Leadership Strategy Services

Companies are progressively assigning executive recruitment and development increasing strategic priority. Slowly but surely, talent management is becoming established as a recognized discipline. That said, companies still rarely network the executive selection process with their corporate strategy. In the experience of Egon Zehnder International, this has caused many promising strategies to fail. Human resource consultants Egon Zehnder International therefore advocate that companies continuously optimize their executive development activities to bring them into line with strategic requirements. Companies that take the long-term strategic view will typically ask themselves a number of far-reaching questions: Where is the company aiming to be in three, five or ten years from now? In which main markets and fields of business will it operate in future? And what do the dynamics of growth and competition look like in those markets? From the answers to these questions these companies derive concrete measures in respect of financing, production capacities and facilities, research and development, product portfolio and sales channels – all of which must form the object of far-sighted planning.

Talent management must be aligned with corporate strategies

No responsible board of directors would dream of neglecting any of these aspects. However, when it comes to management – another decisive success factor – the picture changes. Owners, supervisory bodies and executive boards often simply assume that sufficient qualified executives are available to develop and successfully implement future-proof strategies. This, however, regularly proves to be an illusion. No matter how capable managers may be, their talents are not universally applicable. Their specific experience and competence profiles will not automatically match the requirements of the future. According to the consulting experience of Egon Zehnder International, there can be no doubt that very few companies regularly compare existing management skills with the dynamics of their corporate strategy. A global survey conducted by McKinsey among CEOs, heads of division and HR managers revealed symptomatic findings: Half of the respondent companies, it emerged, make totally inadequate efforts to align their talent management activities – that is to say the recruitment, appraisal and development of executives – with corporate strategy.

Success factors for executive development

The inevitable consequences are strategies that fail completely or do not produce the anticipated results – although their failure is often then ascribed to other factors. Companies that focus exclusively on key management indicators systematically underestimate the importance of management capacity and competence. But what, then, are the decisive criteria for strategically aligned talent management? What are the success factors in an executive selection and development process geared to corporate strategy?

Strategies are constantly changing, sometimes radically. This was the situation in which Daimler-Benz AG found itself, for example, in 1995 when Jürgen Schrempp took over as Chief Executive from Edzard Reuter. Reuter had pursued a strategy of turning the company into an integrated technology group. Schrempp, by contrast, mindful of the roots of Daimler-Benz, chose instead to concentrate on the automobile business. The company duly was to be turned into the world’s leading automaker. The new strategy also contained a strong presence – not least as a manufacturer – in the USA and Asia, as well as a far more extensive product range. From high-volume to luxury brands, the newly formed DaimlerChrysler Corporation was out to cover all major markets and customer segments.

The main challenges for management were obvious. Among other things, the globalization of production and sales as well as collaboration with manufacturers in America (Chrysler) and Asia (Mitsubishi and Hyundai) radically increased the demand for managers who knew their way around the various markets and commanded pronounced intercultural skills. At the same time, there was a need for executives and experts with extensive experience in the development and production of high-volume models. Consequently, the traditional corporate and leadership culture and the existing management skills were ill-matched to the new requirement profile.

One recent example of a sharp change in strategy is provided by Siemens AG. In the past, Siemens was an industrial conglomerate that was also active in the service sector (providing IT services for example) as well as supplying consumer goods such as cell phones. Today, Siemens is focused on selected engineering fields and medical technology. At the same time, the company is targeting a significant increase in return on equity and the remaining lines of business are to be expanded substantially at global level. For the top management team this means on the one hand that typical business-to-consumer skills are no longer required. On the other hand, however, the demands in terms of results orientation in complex business environments and of the intercultural sensitivity of managers are rising fast. In particular, the ability to shape and drive change processes is in great demand.

These examples illustrate the fact that, when strategy changes, a systematic reappraisal of the existing management team is essential. This ensures that existing potentials, competencies and gaps are identified and enables the company to take the necessary remedial measures. In particular, companies need to provide targeted development options for high potentials and, wherever necessary, reinforce the management team from the outside. The outcome of these measures is that the entire management organization and culture is optimized in line with strategic requirements.

Talent Management must be continuous process

Far-sighted companies go one step further. They instigate a permanent talent management process that continuously appraises executives, considers their strategically harmonized development an ongoing task, and integrates succession planning for key management positions into the overall process. Companies that have adopted this approach assign talent management at least as much proactive importance as, say, financial planning. At every stage of strategic discussions and changes, at these firms the management factor is a fully integrated top priority.

In fact there should be no strategy paper that does not expressly look into the implications for executive development. Which competencies will need strengthening in the management team of the future? What types of manager need recruiting from outside and what types can be developed in-house? Are the corporate leadership structure and culture still compatible with the revised strategy? Questions like these should really form part of the standard repertoire of any strategic debate. Talent management should not be a reactive process, but an organic part of any proactive corporate culture. The corollary is that effective talent management can only be successfully established with the unreserved support of the CEO and the entire board of management. These top managers should themselves actively and systematically pursue the far-sighted recruitment and development of entrepreneurial talent and set an example by promoting such an approach in their own professional environments.

Professionalization gains ground

In recent years Egon Zehnder International has been involved in the appraisal of management teams at numerous companies. This included a number of management appraisals that targeted the identification of the strengths and weaknesses of the executive team in the course of a change of strategy, as well as the definition of appropriate medium- and long-term executive development measures. At many companies, this kind of appraisal has become a standard tool. But in addition to this, an increasing number of companies are expressing an interest in forward-looking strategic talent management.

As this indicates, the professionalization of talent management is gaining ground – and for good reason. Our own model calculations underline the fact that implementing a system of this kind brings a sustainable increase not only in the feel-good factor for high-performing executives, but also in the bottom line for the company itself. In sum, strategically oriented talent management pays high dividends in more ways than one.