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ОглавлениеBuilding the Executive Ranks: Current Practices in Developing Future Business Leaders
Patricia M. Weik
RHR International Company
If there is an emerging constant on the business horizon, it is that companies can expect to face a world of increasing complexity, uncertainty, and competitive pressure. As businesses prepare themselves strategically for this future, some companies—from market leaders like Gillette and Best Buy to small professional firms and local chambers of commerce—have put a sharp focus on increasing their supply of leaders capable of meeting these challenges. These forward-thinking organizations are learning through real-time applications about what works and, just as important, what doesn’t in the race to build leadership capacity.
RHR International Company is a firm of management psychologists who have been consulting with current and future leaders of companies around the globe for sixty years. We designed the ExecutiveBench Research Program1 (see exhibit 1.1, page 8) to identify emerging practices in the development of future leaders. Like most benchmarking efforts, we wanted to identify new, innovative models and practices that others might find useful. And we also were interested in identifying areas for improvement—those practices that companies are struggling to effectively implement. In this chapter, I describe the multiphase research effort and present key findings we discovered in the first phase, including a summary of the current state of executive bench strength and best practices in the identification and development of future leaders.
This chapter is structured around four key areas of inquiry. First, we examine the emerging state of the talent market. Here we address questions such as the following: How concerned are companies about the changes in the talent market? How many senior leaders are expected to depart in the next five years? How confident are companies that they can meet their future growth needs by developing leaders?
The second key area this chapter treats concerns how prepared companies are to meet future needs for leadership. This section covers questions such as the following: How effective are companies’ development programs for future leaders? What is the commitment of senior management to growing future leaders?
Exhibit 1.1. Key Findings from the RHR International Company Benchmarking Study
• Most companies are not very confident in their ability to meet future growth needs.
• In most companies talent development is still considered to be a project or program, not a way of doing business.
• Organizations want leaders who have the courage to make the right decisions and who get business done by building strong relationships and inspiring others to drive necessary change.
• Managers of future leaders will play a critical role in development, but most companies are not prepared to fully leverage this resource.
• Uncovering best practices continues to be a challenge, in part because most companies still struggle to measure the effectiveness of their current leadership development practices.
The third area under consideration is best practices that are evolving in the identification and development of future leaders, as well as areas for improvement. We address these questions: What characteristics are companies looking for in their leaders? How are future leaders being identified? How do companies communicate with future leaders (and others)? What experiences have been found to be most important in growing future leaders?
Finally, the last area of inquiry is how to assess the impact and calculate the value added from investments in the future. How are companies measuring the effectiveness of their development processes? And how is the value to the company ascertained?
The ExecutiveBench Research Program
Research Goals
A growing body of literature published over the past decade has focused on how companies successfully grow leaders for the long term. The McKinsey report, “The War for Talent” (Chambers, Foulon, Handfield-Jones, Hankin, & Michaels, 1998), makes the case that high-performing companies consistently develop and reward their highest-performing employees, while High Flyers (McCall, 1998), The Leadership Pipeline (Charan, Drotter, & Noel, 2001), and Voice of the Leader (Corporate Leadership Council, 2001) explore, among other issues, what experiences best prepare young managers for the increased responsibility of senior leadership. At RHR International, our direct experience in consulting with hundreds of companies of all sizes has confirmed what the literature suggests: companies are taking very seriously the issue of developing future leaders and making it a strategic priority.
As companies are focusing increasingly on talent development, they are asking for guidance as to the best practices in developing leaders with high potential. And their questions about best practices are becoming more specific: How many individuals should be in a development program? How should they be selected? Do you tell them they are on a high potential list? The research I describe in this chapter was designed to answer questions like these in a systematic and reliable manner. We wanted to find out just how companies are managing the development of their future leaders, from design through execution. In particular, we wanted to know how practices are evolving (and what practices are most effective) and where companies are still struggling to effectively grow the next generation of leaders.
