Leadership Development and Succession

The average return for shareholders of the top talent-focused companies is more than tenfold that of the least talent-focused companies, War for Talent, 1998.

During the next five years, more than two million Australians will be in the normal age for retirement from the workplace. This is an increase of 25% (Australian Bureau of Statistics). If the economy continues to grow, the increase in demand for talent will outstrip the growth of the talent pool.

It is common in organisations today to experience a shortage of leadership capability at a range of levels. This is driven by a number of factors, including:

• Inappropriate promotion of technical experts
• Low skill levels
• Rapid growth and change
• A rise in retrenchments due to changing role requirements
• Key people being poached by the competition
• A difficulty in retaining talented people

But organisations do have choices in how they build leadership capability. In our experience, they normally respond in one of three ways:

1. Intensify their efforts to recruit hard-to-find and increasingly expensive people from outside
2. Do little or nothing and probably experience competitive decline
3. Tap into the quality people already in the organisation, thus growing and keeping their own talent

The third option is, in our view, the most desirable: by finding effective ways to identify and grow their own leadership talent, organisations can ensure that they have the people they need in an increasingly challenging business environment.

Economic Arguments for Developing Leaders

Fundamentally, there are three main arguments in support of in-house leadership development:

Argument #1: Recurring costs are reduced

Put simply, it is more cost effective to identify, develop and retain leadership talent than to replace lost talent with recruitment from the external market. Various studies estimate (conservatively) that the cost of replacing an executive can be up to several times the salary of that executive. For example, research from Ernst and Young estimates the average cost of replacement at $1 million.

Argument #2: Economic outputs improve

There is a growing body of research and evidence that clearly shows the incremental economic value that talented, high performing people deliver.

Source: McKinsey's War For Talent (1998)

Argument #3: Enterprise value is maximised

Research shows a major difference in average share performance between organisations with a culture of talent management, and those without. As shown on the following diagram, the difference is striking.

Source: Human Capital as a Lead Indicator of Shareholder Value (2002)

The evidence strongly suggests that investing in and implementing a leadership development program will result in a demonstrable impact on bottom line organisational performance.

Identifying High Potentials

The arguments for investing in leadership development are certainly powerful.

But one key to fully realising the Return on Investment is to invest in the right people in the first place. Although to some extent this applies less to existing leaders, organisations need to understand how to identify high potentials: those individuals who are most likely to strengthen the organisation's leadership bench strength.

The "float to the surface" theory is popular in some organisations, suggesting that good performers simply attract attention quite naturally. Our view is that this doesn't happen and our experience strongly suggests that organisations need to be active in their search for high potential people. Unfortunately, many senior leaders feel that they are highly perceptive and already have a good idea of who the 'up and coming' people in the organisation are when, in reality, they don't!

Recent research has confirmed that, while managers are quite adept at rating performance in current roles, they are poor at rating people for their potential to perform in different, perhaps more challenging, roles. Typically, they fail to look throughout the organisation and instead develop a view based solely on personal knowledge and experiences. This helps perpetuate the 'old boy' system and can give people who currently interact regularly with senior managers a distinct advantage.

There needs, therefore, to be a process that will accurately identify people who have the right combination of skills, ability and motivation to take advantage of, and benefit from, leadership development initiatives.

In our experience the process for identifying high potential individuals should contain two elements:

• The first of these is a nomination process, whereby all senior executives and major business heads are asked to suggest people who have leadership potential. To make this process work, there needs to be a uniform and broad set of criteria against which people are evaluated.
• The second is to support the nomination process with a more objective evaluation of the potential of those people identified through the nomination process. This is best done using a psychometric assessment of personality attributes and analytical skills which is then considered carefully to make predictions concerning leadership potential and possible executive derailers that have the capacity to impair effectiveness in a leadership role. But other forms of assessment can also be used: the point is that organisations should not rely solely on a nomination process.

Ultimately a decision needs to be made concerning whether leadership development is a worthwhile exercise based on the results of the nomination process and the objective assessment. Normally this is done by a review team comprising senior business leaders who make the final decisions. These are essentially a “sanity check” and an opportunity for the business to confirm that the group of high potential individuals have the appropriate composition and diversity, and the desired representation in terms of product, function or business unit.

This may seem like a laborious, time consuming and even expensive process.

But better selection of people prior to investing significant sums of money in their development will produce a tremendous measurable return for the organisation and prevent money being wasted later.

Understanding Organisational Talent

Defining Required Leadership Capabilities

If an organisation does not have a clear and well-defined profile of what it wants in its future leaders, there is no way it will be able to effectively develop either existing leaders or high potential people for future leadership roles.

