managers (in the case of the purchase of a company: both the managers of the purchased and the purchasing company) can reapply.

When a company is purchased, a management audit provides the company management with an overview of the management potential of the purchased company.

Sometimes a management audit is also carried out before the purchase of a company as part of due diligence . The results of the management audit are then incorporated into the company valuation or the amount of goodwill on purchase.

Change of Management Board

When a board member is new to the position – especially if he/she comes to the new company from outside – he/she often wants to get a quick overview of the management quality existing in the company’s management. Often the question behind this is also “who can I fight the battle with to be successful?”

Organizational restructuring

When companies adopt a new structure, the tasks, content and responsibilities within the company change, and with them the demands on managers. Companies often proceed (as in the case of a purchase or merger) in such a way that all positions are first eliminated and the managers can then reapply for the new positions (which are more or less similar to the previous ones).

A management audit then helps to decide how best to fill the newly created positions and how the teams should be put together at management level.

Strategic realignment

Even without organizational restructuring, tasks and roles in the company sometimes change as a result of a strategic realignment. This makes changed success factors relevant for the company, which are identified on the basis of critical incidents. A practical example:

The outsourced IT of a company previously had the parent company as its only customer. The Management Board decides that the IT subsidiary should generate up to 50% of its turnover with third-party companies in future. This means that the IT company has to compete with other IT service providers on the market and managers are faced with completely new challenges.

A management audit helps to identify which managers have the necessary potential for such a more market- and customer-oriented approach and what support (training, coaching) the managers need.

Personnel development for management

Management audits are not only used to back up decisions on appointments, but also to promote management individually and support their development.

Especially in upper management, managers receive little objective, uncolored feedback: the higher up the hierarchy, the less feedback managers receive from their respective superiors. And feedback from employees and colleagues is usually influenced by political interests or a limited perception (employees in their own team only see a small part of the tasks that superiors perform).

Companies therefore sometimes use a management audit to provide top management with well-founded, objective feedback from trained consultants and then provide them with targeted support as part of their management development (e.g. through individual coaching or attending strategy seminars).

Selection or development?

In principle, there are two alternative objectives of a management audit: Selection (e.g. via job appointments following restructuring or mergers) and development (for the individual advancement of top management). In practice, however, both aspects are mixed up.

During a management audit, which is intended to decide on job appointments, the participants always receive specific tips for their personal development. And in a pure development audit, the result of an audit sometimes raises the question for both the Management Board and the participants as to whether someone is still in a position that matches his/her skills and aptitudes.

Manager conference

Participants in a management audit rightly criticize the fact that assessments are derived from a procedure that sometimes lasts less than a day, whereas the company – and in particular the line managers – have known the participant for many years.

This objection is partly justified, because even if a professionally conducted management audit (which is not limited to an interview or a test) is far more than a snapshot, it only captures part of the person.

The manager conference should therefore be part of a management audit. There, each participant is introduced by the consultants conducting the conference and the top management involved in the conference adds their assessments based on their often years of on-the-job experience. Both perspectives are then combined to form an overall assessment.

Management summary

Once the management audit has been carried out, an overall view of the management is presented to top management. Structural strengths and weaknesses are presented in a competence-oriented manner and the resulting consequences for the company’s future personnel development and recruiting strategy are derived.

The participants in an audit are often presented in the form of a portfolio matrix. The “performance potential matrix” is popular:

As catchy and popular as the performance-potential matrix is, its practical usefulness is doubtful. From a diagnostic point of view, “performance” and “potential” are highly correlated (unless the two terms refer to different things: for example, performance in the 100-meter dash and the potential for wrestling).

Success factors for management audits

Management Audit

Discover the skills, abilities and potential of managers.

Our management audit process

The preparation and planning of what happens after the management audit are just as important as carrying out the audit itself. When management audits fail, it is because:

For these reasons, md helps clients to prepare and create a communication concept for the audit.