Research Design
Phase 1 of the research consisted of a survey of current practices in the selection and development of future leaders. Since we were looking for fairly detailed information about current development practices, we knew that the length of the survey could be a problem. We piloted two different versions of the survey in the spring of 2003. One pilot survey was administered at a Business Week conference cosponsored by RHR International. The other pilot survey was administered at the annual meeting of an international trade association. The pilot questions were evaluated for clarity and for the utility of the responses they generated. We rolled out the final ExecutiveBench Survey in October 2003, administering the survey both online and in hard copy. The target audience for the survey included senior line executives, senior human resources executives, and HR and organizational development professionals responsible for leadership development.
As of April 2004, 115 companies had completed the survey. The research results that follow are based on analyses of those 115 respondents. Phase 2 of the research, which began in October 2004, involves a series of follow-up interviews with a subset of the companies that responded to the survey. The interviews are designed to understand how companies’ development practices evolve over time and how the current leaders and organizational culture shape the choices companies make in refining and augmenting those practices. At the time of this writing, data collection is still in progress for Phase 2, so we are unable to report those findings in full here. Where possible, I will draw on preliminary data from the interviews to further inform the results from Phase 1, the survey of the 115 companies.
Research Sample
The 115 respondents to the ExecutiveBench Survey came from nineteen different industries.2 The majority of the companies, about 90 percent, were based in the United States. But over half of these U.S. companies had significant international business operations. In terms of company size, responses were fairly evenly distributed between companies over $1 billion in annual revenue (54 percent) and under $1 billion (46 percent). About a quarter (27 percent) of companies reported revenues under $200 million, 19 percent reported revenues between $200 million and $1 billion, 34 percent reported revenues between $1 billion and $10 billion, and 20 percent reported revenues over $10 billion. It appears to be a fairly representative sample of American businesses.
Individual respondents came from a variety of backgrounds, with the largest proportion of respondents (43 percent) being senior vice presidents of human resources. CEOs comprised 20 percent of the respondents, while other senior line executives made up 22 percent of the sample. HR/organizational development professionals below the level of senior vice president made up 15 percent of the sample. All in all, we were satisfied that our informants were in a strong position to comment on their company’s practices.
Findings from the Study
State of the Talent Market
Although the popular press and, to a lesser extent, some consulting companies have been warning of a looming talent shortage, just how seriously senior managers are taking this threat has been less clear. Is this a burning issue to business leaders or some vague, ethereal concern about the distant future? We wanted to go beyond case examples and assess how much of a talent shortage companies across the board are anticipating. Thus, one section of the ExecutiveBench Survey explores how current leaders view their bench strength, the role of retirements at the top, and their level of concern around having the talent to meet their future growth needs.
The overall picture of projected leadership needs through 2010 is a sobering one (see figure 1.1). Companies anticipate significant departures within the senior management ranks (defined as the two levels below the CEO) by the year 2010. Half of the companies reported that they expect to lose 50 percent or more of their senior managers, while 15 percent said they expect to lose 75 percent or more of their senior managers.
Figure 1.1. Anticipated Departures of Senior-Level Executives
Virtually all companies are relying to some extent on outside hires to replace departing managers (see figure 1.2). By far the largest proportion of companies, or 41 percent of respondents, reported that they expect to hire one-quarter to one-half of their leaders from outside over the next five to seven years. In addition, 60 percent of companies expect to hire at least 25 percent of their leaders from outside. It appears that companies are looking externally for talent at a somewhat increasing rate: a 1998 study by the Center for Creative Leadership reported that only about 30 to 40 percent of all executive placements were recruited from outside the hiring company (Sessa, Kaiser, Taylor, & Campbell, 1998).
Figure 1.2. Anticipated Hires of Outside Leaders
It is unclear whether companies regard the increased reliance on outside hires as a good thing. Many companies struggle to know what is the “right” level of turnover for bringing in innovative ideas and needed strategic or culture change. The ExecutiveBench Survey attempted to shed light in this area by measuring the level of concern about a potential talent shortage. Companies were asked how confident they were that they would have sufficient high potential talent to meet their future growth needs. Only 25 percent of companies reported that they were highly confident in their ability to meet their future growth needs with high potentials. The remaining 75 percent were only “somewhat confident” or “not at all confident” about the state of their internal capacity to meet future leadership demands.3
Moreover, when the relationships between expected losses of senior leaders, anticipated numbers of outside hires, and confidence levels were jointly examined, a consistent pattern emerged. The number of senior leadership departures through 2010 and the number of anticipated outside hires were also both significantly correlated with confidence levels (Spearman’s rho = .262 and .330 respectively, p < .01).