Organisations need to define carefully and accurately the characteristics of the leaders that will carry it into the future.

We have found that a well-defined Success Profile should contain four types of information:

1. Competencies - what leaders need to be capable of. These are clusters of behaviour that are related to success in a leadership role.
2. Executive Enablers and Derailers - personal attributes that might facilitate or hinder success as a leader even when everything else is effective. Cognitive ability is sometimes included here as it is, in the broadest sense, a personal attribute.
3. Key Knowledge - what leaders need to know. This refers to the degree of understanding that leaders need to have about how the organisation operates.
4. Key Experiences - What leaders need to have done. These describe the kinds of situations that someone entering a leadership role or progressing to a more challenging leadership role should have experienced or at least have had some exposure to.

There needs to be a process for determining the competencies, enablers and derailers, key knowledge and key experiences associated with leadership success. This process should include high performing existing leaders and group meetings with top management regarding their vision for the organisation.

» Click here for more information on Success Profiling

Diagnosing Strengths and Development Needs

Once an organisation has defined the capabilities and attributes of effective leadership, the next step is to conduct a diagnosis of strengths and development needs. This can be done with either high potentials who have little leadership experience or with existing leaders as a means of identifying and leveraging their strengths and addressing specific development gaps.

The developmental diagnosis can involve a range of assessment tools. When several complementary assessment tools are used to measure the various aspects of leadership potential it is much more likely to be accurate because there will be a more holistic understanding of the person. The exercises may include a combination of:

• Business Simulations: exercises that simulate the sorts of challenges likely to be encountered in a leadership role
• 360º Surveys: these allow a comparison of a person's self-perceptions with the perceptions of others who are familiar with his or her behaviour
• 360º Interviews: these are a systematic means of gathering competency and derailer information from a number of people who work with the person being assessed
• Personality Questionnaires: objective measures of underlying personality attributes
• Competency Based Interviews: interviews that investigate how past work experience relates to the leadership capability profile

» Click here for more information on Assessment and Development Centres

Prioritising Development Needs

Assessment of strengths and development needs produces a great deal of data for the individual and the organisation. But before development activities can be agreed and targeted, participants must have a firm grasp of the areas in which they have strengths and those that they need to develop.

To do this, leaders and potential leaders must accomplish four things:

1. They must understand the contents of the Success Profile and why it is important for leadership success
2. Understand the findings from the diagnostic assessment as they relate to the Success Profile and to past feedback and performance
3. Develop a list of strengths and development needs in each of the four categories in the Success Profile
4. Prioritise development needs

Then the process of building and implementing an effective development plan can begin.

» Click here for more information on Development Planning

Strategies for Accelerating Development

Armed with an understanding of the development priorities, the organisation, the participant, the participant's line manager and others who may be playing a supporting role, need to choose those development options that best fit the individual's and the organisation's needs.

Assignments

Assignments are significant responsibilities given to a participant. They typically take the form of a job or position on a task force and can last for a significant amount of time.

Short Term Experiences

These can provide a number of development opportunities and are helpful in building knowledge, as well as providing key experiences and opportunities to work on a competency or executive derailer.

Training and Education

These development options are self-explanatory and can prepare people for key experiences and job challenges.

Coaching

Coaching is becoming increasingly popular and involves one-to-one meetings with a skilled and experienced coach normally over a three month period.

Required Organisational Support

Effective leadership development needs the active support of various people and functions within the organisation including the CEO and senior executives, line managers and human resources. CEO stewardship for leadership development and talent management is critical for generating the profile, commitment and focus on the building leadership capability.

The clear message is: only begin if there is unambiguous CEO sponsorship. But there are also other critical roles that need to be played:

Line Management support: Line managers are expected to coach and support their talented direct reports towards development and career goals, a process that should cascade from the CEO and senior executives.

HR should facilitate: Human resource's role is to facilitate the management and development of leadership talent and to act as coaches and internal consultants to line managers. For it to be truly successful, leadership development and/or talent management cannot be seen as simply a human resources initiative. But human resources has a key role to play in providing counsel, opening doors and securing resources.

It is critical to note though that responsibility for completing, documenting and executing the developmental assignments belongs with the participant. A mentor, manager or human resources professional simply provides counsel, opens doors and makes resources available as required.

Continued involvement in a leadership development program is dependent upon each participant honouring their side of the learning 'contract' and meeting development milestones incorporated into the development agenda. Failure to demonstrate sufficient motivation, effort and application may disqualify individuals from further participation.

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