Building the Executive Talent Portfolio: A Strategic Imperative for Energy CEOs
While the energy sector is right to focus on “the big crew change” – the race to replace broad swaths of its aging workforce – an equally compelling challenge looms in the executive suite. Energy companies must prepare a new generation of top executives to lead in a world that grows more complex by the day.
The future of energy will be nothing if not demanding. The geopolitical environment will continue to squeeze access, forcing the international oil companies (IOCs) into ever more difficult resource plays. Competition will arise from unexpected sources. Technology will play an exponentially greater role, and operating norms that prevailed for the last 50 years will be rendered obsolete.
Even the best rising executives must grow substantially to succeed in this demanding new arena. They must be prepared to forge innovative new working relationships, rapidly leverage the best emerging technologies and navigate through unprecedented risks. In short, all companies – including your company – will need a new breed of senior energy leaders.
Energy’s top-level talent challenge is compounded on the supply side of the equation. During the 1990s, when cheap prices prevailed, energy scaled back hiring and executive development. As a result, the rising class of experienced senior energy leaders is thin. Today there are relatively few executives prepared to step up to top company posts, even if market conditions were stable.
For these reasons and more, building the executive talent portfolio is a strategic imperative for all energy CEOs. You must steward executive talent with the same forethought and diligence you already apply to shaping your company’s asset portfolio. After all, even companies with superior assets will underperform if their top executives are ill-prepared for new marketplace realities.
Egon Zehnder, a global leader in executive search and talent management, is attuned to energy-sector concerns about the capability and availability of senior leadership. Clearly, today’s energy companies know that developing a successor generation of top-level talent is important. What many do not know is exactly how to go about it. This article outlines a rigorous, research-based strategy for building your company’s executive talent portfolio, with an emphasis on actions you can take right away. The fact is, you do not need to go through an extensive planning phase to strategically manage your top-tier talent. You simply need a few smart ways to start.
To begin, identify the specific leadership competencies required by your company. These will serve as the foundation of your talent development plan. A competency is any characteristic of a person that differentiates performance in a specific job. Competencies define your talent portfolio. They make it tangible, measurable and actionable.
Pioneering psychologist David C. McClelland published research in 1998 showing that competency-based assessment, done right, can predict executives’ performance two years ahead with 80 percent accuracy. McClelland also found that assessing candidates with competencies typically leads to higher average performance. We have seen companies use competency-based evaluations to increase key performance measures by 25 percent.
Defining a competency model for your leadership team is especially important because the stakes are so high at the top. The logic of that statement seems obvious, yet the vast majority of work being done to measure competencies has focused on middle managers and salespeople. Many of the “executive competency” models are actually jury-rigged versions of models originally crafted to assess middle managers. On this, do not compromise. Our experience shows that successful top leaders demonstrate a distinct set of competencies. Key your model from the start to competencies that validly apply to executives, not middle managers.
Through extensive analysis of executive searches and management appraisals conducted by 64 Egon Zehnder offices worldwide, we have identified nine key executive competencies (Figure 1):
1. Results orientation. The executive focuses on improving the results of the business while effectively managing risks.
2. Strategic orientation. The executive thinks beyond the pressing issues of the day and his or her own sphere of responsibility.
3. Customer impact. The executive creates performance that customers see and value.
4. Market knowledge. The executive demonstrates insight into marketplace success factors.
5. Commercial orientation. The executive is motivated to make money.
6. Collaboration and influencing. The executive works effectively with people and groups not in his or her own line of command.
7. Team leadership. The executive builds, focuses and aligns effective groups.
8. Change leadership. The executive leads people in efforts to create, realign and transform organizations.
9. Developing organizational capability. The executive builds ongoing performance capacity.
In his renowned book, Great People Decisions, Claudio Fernández-Aráoz notes that the relevance of each executive competency and the required level for successful performance vary by industry and role. The important thing is to clearly envision what competencies your executive successors must have and to identify which of those competencies they currently lack, so you can take practical steps now to close those gaps.
What competencies must top energy executives develop to succeed over the next decade? In light of major shifts in the geopolitical environment, objective assessments will probably reveal growing competency deficits in the areas of collaboration and influencing, strategic orientation, change leadership, developing organizational capability and team leadership.
As demand escalates, powerful new players are jumping into the energy marketplace. The majors today control less than 10 percent of the world’s reserves. Going forward, energy companies in general will exercise progressively less control over both resources and markets. The energy industry will therefore need many more senior leaders who excel at collaboration, influencing without formal authority and forging highly productive partnerships that yield win-win outcomes. Emotional intelligence, the ability to build relationships and influence with high levels of self-awareness and empathy, will be a key performance differentiator, especially at top levels.
The changing geopolitical environment will make strategy exponentially more complex. Your successors must be prepared to factor an increasingly diverse set of variables into their strategic decision-making while thinking many steps ahead.
Chances are, the rising leaders you view as potential successors to top positions can claim substantial market knowledge. However, much of what they know today may soon prove irrelevant. Over the next 10 to 20 years, energy demand will rapidly diversify, as will the options for meeting demand. Whole new industries may soon arise within the energy sector. True market knowledge will view energy in flexible conversion terms – considering all sources that might be turned into precious BTUs – whether by your company or by a yet-unseen competitor. Many energy company executives will face a 21st-century equivalent of the question “Are we in the buggy whip business or the transportation business?” Your top leaders’ perspective will have to be that expansive and that flexible.
With so much changing in the marketplace, your top leaders must be prepared to lead your company through rapid organizational change – in many cases, changes of considerable magnitude. Energy executives will need to rapidly build major new capabilities to deliver on new strategies. Technology in particular will play a much bigger role in the future of energy. Your top leaders must foster superior organization-wide capacity to nimbly apply new technologies for competitive advantage.