Thus, companies that expect more senior leader departures and also anticipate having to rely on outside hires to replace senior leaders are the least confident that they will be able to meet future growth needs. These companies do not appear satisfied with the greater reliance on outside hires to fill key roles. And perhaps for good reason: the CCL study cited earlier found that external hires are much less likely to be successful than internal hires under a range of common conditions like highly volatile industries, when industry and product knowledge is vital, and in organizations with firmly rooted cultures (Sessa et al., 1998). This suggests that the anticipated mass changing of the guard at the top of companies will likely bring significant change and discontinuity as seasoned leaders depart and are replaced by a combination of less seasoned insiders and new external hires.
Figure 1.3. Company Confidence That High Potential Talent Will Address Future Growth Needs
Level of Preparedness for the Future
Experience building bench strength. Another goal of the ExecutiveBench Survey was to understand how prepared companies are to meet the challenges of managing and growing key talent. The survey explored how long companies have been formally identifying and developing future leaders. We found that formal attendance to the growth of future leaders is a fairly recent practice for most companies, with 57 percent reporting that they have been identifying and developing future leaders for less than three years. The most frequently endorsed response was “1 to 3 years,” with 31 percent of companies endorsing this response.
Company size seems to matter (see figure 1.4). Companies with over $1 billion in revenues have, on average, been developing future leaders longer than smaller companies. For example, of the twenty-two companies that have been identifying and developing future leaders for seven years or longer, 64 percent were companies with over $1 billion in revenue.
Figure 1.4. Longevity of Formal Development Programs for Future Leaders
Senior management commitment to future leaders. The commitment of the senior executive team is particularly crucial when building sustainable talent development programs. Identifying and developing high potential talent is by its nature a long-term proposition that is unlikely to reach fruition without the firm endorsement and support of senior management. In addition, future leaders are by definition company resources that the senior team needs to understand in order to make wise decisions in terms of future assignments. And at some point the development needs of future leaders will aggregate around broader and higher-level abilities like strategic thinking and planning and managing cross-functional teams from a distance, and senior leaders will be needed to coach and mentor future leaders in these key areas.
When asked what roles the senior team plays in the identification and development of future leaders (see exhibit 1.2), by far the most frequently endorsed activity (91 percent) was the identification of individuals with high potential. (In comparison, the second most endorsed activity, at 69 percent, was defining the leadership abilities needed in future leaders based on the business strategy.) Since, in many companies, future leaders may be positioned several levels below the senior team, the question emerges of how well the senior managers actually know their future leaders. In some companies, the senior team devotes a great deal of time to talent roundtables where potential future leaders are discussed regularly and in detail. In other firms, senior leaders are regularly assigned as mentors to younger managers with high potential. However, it is unlikely that these practices are utilized by 90 percent of companies (since, for example, only 67 percent of respondents said that their senior leaders coach and mentor future leaders). If many senior leaders do not have direct exposure to their high potentials, the question becomes this: How else are executives gathering reliable and credible data about future leaders? This is a topic that will be covered in more detail in Phase 2 of the research program. Preliminary results from the interviews point to two additional areas: some companies develop future leaders using action-learning projects (Marquardt, 2004) that involve senior leaders as advisors or sponsors; other companies invite future leaders to off-site meetings or other events carefully designed so that senior leaders can get to know them in a social setting.
We found that senior leaders generally are playing an active role early in the development process. In addition to identifying high potentials, 65 percent of companies said their senior leaders allocate resources for future-leader development, and 63 percent make future-leader development a strategic priority. However, only 46 percent of respondents reported that their senior managers hold others accountable for talent development. This result suggests that while many companies are increasing their focus on talent development, far fewer have figured out how to weave the practice into their cultural fabric as a way of doing business. This result may be due largely to the fact that growing future leaders is a fairly recent priority. In companies that have been identifying and developing future leaders longer, senior leaders are more involved in growing their future leaders, as evidenced by the positive correlation between longevity of formal programs with the endorsement of a greater total number of development activities performed by senior management (Spearman’s rho = .358, p < .01).
