In the company of leaders

Like many companies throughout the world, Albertsons valued GE's reputation for grooming effective, tough-minded leaders who could deliver results and lead through change.

Albertsons landed Larry Johnston, one of Jack Welch's right-hand men, whose arrival at Albertsons was greeted with much fanfare and an immediate jump in stock price. But since then, the transition has been challenging, according to the Wall Street Journal. Not only has Johnston faced a steep learning curve in a new industry, but also his managerial methods have been a shock to the Albertson culture.

He and Albertsons are not alone, however. As the Journal reported, a number of senior GE executives recently have had difficult transitions into new corporate cultures, finding that what worked for them in their old organisation does not necessarily work for them in their new ones. Moreover, many of the executives have found that their new companies lack the deep reserve of talent to which they had become accustomed - and on which they relied - while at GE.

Albertsons' story, complete with an initial stock price jump upon the announcement of Johnston's hiring, confirms the high value both corporations and shareholders place on skilled leadership. According to Bain & Co., companies with strong leadership development systems create roughly 10 times the annual shareholder value that companies with weak leadership development systems do. At the same time, the recent experiences of GE's executives also confirm another truth:

Transplanted leaders, despite promise and pedigree, experience high failure rates - as high as 40 percent, according to one study. The lesson: Plucking a leader from even the best executive grooming grounds, such as those at GE, does not guarantee immediate success for the transplanted executive when entering a new corporate culture. As a result, there are not only great financial incentives but also great strategic motivations for companies to create their own productive leadership pipelines.

Companies today are struggling with the consequences of a leadership gap more than ever before. In a recent Conference Board survey of global companies, only 36 percent of respondents rated their company's leadership capacity as good or excellent in meeting today's business challenges, down from 50 percent only 5 years ago. A separate survey by McKinsey & Co. found that 40 percent of corporate officers in 77 companies said they could not pursue most of their companies' growth opportunities because they lacked the right leaders.

As a result, the question for most companies is no longer whether to create a strong leadership
development system, it is how to create a system that guarantees the development of leaders at all levels of the organisation, generates improved leadership today, and creates a supply of effective leaders for tomorrow. In fact, while companies were quick to eliminate leadership development programmes during the recession of the early 1990s, they by and large have
protected those systems during the current economic downturn, evidence that leadership development has graduated from a perceived cost liability to a perceived source of competitive advantage.

... a recent Conference Board survey of global companies found that only 36% of respondents rated their company's leadership capacity as good or excellent ...

Five Critical Success Factors
The process of creating such systems, while demanding, is also rewarding, as evidenced by the
successes of a number of innovative businesses that have put them in place. Working with some of those leading companies, Forum has identified five critical success factors that distinguish them, including the adoption of long-term developmental systems, a recent trend that marks a
significant change for many businesses that once believed leadership development occurred at
discrete, event-oriented moments in time instead of happening every day in multiple ways throughout a career.

Paying attention to these critical success factors enables organisations to systemically address their leadership gaps and to ensure their investment in talent results in
a competitive advantage that will sustain them through future challenge and change.

Factor 1: Engaged senior management. The most successful leadership development systems originate with and have the full support of senior management - who recognise existing leadership gaps as an immense obstacle to the execution of strategy. These senior managers are not looking for stopgap measures or quick fixes; they are looking to introduce a continuous process for improving the leadership capacities of their people at all levels of the organisation over time.

They realise that the absence of such a system, and a resulting leadership gap, can cost their organisations in many ways. There is the substantial expense of recruiting leaders from other companies, investing in their relocations, and supporting them through their transitions - all while facing a high risk of failure. And there are the immeasurable costs of lost opportunity; a shortfall in effective leaders can prevent companies from both attaining current goals and stretching toward new ones.

At Merck & Co., for example, CEO and chairman Raymond Gilmartin has made leadership development at all levels of the company a priority, stating that a deep reservoir of leaders will provide the company with a sustainable edge over competitors. At Mellon Financial, Martin McGuinn personally oversees the development plans of direct reports and has led the institution of leadership development programmes that have fueled strong performance and high employee
satisfaction.

Factor 2: Strategically driven. The leadership development system must clearly identify the business' strategic and organisational priorities and the leadership skills required to achieve these goals. For instance, a company executing an organic growth strategy might need to focus on skills related to increased innovation, risk taking, and reinvigorating mature brands, while a company pursuing growth by merger and acquisition might need to focus on skills related to working across boundaries, managing change, and combining cultures.

Leading companies, such as GE, see business strategies and leadership development as inseparable. In the same meetings in which they determine strategic priorities, they integrate talent management and leadership development by identifying leadership requirements and assessing current strengths and weaknesses.

Factor 3: Clearly defined standards. Knowing how to reach corporate goals is as important as knowing what those goals are. Managers and employees must know which behaviours reflect and support the corporate strategy, the corporate culture, and the company's priorities, and how those behaviours will further their own careers over time.

