Respond 2 Colleague 3 A

38 American Management Association MWORLD FALL 2014

BY ADAM CANWELL, VISHALLI DONGRIE, NEIL NEVERAS, AND HEATHER STOCKTON

Developing leaders is a major human capital need in today’s

organizations.

Companies face an urgent need to develop leaders at all levels, including bringing younger leaders online faster, developing leaders globally, and keeping senior leaders relevant and engaged longer.

Leadership remains the number-one talent issue facing organizations around the world. In Deloitte’s 2014 Human Capital Trends survey, 86% of respondents rated it as “urgent” or “important.” But only 13% of respondents said they do an excellent job of developing leaders at all levels—the largest “readiness gap” in our 2014 survey.

Twenty-first-century leadership is different from that of earlier generations. Companies face new leadership challenges, including developing millennials and multiple generations of leaders, meeting the demand for leaders with global fluency and flexibility, building the ability to innovate and inspire others to perform, and acquiring new levels of understanding of rapidly changing technologies and new disciplines and fields.

For companies around the world, a shortage of leaders is one of the biggest impediments to growth. This challenge is particularly acute today as the global recovery strengthens, companies seek to rapidly grow their businesses in new markets, and older leaders begin to retire at accelerating rates.

The executives in our 2014 global survey viewed leadership as the highest-priority issue of all those we asked them about. Yet, despite the acknowledged importance of leadership, most companies believe they are not meeting the challenge (see Figure 1).

� Only 13% of companies in our survey rate themselves “excellent” in providing leadership programs at all levels—new leaders, next-generation leaders, and senior leaders

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Developing

21st-Century Leadership Skills

39MWORLD FALL 2014 American Management Association

� 66% believe they are “weak” in their ability to develop millennial leaders, while only 5% rate themselves as “excellent”

� More than half (51%) have little confidence in their ability to maintain clear, consistent succession programs

� Only 8% believe they have “excellent” programs to build global skills and experiences

CRITICAL SKILLS NEEDED TO SUCCEED Not only are companies not developing enough leaders, but they’re also not equipping the leaders they are building with the critical capabilities and skills needed to succeed.

Today’s market environment places a premium on speed, flexibility, and the ability to lead in uncertain situations. At the same time, the flattening of organizations has created an explosion in demand for leadership skills at every level.

Our research shows that foundational and new leadership skills are in high demand, including: � Business acumen: understanding the core business well � Collaboration: having the ability to build cross-functional teams � Global cultural agility: managing diversity and inclusion � Creativity: driving innovation and entrepreneurship � Customer-centricity: enhancing effective customer relationships � Influence and inspiration: setting direction and driving employees to achieve business goals � Building teams and talent: developing people and creating effective teams

For example, a highly successful global tech- nology company dis- covered that it needed four leadership arche- types: entrepreneurs who can start a busi- ness; scale leaders who can build up a business; efficiency leaders who reduce costs and improve operations; and fix-it leaders who turn businesses around.

The core capabilities for leadership are well understood. Yet Deloitte’s experience over the past decade suggests that the quality of leaders is declining. This would mean that companies need to reexamine and redesign their leadership development programs.

Our survey suggests this has become a highly urgent challenge for corporate leaders worldwide,

Figure 1: Current Leadership Programs Falling Short Number of respondents

Providing executive involvement and ownership of leadership

development 1,175

1,162

1,154

1,034

1,142

1,099Providing focused leadership programs for millennials

Providing leadership programs for all levels (new, next generation,

senior leaders)

Maintaining clear and current succession plans and programs

Including global skills and experiences in leadership program

Providing experiential, role-based leadership programs

% of total number of responses

HR executives’ assessment of leadership program capability levels Weak Adequate Excellent

Graphic: Deloitte University Press I DUPress.com

34% 49%

43%

39%

39%

36%

28%

17%

13%

10%

8%

8%

5%

44%

51%

52%

56%

66%

40 American Management Association MWORLD FALL 2014

especially in Brazil, Mexico, and the Netherlands. Executives in few countries appeared to be prepared to meet this challenge (see Figure 2 above).

BUILDING THE LEADERSHIP PIPELINE Building a leadership pipeline requires a high level of sustained investment. The entire industry of leadership development represents a $14 billion marketplace. High-impact companies in the United States spend more than $3,500 per person each year to develop midlevel leaders and more than $10,000 to develop senior leaders.

Strong leadership programs target leaders at all levels. At the early stages in the leadership pipeline, potential leaders need to acquire core skills in supervision and management, with frequent assignments to round out their skills. Later in their careers, rising leaders must understand all the business functions and how to run a P&L.

It is also critical to understand that, despite the proliferation of leadership fads, there are no shortcuts to building a leadership team that is broad and deep. A new leader typically needs 18

Figure 2: Urgency vs. Readiness: Who is Leading? Who is Lagging?

