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Executive Education: Investing in Top Guns
Global pressures on talent and capital have resulted in a competitive and fast-changing business environment; further the short supply of talent, and specifically, of leadership talent has begun to affect growth plans and strategies. Companies in every country and every industry are exploring new ways to develop a critical mass of leaders to take their organizations to the next level. In response, universities and education service providers across the world are innovating their approach and techniques for executive development, and aiming to build stronger relationships with industry to offer relevant programs. Both companies and universities have tried to measure the value of these programs and financially validate this significant investment. The buyers seem to have come to terms with the fact that there are immense long-term benefits in building a strong leadership pipeline, which easily offset the high costs involved. People Matters spoke to representatives from industry and academia, and further collated over 100 responses from heads of HR in a nationwide survey to explore the “5 Ws” of executive development education in India.
Increasing globalization, technological advances, and changing dynamics of the marketplace are making continuous learning a must at every level in the organization, more so at the senior level. While mentoring, coaching and job rotation continue to play a crucial role in leadership development, this story seeks to draw close to the aspect of leadership development that is addressed through formal and structured programs.
Businesses in India have an opportunity to capitalize on the high competitive scenario created by the 7% growth rate, as compared to the gloomy prospects facing businesses in the West. Thus, the difference between companies that will thrive and those that will perish will be defined by its people. “Having the right people, particularly on the senior management team, who are aligned to the corporate culture and strategy is the keystone to growth,” shares Carol Stephenson, O.C. Dean, Richard Ivey School of Business.
The need to invest in people has moved beyond the numbers. According to the Global Talent Risk Report, 2011 by the World Economic Forum, there is compelling evidence that talent crisis will affect every region in the coming years. The talent demand-supply analysis shows that a widespread talent scarcity will persist for decades to come, and this scarcity will redefine human capital practices adopted by organizations. And add to this, the economic crisis and the on-going social and political unrest that will continue over the next few years will require organizations to focus on senior talent development ever more. A clear alignment of people strategy to business strategy will become all the more critical. Hence the need for an increased focus on developing senior leaders who are better prepared to tackle these testing waters and can turn these challenges into opportunities.
Investment in senior management development is helping organizations create bench strength, align management teams and enhance individual skills. Executive education and other formal programs focused towards senior leadership development are increasingly seen as tools for organizations to enable the much required alignment between people, culture, business plans and organizational processes.
Investment on the rise
The numbers show a trend in companies spending more on executive education. According to the UNICON1 State of Executive Education Survey, 2011, 65 percent of survey respondents predicted increased participation in their open enrollment programs in 2011. Additionally, an impressive 78 percent of schools projected an increase in customized executive education programs during 2011. Nearly half of the schools indicated an increase in program days, with 39 weeks in open enrollment programs and an average of 49 weeks in customized programs. Slightly more than half also reported an increase in the number of days of educational programs offered to executives.
Companies are turning to business schools and other service providers to enable senior managers to acquire, a new range of skills, greater exposure, and enhanced knowledge base. This, in turn, takes them out of their comfort zone enabling greater productivity. Executive development opportunities are avenues for senior professionals to hunt for the latest in ideas, trends, and management techniques.
The 5Ws of Executive Development
For investment in senior leadership development to result in the required alignment between people, culture, business plans and organizational processes, companies must first answer the critical questions.
Driving investments – The ‘Why’
Development of senior executives can no longer be clubbed under ‘nice to have’ perk, it is more than simply sending employees off to commercially advertised courses and programs. Organizations invest in executive development as a long-term strategy to build its leadership pipeline, as well as to meet its short-term need to upgrade senior managers with new business competencies. Either ways, such investments have a knock-on effect on the overall organization’s performance.
A strong internal development program can add to the external reputation and attract potential candidates to join the organization. It further increases talent retention, as employees see career development opportunities within the organization.
