Only 35 per cent of the leaders rated the quality of their organization’s development programs as high or very high
When organizations develop leaders, they are 2.3 times more likely to outperform other companies on financial metrics
Are organizations equipped to meet tomorrow’s challenges? Do they have the right or enough leaders to take them forward? What is preventing them from developing tomorrow’s leaders?
These are some of the questions that come to mind when one thinks of leadership development. Companies spend a whopping $50 billion a year on developing leaders worldwide, but only 35 per cent of the leaders rated the quality of their organization’s development programs as high or very high, down from 42 per cent in 2011. The cause for alarm is even more as the quality of leadership has not really improved over the past many years. While leaders believe that the quality of leadership has been in the range of 51-54 per cent in the past three years, for HR professionals it has moved even slower from 37 per cent to 41 per cent.
These and more are the findings of The Global Leadership Forecast 2014-15, a joint effort by DDI and The Conference Board, which contains survey responses from 13,124 leaders, 1,528 global HR executives and 2,031 participating organizations. To ensure that no individual organization dominated the overall results, a random sample was taken from any organization whose leaders comprised more than 1 per cent of the global sample.
In the report, many countries have not seen an improvement in leadership quality and even in those companies where there are leaders, they are failing to keep up with their peers. Organizations with a deficit in leader quality will struggle to succeed in the face of business demands with leaders who lack critical leadership skills.
About 47 per cent of organizations globally don’t do any form of leadership analytics well and only 1 in 20 does all forms well. The organizations that do high value analytics gather results metrics about leadership programs, use data to forecast future leadership talent needs and gather business impact metrics about leadership programs. They are used less commonly, but have a strong financial impact. While the use of analytics is more widely adopted in India, there is scope to sharpen the focus of the analytics tools to drive financial and business outcomes.
Of course, some sectors are keen to develop their leaders, while others struggle with the ones they have. The BFSI sector and the business services sector are investing heavily in developing their leaders, while healthcare and manufacturing are struggling due to changing business conditions and demographics. Talent shortages, an aging customer base, an aging workforce are some of the roadblocks that are hampering the companies when it comes to making their leaders ready for future business challenges. Sectors like pharmaceuticals and IT have an insufficient supply of leaders prepared to lead in fast-changing and technical environment. On the other hand, retail and energy sectors need to focus on improving the leadership quality and capabilities. While the sectors have a sufficient supply of leaders, recruiting top talent will continue to remain competitive.
According to HR professionals in the survey, only 31 per cent of organizations in India are very prepared to meet the business challenges associated with global expansion. When Indian organizations look to develop global leaders, some of the critical skills that they need to invest in are leading across countries and cultures, leading across generations and inspiring others towards a challenging future vision.
When organizations develop leaders, they are 2.3 times more likely to outperform other companies on financial metrics. They are also likely to have higher than average leadership quality and bench strength and fill up critical positions quickly.
GLF Highlights for India leaders
The report, with responses from 836 leaders and 244 HR executives, highlights that while 54 per cent of leaders say the overall quality of organization’s leadership is high, only 41 per cent of HR professionals view their organization’s leaders as high quality. While 46 per cent of leaders surveyed said that critical positions could be filled internally, only 25 per cent of organizations have a strong bench; a decrease from the last forecast of 32 per cent in 2011. Another eye-popping feature was that more than half the respondents (58 per cent) said that HR was not involved in the development of the leaders, while nearly half (44 per cent) blamed the senior management.
Developing leaders has become one of the primary concerns of CEOs today and this is resonating across all the four regions—the US, Latin America, Europe and Asia. In the Conference Board CEO Challenge, in which 1,000 CEOs took the survey, Human Capital has emerged as the top challenge. While customer relationships have been given more importance, operational excellence and innovation have become critical to drive business growth. In a bid to address the Human Capital challenge, 4 out of the top 10 strategies that the CEOs focused on were on leadership—Improve leadership development programs, enhance effectiveness of senior management teams, improve the effectiveness of frontline supervisors and managers and improve succession planning.
When the leaders themselves were asked to assess their own readiness levels to execute these tasks, it came out that less than half the leaders are very prepared to address most of the challenges, 30 per cent of HR professionals feel that leaders are slightly or not at all prepared to handle human capital challenges, especially in a VUCA world.