We also frequently support clients in conducting the (in our view mandatory) follow-up meetings with the participants, in which a concrete, individual development plan is drawn up.

The actual audit, i.e. the diagnostic process with the participants, consists of various components, but the most important part is the detailed personal interview with the participants, in which they report on themselves and their professional backgrounds:

Management audit preparation

Participation in an audit cannot be “trained”. Nevertheless, there are a few things you can do to prepare for the management audit.

Preparation of employees (from the company's point of view), time required

The most important part of management audit preparation for those involved is transparent and comprehensive communication about the reasons, objectives, methods and possible consequences of the audit.

As a manager, how can I prepare for a management audit?

As a manager, the best management audit preparation is self-reflection on your own strengths and areas for development. It can be helpful to obtain feedback from colleagues, superiors and employees – in informal form through a conversation or through formal 360° surveys.

Coaching can also be helpful for management audit preparation, in which an experienced coach gives the manager impulses to reflect on their own leadership values, leadership culture, role in the management team, success factors in their professional history, as well as leadership mistakes and setbacks.

Project example for a management audit

Initial situation

An international insurance group wanted to give its managers at the first two levels below the Executive Board the opportunity to develop personally.

At the same time, the Group was undergoing a strategic and cultural change – more and more traditional insurance processes (contract preparation, claims processing) were to be automated (the so-called “insurance factory”), while managers were expected to act more entrepreneurially, both in improving processes and in developing new products.

Management audit process

  1. Together with the Management Board and HR, the future requirements for managers with regard to the strategic changes were developed in a workshop and translated into competency models, which formed the basis for the assessments in the audit.


  2. Together with the Management Board and HR, the aim and content of the audit were explained to all participating managers in a “town hall meeting” and questions were answered.


  3. The management audit itself was carried out by a limited number of md consultants. The consultants involved in the project were thus able to quickly gain a great deal of knowledge about the organization and share this with each other in an uncomplicated manner.


  4. The focus of the management audit was a long, detailed interview with the participants – conducted by two md consultants in each case. The aim of the interview was to encourage the participants to reflect on themselves, their strengths and weaknesses. In addition, various diagnostic procedures (psychometric procedures to measure cognitive performance , personality and motivation) were carried out online in the run-up to the audit. The audit itself included a complex business case study and a role play.


  5. Participants received feedback on the test results, the individual exercises and their overall impression immediately after the interview. One week after the audit, the participants received a detailed individual results report with the results of the audit, the strengths and weaknesses and specific development tips.


  6. After the audits were carried out, the assessments were presented to the Management Board in the form of a managers’ conference, at which the experience gained from day-to-day work was incorporated into the overall assessments.


  7. Impressions and the psychometric results of the participants as a whole were also presented to the Executive Board in the form of an analysis(management summary). It was reported back to the Management Board that the company has good overall management quality (with 2 exceptions), but that there are significant conflicts between two central areas. md expressed the suspicion that the cause of this conflict could be a conflict between two of the top managers – which they implicitly confirmed. md suggested that contact be made with an experienced clarification helper.


  8. With the support of md, follow-up discussions were held with the participants 6-8 weeks after the audit. The results were discussed and explained there once again. The participants then wrote their own individual development plan, which consisted mainly of self-initiated activities and only rarely required support from HR development.


  9. In a further follow-up after one year, the participants were asked about their overall assessment of the audit (anonymously) and, with one exception, all found it to be transparent, helpful and fair, and the recommended development measures to be positive. The Executive Board found the recommendations for action made by the audit consultants to be very helpful in resolving a long-standing conflict between two areas.


Conclusion

A management audit is an analysis of potential – not only for individual managers, but also for management and the company as a whole.

During an audit, not only the managers are scrutinized, but also the corporate culture and top management. It is important to integrate the audit into the corporate strategy and personnel development, as the areas of development of the organization and managers identified in the audit should be addressed and tackled after the audit.