Exhibit 1.2. The Senior Team’s Role in Future-Leader Development
Q: What roles do you and your senior team play in the identification and development of your company’s future leaders?
(Percentage of companies that endorsed each activity, N = 115)
| • Identify individuals with high potential | 91% |
| • Define leadership abilities based on strategy | 69% |
| • One-on-one coaching or mentoring | 67% |
| • Allocate resources for leadership development | 65% |
| • Make development of talent a strategic priority | 63% |
| • Hold others accountable for talent development | 46% |
| • Select external leadership development partners | 39% |
| • Uncover stretch roles | 38% |
| • Other | 6% |
In the future, as future-leader development practices mature, it is likely that senior leaders will be more involved with growing the next generation. Companies that report greater involvement by senior management in developing future leaders also report a higher level of confidence in their ability to meet future growth needs by drawing on high potential talent (Spearman’s rho = .221, p < .05). Thus, it seems clear that the active involvement and commitment by senior management is pivotal to building a deep pool of talent.
Practices in Identifying and Developing Future Leaders
Commonly sought characteristics. The overall picture of what companies are looking for in their future leaders suggests a melding of traditional individual strengths—like courage to make the right decisions (75 percent of companies endorsed) and decisiveness (60 percent endorsed)—with a more nimble, relational style. When asked what characteristics they look for when identifying and developing future leaders, the number one response was the ability to build strong relationships internally and externally (86 percent), closely followed by openness to change and growth (81 percent).4 In contrast, only 57 percent emphasized the ability to identify and develop talent, reinforcing the idea presented earlier that talent development is not necessarily a core value or a strategic priority, even in companies that are seeking to improve their ability to grow future leaders. Only 45 percent of respondents emphasized superior intellectual abilities in their future leaders, an interesting and somewhat puzzling result given the increasing complexity of the global business environment. This result will be explored in more detail in Phase 2 of the research.
Exhibit 1.3. What Companies Look for in Their Future Leaders
(Percentage of companies that endorsed each ability, N = 111)
| • Ability to build strong relationships internally and externally | 86% |
| • Openness to change and growth | 81% |
| • Courage to make the right decisions | 75% |
| • Ability to motivate and inspire others | 75% |
| • Level of self-confidence | 70% |
| • Awareness of one’s own strengths and limitations | 68% |
| • Personal desire to succeed | 68% |
| • Commitment to the success of the business, even when personal sacrifice is involved | 67% |
| • A core set of leadership values that the individual lives by | 67% |
| • Broad, comprehensive knowledge of the business | 65% |
| • Decisiveness | 60% |
| • Ability to identify and develop talent | 57% |
| • Superior intellectual abilities | 45% |
| • Other | 12% |
Identifying future leaders. Nearly two-thirds (62 percent) of companies reported that they tell individuals they are perceived to have high potential, but many respondents qualified this statement by adding that the conversations happen informally and inconsistently. Of the many issues companies are grappling with in this area, how to communicate to the organization that certain individuals have been targeted as future leaders is apparently one of the most daunting. Some companies fear they will inflate the expectations of talented managers and then disappoint them. Others are concerned about anointing heirs apparent, who then may grow complacent and lose their drive to succeed. Still others are concerned about demoralizing solid performers who are not identified. These concerns are often exacerbated when the company culture is highly egalitarian (so no one is “special”) or where employees do not often get direct performance feedback. Managers of future leaders are key to this feedback process, but our early investigation suggests that companies do not prepare their managers adequately to communicate the right, balanced message to future leaders and also to engage in real dialogue with them about their career interests, family and personal needs, and all of the other issues related to advancement and assuming more significant responsibilities. (See also chapter 2 for reasons that organizations tend to be naive about what it means for individuals to climb the corporate ladder.)
