Leadership Strategy Services

Continuous and sustained executive succession planning is insufficiently rooted in corporate strategy in most companies. The majority of top executives understand that the growing lack of potential leaders poses a serious problem. Many CEOs also claim to have recognized the significance of leadership development – now widely known as Talent Management – for themselves. But only very few actually implement it with any success. Talent Management is still all too often seen as an operational responsibility of the Human Resources department and not as a strategic mission for a company’s top executives.

The facts are well-known: In the increasingly ageing societies of industrial nations the reservoir of potential next-generation leaders is shrinking. To complicate matters, the number of students enrolling and graduating from universities is far too small to satisfy future executive requirements. At the same time globalization and increasingly short value-creation cycles call for a high degree of strategic flexibility in companies. This is intensifying international competition for the few talented managers available, who have long since become mobile and multilingual enough to opt for the most attractive positions worldwide.

In the years ahead it will consequently become more difficult to find candidates with the potential for top leadership positions. This fact will make it increasingly difficult to lead companies if attention is not focused on deliberately developing internal high potentials. At the same time companies should be permanently keeping an eye on internal and external candidates for the top job, to appraise their suitability and availability for internal missions.

In view of these general conditions, today’s CEOs face the question of how they can ensure that their company remains ready for action at all times. Corporate planning is usually not systematically and never sustainably connected with the competences needed to implement it. The key to achieving this, alongside other important criteria, such as a clear strategy or proper financing, lies in professional Talent Management. This involves continuous analysis of the potential and competences of an executive team, as well as a review of how suitably key positions are occupied if corporate strategy changes.

This type of continuous analysis simultaneously forms the basis for the comprehensive Talent Management system summarized below. Talent Management does not just apply to individual managers, but also to the top executive team as a group. The composition and agility of this team are of central importance to the company.

Talent Management – an important factor for corporate development

A wealth of studies, such as the 2008 Making Talent a Strategic Priority survey by the business consultants McKinsey, show that the optimal filling of executive positions has by far the greatest influence over a company’s profitability. In view of the challenges outlined, and that of finding suitable candidates in the future, long-term and targeted Talent Management has long since ceased to be a “soft” issue, and is now a tangible and financially quantifiable factor in corporate success. Thus, firms that have established such Talent Management processes enjoy up to 25 percent higher profitability than those that adopt unsuitable approaches. Many companies nevertheless shy away from evaluating the quality of their own managers – including their top executives – thereby missing out on the opportunity to create a transparency that would serve both the company’s development and the best interests of its leaders.

Talent Management is based on a clearly defined model of competency. With the help of this model a given corporate strategy is translated into job specifications. These requirements outline the behavior expected from leaders in individual positions, which makes it easy to identify the gaps that exist between the ideal situation and actual reality. These assessments lead to a series of target-oriented initiatives to promote the development of competences that are critical to achieving the task in hand or preparing for the next one. Such measures are necessarily specific to each individual leader and cannot be implemented in a “scattershot” fashion, as is still the case on many companies. A coach or an executive training course will not always help when it comes to discussing the reasons why competences have been insufficiently demonstrated. What is needed is a development plan that accounts for the fundamental causes of any competence deficiency and includes concrete propositions on how to overcome it. The critical condition for the success of such measures is primarily acknowledgement of their necessity by the leader in question and structured support for the measures in the corporate environment.

Development through specific challenges

There may sometimes be a need for extraordinary measures to really bring on a leader. So-called “stretch assignments,” for instance, are part of these measures. In such cases participants are strongly challenged and occasionally deliberately overloaded in order to give them a realistic picture of their current capabilities and their development potential.