Best-in-class companies typically develop a customised competency model to define what they expect of their leaders, identifying the skills needed to succeed in the new environment rather than the skills that dictated success in the old. Developing these competencies then can happen over many years, at many levels.

Factor 4: Aligned and integrated systems.
Companies that attempt to establish leadership development systems often pay too little attention to - or neglect entirely - the need to infuse a common set of leadership standards throughout each of the company's people processes. Recruiting and hiring, performance management, succession planning - each must be aligned and integrated with the values and behaviours identified as crucial to corporate success. Otherwise, companies will discover potentially debilitating departures from corporate standards; for example, a manager could promote someone who demonstrates old values and behaviours rather than the new competencies that will drive the company's future success.

Factor 5: Long-term, systemic approach. Just as a contractor uses an architect's drawings to guide the construction of a building, so too can companies use blueprints to guide the development of green recruits into seasoned leaders.

The best of these leadership development systems are multi-level and multi-year, equipping current managers with the skills needed to meet today's challenges, and equipping individual contributors with the skills to grow into tomorrow's managers. The systems build both self-awareness and emotional strength, qualities that good leaders need to cope with the uncertainties of today's workplace.

No longer is it assumed that sheer smarts is enough; rather, it is assumed that becoming a seasoned leader is a difficult, transforming process that requires managed, intentional support at each transition, from individual contributor, to team leader, to manager, to functional group leader, to general manager, to enterprise leader.

Continuous Process, Multiple Components
With that in mind, the most innovative systems guard against the 'one and done' mentality characterising many corporate leadership development systems that expose learners to disjointed, unconnected development experiences. Importantly, these best-inclass systems are designed with the understanding that the learning experience should be a continuous, cohesive process that nevertheless recognises the differences in responsibilities at each level of the organisation.

For example, in order to be worthwhile, the learning experience for a senior manager cannot possibly be the same for, say, an entry-level manager, but it should share common themes and language that enable him or her to build on what he or she has learned previously and be challenged by what lies ahead. The same system allows the entry-level manager to progress through a series of levels, building upon the same themes and language as the senior manager.

The system can have numerous components, among them:


• Experiential learning. Typically, high potentials are groomed for future leadership posts by rotating through a number of jobs over the course of 10 years or more to ensure breadth and depth of experience. However, learning from experience does not always require official job transfers. Organisations abound in opportunities, which are rarely used, to learn key skills - for instance, observing the strategic planning process, shadowing a senior executive, or participating in an action-learning team.

While experience is a great teacher, it also can be high risk to both the organisation and the individual - even to the point of retarding leadership development - if it is not incorporated correctly within a larger system that includes coaching and feedback. As Morgan McCall, author and professor of management at the Marshall School of Business, observes, 'Experience can do one in, or it can teach important lessons... the trick is to know how to influence which way it goes.' Learning from experience requires not only action but also reflection, the time for which is a scarce commodity in today's hectic organisations. Being explicit about the learning objectives of new experiences, providing feedback and coaching, intentionally building in time for reflection, and ensuring that failure will not end a career - all these support mechanisms are critical to accelerating learning from experience.


• A culture of coaching. Recognising that the success of experiential learning depends in great part on feedback, many organisations are working to establish coaching cultures by introducing coaching skills throughout their enterprises. The growing trend recognises that coaches from within can consistently offer real-time guidance and assistance, thereby accelerating learning. Although underutilised, coaching can have tremendous positive impact, providing actionable advice and direction repeatedly throughout the year rather than retrospectively at an annual performance review.


• Individual development planning. One survey of 8,000 leaders by the Corporate Leadership Council revealed that the most effective strategy to improve bench strength was the implementation of customised individual development plans. Yet, while many companies have processes that require managers and employees to create annual individual development plans, few have reliable methods to ensure those plans are executed. Now, companies are increasingly willing to hold managers responsible by tying certain percentages of pay to talent development, requiring them to report in detail to senior executives on talent within their group, and making them demonstrate progress on their employees' development plans.


• Training. While training sessions traditionally have carried the stigma of being pre-packaged and generic, increasingly they are customised to address a company's unique challenges, culture, and competency model. Additionally, training sessions increasingly integrate real work with existing business challenges, and include individual or team action-learning assignments.

These experiences enable participants to experiment with new methods and skills, then report back at later sessions in settings that encourage reflection and accelerate learning.


• Learning communities and support networks. Training sessions also present a valuable
opportunity for future leaders to build networks that provide the support needed to experiment, stretch, and grow. That is why leadership development systems, in recognition of the emotional capacity required of leaders, often combine strategic business-oriented lessons with personal growth experiences.

By exposing a group together to a powerful experience that involves both the head and the heart, participants forge strong bonds with each other, learn a common language, and carry their learning beyond the classroom's walls. Just as important, learning communities establish the concept of leaders as teachers.