Developing future leaders. In developing future leaders, companies rely heavily on internal resources, particularly the managers of those future leaders. An actively involved boss was the most important development resource, cited by 84 percent of companies. The second most important experience was stretch assignments (endorsed by 71 percent of companies), followed by mentoring and internal coaching with senior executives. Peer contact and feedback, in contrast, were endorsed by less than half of the companies, both of which are experiences that the Voice of the Leader research (Corporate Leadership Council, 2001) suggested up-and-coming leaders value and would like to have more of. Stretch assignments and actively involved bosses were also the experiences rated as being most effective in developing future leaders. Development assessments by outside consultants ranked third in effectiveness, even though only half of the companies reported using such assessments as part of the development process.
Larger companies, on average, tend to use a greater variety of development experiences to grow future leaders (Spearman’s rho = .315, p < .01). Thus, while larger companies have a more diversified portfolio of development interventions, there is not a great deal of difference in the kinds of experiences smaller and larger companies rely upon. In terms of what does distinguish these two, our early interviews suggested that larger companies rely on internal executive education and formal action-learning projects more frequently than do smaller companies. Companies that use a greater variety of experiences in developing their leaders are also more confident that these leaders will meet their future growth needs (see exhibit 1.5; Spearman’s rho = .205, p < .05). Providing a greater diversity of experiences to future leaders may prove effective on two fronts: First, it suggests that companies are tailoring the experiences to the individuals (that is, there is no boilerplate plan that is being applied to all future leaders). Second, it suggests that individual future leaders are being developed through a variety of methods in order to develop a greater breadth of skills, perspectives, and abilities.
Exhibit 1.4. Experiences That Companies Rely on to Develop Future Leaders
(Percentage of companies that endorsed each activity, N = 105)
| • Actively involved boss | 84% |
| • New, significant roles that stretch individual | 71% |
| • Mentoring relationships with senior executives | 70% |
| • Coaching relationships within company | 67% |
| • External executive education programs | 67% |
| • Formal development planning | 67% |
| • In-house executive education programs | 54% |
| • Use of outside-the-company coaches | 52% |
| • Development assessments by outside consultants | 51% |
| • Peer contact and feedback | 48% |
| • Rigorous monitoring of progress against development goals | 41% |
| • Other | 4% |
Measuring Impact and Value
As noted in chapter 4, the question of impact or return on investment is important to those responsible for leadership development. Respondents generally reported having difficulty in measuring the effectiveness of development experiences. Only 41 percent of companies, for example, relied on rigorous monitoring of development goals. And our preliminary interviews of HR professionals suggest that rigorous follow-up to assess whether development plans are being executed is not currently a common component of future-leader programs. Nor do companies systematically track how their leaders change or progress as a result of development experiences.
Exhibit 1.5. The Perceived Effectiveness of Development Experiences
(Average rated effectiveness of each activity where 1 = ineffective and 5 = extremely effective)
| • Developmental, stretch assignments within company | 3.9 |
| • Involved boss | 3.7 |
| • Development assessments by outside consultants | 3.5 |
| • In-house executive education programs | 3.4 |
| • Formal development planning | 3.4 |
| • Mentoring relationships with senior executives | 3.4 |
| • Use of outside-the-company coaches | 3.3 |
| • Coaching relationships within company | 3.3 |
| • Rigorous monitoring of progress against development goals | 3.2 |
| • External executive education programs | 3.1 |
| • Peer contact and feedback | 3.1 |
Any analysis of ROI has to begin with measuring the actual impact of the development intervention. When asked in the survey, “How should organizations measure ROI when deciding to invest in the development of future leaders?” more than half of the respondents did not answer or reported that they did not know the answer. The next most frequently reported response was retention of future leaders, the impact of which respondents said could be measured in the reduction of the numbers of leaders hired away by other companies. Companies reported measuring the value of retaining future leaders in terms of reductions in the costs of recruiting replacement leaders. They did not attempt to measure the value of keeping leaders in terms of opportunity costs, such as the increased operational efficiencies resulting from avoiding having key positions vacant for a period of time, or minimizing the timeline for integrating outside hires. (See chapter 3 for the extra time it takes to assimilate an external hire.) Promotion of future leaders into key roles was the next most frequently mentioned way to measure ROI, followed by shorter learning curves for the future leaders when they are promoted into new key roles, and fewer costly mistakes as they learned the ropes in new roles.