Netherlands

Brazil

Japan

Mexico

Belgium

Australia

Poland

South Africa

United States

Argentina

Uruguay

Canada

China

All others

Switzerland

United Kingdom

Germany

Chile

Luxembourg

India

Spain

Ireland

Kenya

Portugal

-51

-50

-48

-43

-40

-38

-37

-37

-36

-35

-34

-33

-32

-32

-32

-30

-29

-29

-29

-29

-26

-22

-21

-15

Capability Gap Index (readiness - urgency) Capability gap grid

Leadership

Graphic: Deloitte University Press I DUPress.com

important Somewhat important (33.3) Important (66.6) 100 = Urgent ➔

0 =

N o

t re

a d

y

So

m e w

h a t

re a d

y (5

0 )

1 0 0 =

R

e a d

y ➔

0 = Not➔

➔

40 50 60 70 80

60

50

40

30

The Human Capital Capability Gap Index The Deloitte Human Capital Capability Gap Index is a research-based index that shows HR’s relative capability gap in addressing a given talent or HR-related problem. It is computed by taking an organization’s self-rated "readiness" and subtracting its "urgency," normalized to a 0-100 scale. For example, if an organization feels that an issue is 100% urgent and it also rates itself 100% capable and ready to address the issue, the capability gap would be zero. These gaps, which are almost always negative, can be compared against each other.

The capability gap grid By plotting the gaps on a grid (with readiness on the vertical and urgency on the horizontal), we can see how capability gaps vary among different countries and industries. • Capability gaps at the lower right part of the grid are those of high urgency and low readiness (areas that warrant major increases in investment). • Capability gaps at the upper right part of the grid are highly urgent, but companies feel more able to perform in these areas (they warrant investment but are lower priority than those at the bottom right). • Capability gaps on the left side of the grid are areas of lesser importance, and those lower in the grid are areas of less readiness.

Kenya

India

Mexico

Australia

Brazil

Spain

United States Argentina

Belgium

Japan

Poland

South Africa

Portugal

United Kingdom

Ireland

Luxembourg Germany

Uruguay

Switzerland

Canada

China

Netherlands

All others Chile

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months before feeling fully comfortable in a new role; for a midlevel leader, the time period stretches from 24 to 36 months.

Although most companies develop somewhat rigid leadership tracks, they may be better served by developing paths to leadership that are more flexible. Some leaders will move into a top role quickly due to situational needs or local talent gaps. Others will develop over the course of many years.

High-performing companies now develop leaders locally, tapping into the local cultural experiences of potential leaders in each country. In a recent study of top-leadership progression at a major energy company, we found that the paths for successful leaders in China were dramatically different from those for leaders in the United States. U.S.-based leaders took a more traditional path through a predefined set of business assignments; successful leaders in China were promoted much more rapidly in the energy company. This discovery led top management to rethink the company’s traditional model and enable local teams to be more flexible in the leaders they develop.

THE IMPORTANCE OF LEADERSHIP STRATEGY Building leaders requires more than a portfolio of training programs. Senior executives should create a culture that broadens the opportunity for leaders to develop in new ways. This means putting potential leaders in positions that stretch them beyond their current skill sets and continuously coaching and supporting leaders so that they can build their capabilities as rapidly as possible. While this requirement is increasingly well known, in our experience it is simply not widely adopted and practiced.

This process is relevant to all levels of the organization and to all generations of employees. High-potential millennial leaders are looking to be identified early and placed on accelerated development timetables. Midcareer leaders are looking for challenging roles that allow them to make capability leaps—deepening and broadening their leadership skills to prepare them for more senior roles and new business challenges.

BUILDING A PATHWAY TO LEADERSHIP ANZ, a leading Australian bank and financial services provider, set out to transform itself into a “super-regional bank,” focused on achieving aggressive growth outside its home markets of Australia and New Zealand. To meet these goals, ANZ had to ensure that its leaders had the distinctive set of capabilities necessary for the transition.

The first phase of the program built the foundation for organizational leadership in the region through the development of a unique ANZ leadership model, with the full commitment of senior executives. The model identified leaders at all levels of the organization and critical leadership transition points.

In the second phase, the program was deepened through the adoption of an informal online- learning tool implemented widely across the bank. A generalist banker program brought the new strategy to one organizational level; an executive leader program was required for senior executives; and recommended learning was introduced for first-time managers. A speaker series brought the strategy to life for all staff.

Currently, in the third phase, the program has adopted a model of leaders teaching leaders, with a renewed focus on identifying and targeting high-potential leaders for the executive leader program. Thus far, more than 5,400 people have completed programs in the pathway,

42 American Management Association MWORLD FALL 2014

logging close to 110,000 hours of learning. Business results for the bank have continued to improve throughout the strategy’s implementation. The bank is increasing its rate of internal leader promotions as well.