Further, the young talent that is fast finding its way into the leadership pipeline of organizations has changing expectations from their employers. For example, the three reasons why Googlers prefer Google are its mission, quality of people they work with and the opportunity to build on skills set to become better leaders or entrepreneurs. There is a clear shift in what the younger generations seek when choosing their employers - even more than compensation, they seek a culture of continuous learning and development.
The importance of leadership development can be gauged from Bersin & Associates research2 which found that companies with strategic approaches to leadership development are: 84 percent more effective at increasing the quality of their leadership pipeline; 73 percent more effective at improving overall employee retention and 67 percent more effective at increasing the engagement, retention and teamwork of leader. Other research by Bersin & Associates shows that providing leadership development for internal staff and grooming talent from within is more effective than hiring externally.
What I really want – The What
Professional networks, relevant content, training ground for the board room, learning to deal with business complexities, execution through cross-functional teams, deeper understanding on corporate-wide strategy, and many more, can be part of the wish lists that drive the need for executive development programs. Mostly, the objective of the program depends on the current organizational challenges, the maturity of the leadership team and the long term objectives.
The People Matters Executive Development Survey 2012 reflects that companies are investing most on developing leadership skills, as confirmed by 89 percent respondents; business strategy according to 75 percent respondents; and change management and general management skills as opted by 50 percent of the surveyed respondents.
These skills are taught both in the context of the function and the overall organization because business complexities demand decision making to incorporate cross-functional knowledge, the CEO’s perspective and the external market perspective. For example, a Sales Head must be able to take into consideration the HR and finance implications in order to become a good decision maker and prepare for future roles.
‘Who’ is the deserving candidate?
The talent targeted for executive development interventions includes CXOs, VPs and functional heads selected based on performance, potential and tenure in the organization. Over 70 percent of the respondents in the Survey base their decision on who qualifies for such programs on a combination of potential and performance level. Other parameters that are considered when creating the eligible pool are years of functional and management experience.
Organizations use different methodologies for assessing employee performance and potential to identify the talent pool for executive development interventions. From among the popular methods, the nine-box model is used to plot key individuals on leadership competencies, followed by 360 degree assessments, and further validated by an independent senior panel. These processes increase effectiveness and fairness of the selection process.
‘Who’ do we partner with?
The range of available offerings on executive education in India is amass, which in itself makes the task of choosing the right partner for executive development complex for the management and HR teams. The options include top American, European and Asian schools, domestic b-schools, large consulting firms, and independent providers of executive development. The top international and Indian business schools offer advanced management programs, short-term MDPs as well as tailor-made courses specific to the organizations’ requirements.
The Survey affirms that 82 percent of the respondents opt for programs run by Indian business schools for educating and developing their leadership teams; and close to 40 percent opt for programs from foreign universities.
Alongside the off-the-shelf offerings on executive education, companies are increasingly looking at customized interventions for their leadership teams. This requirement is driving a change in the way buyers and providers view executive development, leading to more innovative partnerships with companies. These relationships are less transactional and more strategic, collaborative, and long-term in nature. While classroom instruction involves tools and techniques such as lectures, case studies, and simulations, more and more courses are integrating experiential and action learning methodologies that allow participants to immediately apply what they learn to real business problems.
To buy or to build, that is the question
The logic of investing in an internal academy is that the unique business needs may demand a customized approach, and the need to develop a large talent pool may make this an economically viable option.
Companies like Aircel, Infosys, Aditya Birla Group and Lanco Group, have opted for in-house academies to meet their development requirements, including leadership development. While most of these companies still partner with academic institutions, their internal programs focus on building competencies that the organization has identified as critical success factors for the future.
While keeping executive development in-house has its benefits, these companies also leverage on the benefits of academia-driven executive education. There is a huge value in providing employees the opportunity for peer-learning and exposure outside the company. This enhances their understanding of the business context and helps them network with other professionals and faculties from across the globe, thereby adding a renewed perspective.