A number of companies that have adopted multi-level, multi-year development systems have incorporated components in which managers who have been through the learning experience serve as teachers and coaches for those who follow. The practice emphasises the importance the company places on sharing knowledge and coaching others. In addition to demonstrating commitment, this principle also has a practical value; adults remember more of what they learn when they themselves teach.


• Early identification of talent. The practice of selecting a few high-potential executives and grooming them for specific roles is dated and increasingly ineffective. More commonly, companies are adopting systems that seek to develop a large and deep pool of people who are talented, flexible, and equipped with a variety of experiences that will enable them to step into multiple roles - even roles that have not yet been created. Additionally, companies are equipping managers with the skills and tools they need to identify prospects objectively, fairly, and early, while also clearly communicating the selection criteria to employees.

How One Company Built Its Leadership Pipeline
An instructive example of how each of the five critical success factors plays out in the creation of a best practice leadership development system can be found at one of the world's leading consumer products companies, with which Forum has worked to create a multi-level, multi-year leadership pipeline.

Factors 1 and 2: Senior management engagement and strategic drive.
The integration of a number of new businesses and the introduction of an ambitious growth strategy convinced the company's senior managers that they needed to redefine the corporate culture in order to achieve new strategic goals. Moreover, senior leaders became convinced that equipping managers and employees at all levels with leadership skills would sustain not only the company's current growth strategy, but also its future strategies over time. With senior management providing direction and setting expectations, the systemic development of leaders became a top corporate priority.

Factor 3: Clearly defined standards.
When the company's leaders undertook this task, approximately 500 senior managers engaged in a process to collectively define the company's new culture. Since growth remained their priority, the leaders wanted to instill values that would support an enterprising culture - agility, innovation, initiative, an openness to risk taking, and the proactive identification of new opportunities. By specifying the qualities that would define great leadership, management was
making it possible for employees and managers to adopt the behaviours that would make them great managers.

Factor 4: Aligned and integrated systems.
Alignment and integration translated into an intense focus on the performance management system across operating units. The company also conducted an extensive curriculum assessment in order to determine whether and how closely its top three-dozen leadership development programmes aligned with the company's standards, competencies and culture. Those that did not were removed, while those that did were refined if necessary and integrated into a new system geared toward developing a pipeline of leaders across all levels.

The new system incorporated diverse experiences at each level that enabled people to move laterally in the pursuit of professional and personal growth. It also relied heavily on action learning - learning that is tied closely to the employee's responsibilities, accelerates the accomplishment of real work, and yields immediate positive and measurable results.

Factor 5: Long-term, systemic approach.
The company's commitment to designing a best-inclass leadership development approach resulted in a dynamic, layered, and powerful system that is well on its way toward grooming the enterprising and innovative leaders the company set out to develop.

The company's system incorporates five modules at each developmental level centred on a 60-day 'learning laboratory' that enables the learner to put into action, with the help of a partner and coach, what he or
she has learned in the classroom.

The learning laboratory accelerates learning by providing an immediate and relevant opportunity to apply new concepts to real work. That opportunity, which enables employees to raise their own expectations of their performance, is followed by a return to the classroom. There, reflection on the learning experience enables the employee to communicate to fellow learners what he or she did differently and why it worked.

To create a culture of learning and advancement, the system also calls upon participants to teach and coach others. Line executives and managers are embedded into the design, each teaching and coaching the next level down. The cascade brings learning to everyone in the organisation quickly and with great impact.

While the learning structure remains the same at each level, as do the themes and language used to communicate them, the learning experiences are unique. The ideas of breakthrough thinking, deep selfknowledge, coaching, and growth remain consistent at each interval, but the experiences that enable employees to understand those themes vary according to the employee's degree of responsibility.

In designing its system, the company demonstrated great sensitivity to the fact that experiences at each level must appeal to both the heads and the hearts of all employees. As a result, each level has its own unique strategy-centred business lessons and its own personal growth tool intended to develop emotional intelligence and self-awareness.

After just one year, the company's leadership development system has already begun to fill the
corporate pipeline with employees skilled at embracing change, accepting challenge, exhibiting innovation, and demonstrating managerial and emotional strength.

Point of view Conclusion
Faced with a host of demographic and economic trends that are exacerbating leadership gaps, it is tempting for many organisations to assume that they can import leaders and plug gaps as they appear. Yet, evidence is mounting that doing so is a far more difficult and risky proposition than has been traditionally assumed.

Although many companies will continue to recruit talent from executive grooming grounds, the companies that will position themselves best for consistent and long-term success are those that stock their ranks with homegrown talent. In the short term, they will equip their people with the skills they need to help the company succeed today. And in the long term, they will create the kinds of companies in which success becomes the expected way of doing business. They will become companies of leaders.