Less than 70 per cent of leaders said they were either “highly confident” or “very confident” in their ability to meet the four VUCA challenges. According to the GLF report, leaders in 25 per cent of the organizations across the world are not VUCA-capable. This puts a lot of pressure on leaders, as there is a strong misalignment between the CEOs ‘top priority and the leaders’ confidence in their ability to drive talent as an agenda. The top pressing VUCA issues that companies face today are economic depression in Europe, currency volatility, financial stability in China, labor relations, cyber security, volatility in energy markets, activist shareholders and government regulations to address bribery and corruption. Organizations whose leaders have high VUCA capability are 3.5 times more likely than organizations with low VUCA capability to have a strong leadership bench.
Millennials in leadership positions
Millennials are more prevalent in industries like IT, which are aggressive in their growth. They are more likely to be likely in leadership positions here (30 per cent) than cautious growth (25 per cent) and no to low growth (21 per cent). They also get a significant higher proportion of promotions than any other generation. This is because of two reasons: They start at positions with more advancement opportunities and two organizations could be reacting to millennials reputation for readily changing jobs.
One of the major challenges in having millennials in leadership positions is that they are less engaged in their roles within the organizations. They are also more likely to leave in the next 12 months than leaders in other generational groups. They are also less concerned about giving feedback to their senior leaders about the organization’s strategy and culture. One major feature of the millennials is that they have a strong preference for using social learning and mobile development for improving leadership skills than other generations and they tend to learn more frequently. Given all this, they are also more prone to looking out for various opportunities to learn and this is something that organizations need to be cognizant about.
Evolving HR – From Partner to Anticipator
HR’s role has been evolving for the past many years and it is time that HR got strategic in the way it operates. Only one in 4 HR respondents reported participating early in strategic planning. About 59 per cent of the respondents saw the HR as a partner who works collaboratively with the business. HR also plays the role of a Reactor (24 per cent) where they ensure compliance with policies and practices and respond to business needs as and when required. However, the primary role of the HR as an anticipator is glaringly low (17 per cent). As an anticipator, it would be HR’s job to use data to predict talent gaps in advance and provides insights about how talent relates to business goals. Fewer than 2 in 10 HR professionals place themselves in the anticipator category.
Action plans that will be needed
One of the major reasons why leaders continue to stay in organizations is her/her experience in the company aided by their managers and the organization’s approach to leadership development. Understanding one’s career and having opportunities to provide feedback to senior leaders about the organization’s strategy and culture are two of the biggest influencers when it comes to what experiences matter most to the leaders. Currently, only 37 per cent leaders said that they have an up to date development plan though more than 60 per cent of leaders say that they have an understanding of their future career path in the organization.
Another major trend that is worrying organizations is that they have either too many high potential or too less high potentials. More than 70 per cent of the Indian organizations have programs for identifying and developing high potential leaders and more than 60 per cent have identified themselves as having been formally notified that they were high potentials. A majority of the Indian organizations (85 per cent) with HiPo programs said that they hold senior management accountable for identifying and developing HiPo leaders using objective assessment data.
What organizations need to keep in mind is that leadership skills develop at different rates for different levels such as frontline mid-level, higher level and senior level. Some of the skills that would prove to be valuable for leaders would be building consensus and commitment, communicating and interacting with others and developing networks and partnerships.
Effective leadership development is a strong driver of leader quality. Organizations with highly rated leadership development programs are 8.8 times more likely to have high leadership quality and bench strength compared to those organizations with low-rated programs. These organizations were also 7.4 more times likely to have leaders who were highly engaged and inclined to stay with the organization. They were also six times more likely to have a financial impact. Having a high leader engagement amplifies the impact of high bench strength to almost 9 times.
Apart from such leadership development programs, it was found that interacting with people is very critical to successful leadership than managing them. Currently, Indian managers spend 33 per cent of their time managing. Given a preference, Indian leaders would double the time they spend on interacting (44 per cent) than managing (22 per cent). Organizations need to signal that the time spent interacting is as valuable as the time spent managing, then they are likely to have a stronger leadership bench strength, which would in turn be closely linked to superior financial performance. Another factor that aided companies with better financial performance was the presence of women in leadership roles. In the top 20 per cent of the companies across the globe, 37 per cent of all leaders are women and 12 per cent of all leaders are HiPos.
To summarize, the three main highlights of DDI’s GLF report was the divergent views that HR professionals and the CEOs held with regards to leader quality, the need for more robust leadership development programs as more and more millennials come into the workforce and disrupt the current processes and plans, and the need for more diversity as it has been shown through repeated research that it makes perfect business sense. To navigate the troubled waters of VUCA, one would need a strong and visionary leader to take the company to dry ground. And the world needs to get ready for that!