Show me the money – The How Much
Executive development doesn’t come cheap. Tuition for a single open-enrollment course at a top US business school ranges from $4,500 to upward of $12,000 per person. For example, a 3-day-program on leadership in a top Indian business school ranges between INR 1,00,000 to INR 2,00,000. Then there are the travel and stay expenses and most importantly, the opportunity cost of a high performing executive’s time away from the job. Customized programs, depending on the school and the number of participants, can run into the hundreds of thousands too.
But the cost involved is not the key determinant when selecting a program. The Survey results indicate that the relevance of the program and its expected benefits are the most important factors when selecting a program, as confirmed by 69 percent of the respondents; caliber of the faculty also plays a crucial role, with 67 percent respondents rating this factor as high; flexibility in course design and delivery is also critical, affirmed by 56 percent respondents. Cost emerged as an important consideration only to 24 percent of the respondents.
Nearly 70 percent of the surveyed respondents invest less than INR 10 lakh per annum per person, while 20 percent set aside between INR 10 to 20 lakh per annum per person. 7% of respondents budget more than INR 50 lakh per annum per person. This budget allocation correlates with the preferred choice of providers, as majority of Indian companies utilize their budgets with domestic players.
Can we ‘count’ everything that counts?
According to the survey, 63 percent respondents affirm that they measure ROI on executive development interventions. Lacking a more precise method of measurement, 2 out of 3 companies which participated in the Survey use interviews to collate subjective feedback from participants and their managers, while 1 out of 3 claims to have a formal process in place to measure return on such investments.
From our interactions with senior professionals, it is evident that while companies continue to aim at building methods to measure the return on investment for executive education, specially as the quantum and frequency of these programs keep growing, the attitude towards what that measure can achieve has dramatically changed. Dr. Santrupt Misra of Aditya Birla Group affirms that seeking a quantitative ROI on senior leadership development is not always accurate. As a matter of fact, the investment in leadership development is intangible and cannot always be measured in economic terms. “Peer learning that takes place on such interventions also lead to process improvement; employer brand is also an indicator of return on investment made on executive education,” adds Dr. Misra. The effectiveness of such investments must be assessed against the macro indicators emerging as a result of those investments. For example, effectiveness is measured in terms of increased level of engagement in the senior management team; reduced attrition at the executive level; and whether or not it has resulted in the business outperforming its competitors.
The traditional measures of ROI on executive development programs include Dr. Donald Kirkpatrick’s Learning Evaluation Model, and Dr. Jack Phillips’s ROI Measurement Model. Organizations seek to gauge such programs based on the relevance of the content to the context of the business, the application of this content and the benefit derived from its application. As Deepak Chandra, Deputy Dean, ISB says, “today, a majority of organizations seek to measure the effectiveness of the program basis its contextual content and application, and few are actually attempting to measure the ROI in terms of the benefit derived from its application.”
Respondents in the Survey have shared their expected benefits from investment in executive development as being a broader understanding of the business complexities (85 percent), ability to manage and lead people better post intervention (83 percent) and more engaged and motivated executives (82 percent). Trying to put a rupee number on this can be misleading as most of these observable benefits are rather difficult to quantify.
Benefits of executive development are not dependent on the courses alone. Columbia University researchers researchers show that alumni who had supportive bosses were more successful after taking the program than those whose bosses where unsupportive, uninterested or otherwise, disengaged. The best executive education program will not pay back at work if the environment does not encourage development and the organization does not have a solid process for continuous learning, succession planning and career path. Even as companies will have to find answers to the critical “Ws”, they will also need to focus on ensuring that they do not leave money on the table. There is an equal need to ensure that they build the required support, culture and environment, to extract the maximum benefits from those interventions.
1 UNICON is a consortium of business schools including Columbia, Harvard Business School, Stanford GSB, Wharton, ISB and London Business School, to name a few.
2 Bersin & Associate Study cited in a Centre for Creative Leadership report: Driving Performance: Why Leadership Development Matters in Difficult Times (2008)
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