DEVELOPING LEADERS AT ALL LEVELS ENABLES MISSION SUCCESS Few organizations face more pressing demands for leadership than the U.S. Department of Defense. With more than 1.4 million men and women on active duty, 1.1 million serving in National Guard and Reserve forces, and 718,000 civilian personnel, the Department of Defense requires leaders at all levels capable of understanding complex security threats around the world, making split-second life-and-death decisions, and achieving mission success—all in highly volatile, ambiguous, and continually changing environments.

To accomplish this goal, the department invests heavily in developing well-rounded leaders at all levels. Leadership training is embedded into every stage of a military member’s career. Completion of this training is typically required for promotion and advancement, so leadership is effectively built into the department’s performance and rewards system.

Prospective officers—the high-potential leaders of the military—undergo four years of progressively more challenging leadership training, either at a service academy or in an ROTC (Reserve Officers Training Corps) program, before they receive their commissions or first assignments. Officer candidates are pushed into leadership roles early and often, allowing them to continually build their leadership skills over time.

Upon graduation, officers typically receive leadership training at every stage of their careers. Those officers who reach the highest levels of command typically attend at least three formal schools, with specific leadership training that ranges from several weeks to nine months. During this time, officers focus solely on improving their leadership skills and are free from day-to-day assignments that distract them from their training.

At every stage in their career, officers are pushed to expand their leadership skills through training and hands-on field experience. Critical skills such as teamwork, clear communication, contingency planning, adaptability, time management, and aligning priorities and strategy are continually reinforced. The result is a leadership training program that embodies best practices and builds leaders at every level of the organization.

WHERE COMPANIES CAN START Building a global leadership pipeline takes time, investment, and executive focus. Potential starting points include the following:

� Engage top executives to develop leadership strategy and actively govern leadership development. Focus on gaining executive commitment to the process. Two trends are gaining traction: First, companies are involving their executive teams, and increasingly their boards of directors, in the leadership process by providing them visibility to and soliciting their input on the leadership pipeline, gaps, and programs. Second, business leaders are recognizing that their direct involvement in leadership pipelines and gaps is critical to anticipating challenges in the development and implementation of future strategies.

� Align and refresh leadership strategies and development to evolving business goals. Different business goals—growth, innovation, quality, new markets, acquisitions—require different combinations of leadership experiences and capabilities. As businesses, technology, and competitive and regulatory environments rapidly change, companies are challenged to

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create new types of leaders with more varied and deeper leadership experiences. � Focus on three aspects of developing leaders:

1. Develop leaders at all levels. Companies are run by first-line supervisors and middle management. Invest in these levels as well as in top leadership roles.

2. Develop global leaders locally. The days of expatriate leaders are over; high-performing companies build local leaders from the ground up.

3. Develop a succession mindset. It takes years to build great leaders; the pipeline should be growing continuously.

� Implement an effective leadership program. Each company needs a unique leadership program. Successful organizations often ensure that their programs feature current leaders teaching future leaders—an idea that has been around for some time but has not been practiced widely enough. Assign a top business and HR executive to take responsibility, and be prepared to spend significant time and money. In developed markets, this investment can be in the range of $2,000 to $10,000 per leader every year. Focus on how to develop leaders more quickly by simplifying competency models, using action learning, and assessing leaders with analytics.

BOTTOM LINE As in previous years, leadership continues to top the priority list in the 2014 Human Capital Trends survey. The challenge is to develop leadership pipelines that are global, broad, and deep, reaching to every level of the organization. This process involves a significant investment of time and resources and a commitment to leadership from the board and executive team. Perhaps the biggest challenge is for business and HR leaders to ask whether they are confident that they are doing enough and whether they are exploring new approaches to moving the needle on their organization’s leadership requirements. MW

Adam Canwell is the human capital leader, Deloitte Australia, Deloitte Touche Tohmatsu. He has a strong track

record of working with leadership teams on identifying priorities and leading programs to effectively deliver change.

Canwell has deep experience in the design and delivery of leadership programs to increase their performance.

Vishalli Dongrie is the talent, performance, and rewards leader, Deloitte India, Deloitte Consulting India Pvt Ltd.

Dongrie is considered one of India’s most impactful leaders in talent management, leadership, and organization

design. In the talent, performance, and rewards space, she has led large international assignments in leadership

capability building, top-management assessment and development centers, career paths, and succession planning.

Neil Neveras is the global leadership services leader, Deloitte Consulting LLC. Neveras helps clients solve their most

complex leadership and talent challenges in areas including strategy, competencies, assessment, program design,

succession planning, coaching, career paths, and success metrics.

Heather Stockton is the human capital leader, financial services industry, Deloitte Canada. She also is global

human capital leader for the financial services industry. Through her work in developing and executing strategic

plans, Stockton has become an advisor to executives who are undertaking business transformation, undergoing

merger integration, and changing their operating model.

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