Competencies that Generate Growth – Return on Leadership
Study by Egon Zehnder and McKinsey & Company
Growth is the Holy Grail of corporate strategy. Not only do high-growth companies deliver significantly greater shareholder returns than the average, they are also five times more likely to survive as independent entities than their low-growth counterparts. There is little doubt that leadership quality is a key determinant of a company’s growth, but the specifics are frustratingly elusive. What matters more – analytics or people leadership? Is growth driven by a small group of stars or a broad leadership cadre? Should executives conform to one corporate leadership profile, or does diversity deliver faster growth?
Few studies have been able to provide analytically rigorous answers to these questions – or quantify the impact of leadership on growth. As a result, companies struggle to focus their leadership development efforts and budgets on creating value for the business.
To solve this problem, Egon Zehnder and McKinsey & Company have carried out thorough statistical analyses of the relationship between managerial quality and revenue growth, across a global sample of more than 5,000 leaders in 47 listed companies.
The study confirms that talent matters: executives of high-growth companies have a higher level of competency than those of low-performing firms. But the study also makes it clear that having good leaders is not good enough; only excellence makes the difference. Companies with outstanding leadership teams have a high correlation with revenue growth, while those with solid but unexceptional leaders have no correlation at all. The study also shows that several commonly held beliefs are mistaken. For example, it is not true that a solid talent bench can pull off any strategy: leadership is always contextual, and competencies for success vary greatly by strategy.
Indeed, the study makes it clear that companies must accurately target their efforts to develop and recruit leaders – building true excellence in the most critical roles and competencies – if these are to translate into vigorous revenue growth. This report discusses these findings, and their implications for companies, as three principles for action:
Focus on the leadership competencies that matter most for growth
Build a critical mass of excellent leaders
Celebrate the extremes – develop and promote “spiky” leaders