Based on such experiences, companies often assign candidates tasks that primarily foster their personal development and only secondarily fall into line with a corporate target. The objective is obvious: To develop a diverse and multi-faceted profile a manager should experience and, as far as possible, shape the different phases of a company’s development in a responsible position. The development process does not end, even when a major milestone has been reached – namely when a top role is accepted. New directors can be intensively supported both prior to and upon taking up their position via “onboarding” as a way of minimizing inherent risks with little effort. A survey conducted by Egon Zehnder International revealed that insufficient integration was one of the most common reasons for the failure of newly recruited managers. The “sink or swim” concept was still very widely practiced, but clearly should be dead and buried. The opportunity costs are just too high.

Leadership calls for a good team

Leaders can only successfully manage an organization with a diverse, ambitious and complementary team. It is via this team that managers amplify their impact and can lead a company from the bottom up and in different areas.

The potential and capabilities of a team can be assessed just like those of individual leaders. To this end, Egon Zehnder International has developed the Team Effectiveness Review (TER) appraisal tool.

This process looks at six aspects:

• Balance: does the team understand the importance of having a diverse range of talents, competences and strengths and to what degree is it prepared is it to deploy them?
• Alignment: to what extent does each team member take responsibility for this goal and orient his/her activities towards it?
• Resilience: to what extent does a team remain united even under high external and internal pressure?
• Energy: how great are single-mindedness, ambition and initiative?
• Openness: how open is the team to outside impulses or exchanges with other areas of the organization?
• Efficiency: how marked is the team’s understanding of the need to optimally deploy the resources available?

A detailed analysis of these points produces a comprehensive picture of the specific strengths of a team, as well as of its weak points, and provides clear indications on improving performance.

In this respect Talent Management combines the goal-oriented, individual and continuous development of specific leaders with the continuous appraisal and optimization of the effectiveness of top teams.

The pertinence of good judgment

Studies suggest that half of all recruitment decisions are sub-optimal. A simple process to gauge and boost the positive sustainability of such decisions can involve reviewing key staff decisions with a view to their quality; or creating a “validity index.” All this involves is recording the votes of decision-makers on internal and external appointments and comparing them with the subsequent success of the leaders in question. After some time this produces a clear picture of who can reliably estimate future performance and suitability when it comes to recruitment decisions. Leaders with the highest validity index scores should be systematically involved in all major recruitment decisions to ensure their value-creation potential.

The ability to make strong recruitment decisions should increasingly become a central component of the competence portfolio of directors and chief executives and a key parameter of their personal career.

Interestingly, this discipline has only recently become – and is still too infrequently a component of – training and development programs. The ability to conduct a goal-oriented and well-structured interview, for example, is presumed to be a natural talent.

Leadership development belongs on the board agenda

Leadership development is not only an issue for leaders with operational responsibilities; it is also an issue for boards of directors, and especially the committees within these boards. Functional competences from the fields of marketing, finance and strategy are usually sufficiently available in these bodies. Concrete competences in the field of leadership development, however, are often sought in vain. As a result, boards are rarely in a position to ask their executives truly searching questions about the quality of their Talent Management, not to mention the success factors related to Best Practice.

Since the traditional formulae of the past are no longer good enough, a great deal of potential in terms of teamwork is lost here: As a general rule, boards devote too little time to getting to know next-generation candidates in their company. A succession and crisis plan covering both internal and external candidates often does not exist.

So while many external factors impacting growth in corporate value, such as cyclical economic influences for example, are difficult to control, the leadership of the company can directly influence the quality of its leadership development and recruitment decisions. This area is therefore the most significant, controllable factor in the growth of corporate value. For this reason making excellent recruitment decisions – in an environment continuously characterized by complexity, insecurity and competition – is inevitably part of sustainable corporate leadership.

Successful leadership development is only possible if the chairman of the board of directors takes the issue seriously and creates the requisite personal and structural conditions. Ideally, a position should be created to this end on the CEO’s staff and filled by an individual with insights into all of the company’s strategic concerns. This is the only way to ensure that suitable leaders are deployed in the right positions at a given time and strategies are successfully implemented.

The above is an edited version of an article first published in the German magazine "Palais Biron" in December 2008. It appears by kind permission of the magazine.