Energy companies will need high-performing teams to speed innovation, promote effective communication and ensure cohesion through the many twists and turns ahead. Energy executives must therefore actively develop the winning competencies of teams.
Egon Zehnder has identified six competencies that characterize high-performing teams:
1. Balance – the team incorporates diverse skills and strengths
2. Alignment – the team effectively shares a sense of higher purpose
3. Resilience – the team responds effectively and cohesively to stress
4. Energy – the team is ambitious, takes initiative and sustains momentum
5. Openness – the team actively engages with the broader organization and the outside world
6. Efficiency – the team optimizes resources and time and drives efficiently for results
What would an objective third-party assessment using these criteria reveal about your top leadership team? About teams across your company? Knowing where you stand is the first step toward taking your company where it must go.
All of the competencies we have identified will be important. As events unfold, some will prove more important than others, and certain competencies beyond those highlighted here may prove vital for your company. We suggest, then, that you get very tangible about identifying the competencies your company will need, but stay flexible. Weigh and adapt our starting set of executive and team competencies as needed to define your own company-specific model. Then continually adjust your model, according to the knowledge you gain through application, in order to keep pace with changing conditions.
The competencies you apply to assess and develop your leadership team should be strongly behavioral, observable and immediately relevant. Focus on how top leaders within your company achieve desired results. Actively envision what competencies will be most needed in the future. Do not settle for internal comparisons alone. Benchmark your executives against the best in the market.
To summarize: A good executive-level competency model is a simple, proven framework, designed specifically for top leaders and thoughtfully adapted to match your company’s current and anticipated requirements. Adapting a tested and proven model (rather than inventing one from scratch) provides your rising executives sound, competency-based feedback while focusing your company’s development efforts on the areas you deem most vital.
The Path Forward
Exactly how does a company build its executive talent portfolio? Clearly defining the competencies the changing marketplace demands is one critical step. Let’s widen the lens now to view the overall path forward. Egon Zehnder has studied a broad range of best-practice companies – among them BMW, Microsoft, Toyota, GE, Sara Lee, Novartis and Philips – that pursue talent management as a strategic response to diverse market challenges. We have also consulted top academics studying talent management and have conducted comprehensive reviews of relevant published material. From these studies and our extensive talent management consulting experience, we have compiled an overall path for building your executive talent portfolio.
You build a talent portfolio via six key drivers, which are developed through four stages (Figure 2). You can use this staged pathway to gauge your current state, set appropriate priorities and track your company’s progress toward building sustainable competitive advantage through strategic talent management.
At Stage 4, your talent management agenda is actively led not just by human resources and the CEO, but by all line business leaders. Talent management is fully integrated with the business agenda.
Your leadership model is competency based, simple, tangible and easy to apply. Assessment of executives is rigorous. Decisions on key appointments reference external benchmarks and include input from objective, independent sources. Assessments clearly distinguish the potential to excel in new positions from candidates’ performance in current jobs.
Proactive risk management is an important characteristic of Stage 4. In the business best seller The First 90 Days, author Michael D. Watkins notes that many leaders feel pressure to “put points on the board” quickly after moving up into a higher position. In truth, those first few months might be more wisely devoted to building the foundations of long-term success – for example, by engaging with the organization to gain buy-in.
Half of executives derail at some point in their career – often shortly after they earn a promotion – and research shows that the cumulative cost of such turnover can be twice an employee’s annual compensation. Yet despite the clear and substantial risk, companies generally assume that their senior-level appointees are beyond needing support. Most businesses leave recently promoted executives to “swim or sink” on their own. As you move to build your talent portfolio, make it your practice to objectively identify the ways each rising executive must grow to succeed in new jobs. Provide your executives competency-based coaching to help them integrate into higher roles.
Last, but far from least, in Stage 4 you will measure talent-management performance with all the seriousness energy companies already apply to tracking the performance of asset portfolios. You will especially want to measure your success at making successful top-level appointments and reducing costly turnover. One company with which we have implemented competency-based hiring saved $10 million in the first two years.
Here is some good news: You don’t need to start at Stage 4. Start from wherever you are. Do what you can to move up to the next level. Even if you press ahead on a narrow front, your advances will set you apart almost immediately in an industry where serious talent management is still relatively rare. Every step forward on this pathway will build indispensable momentum toward the formidable, sustained strategic advantage of having a strong talent portfolio.
As a senior leader in an industry racing toward a future that looks very different from the past – a future in which your company is sure to exercise less control, not more, over external events – you might sometimes wonder what you can do to leave a legacy of success.
First, recognize that talent is the key to the future. In the past, success in energy was defined by having the best assets and technical excellence. While both will continue to be important, energy’s future winners will also attract and retain the best talent. Communicate this clearly and unequivocally to your people and your board. Stress that the energy marketplace will increasingly reward strengths like creativity, adaptability, intuition, connection, foresight, collaboration, emotional intelligence, openness, resilience and inspiration.
Second, recognize that these distinctly human strengths will flourish only if they emanate from the top. Your own commitment to strategic talent management must be authentic. When it is, even small-scale efforts can deliver powerful results.
The best way for you and your fellow top executives to convey real commitment to building the talent portfolio? Raise the bar for yourselves. Begin by objectively identifying your company’s current and impending competency gaps at the uppermost levels. Then move decisively to start closing those gaps. Show your company through your actions as well as your words that you see the strategic talent management as the path to a successful future.
This article was first published in World Energy (Vol. 11 No. 2, 2008) and is republished on this website with kind permission of the magazine.