Each year, the world’s companies spend USD$50 billion developing leadership capabilities1. Yet, when it comes to assessing whether they are getting an appropriate return on this investment, boards and the C-suite are flying blind.
“If any capital-intensive organisation managed its capital assets in the same way most companies deal with leadership spend, the board and CEO would be fired.” Adam Canwell, EY Global Leader, Leadership Consulting
Organisations need a robust, joined-up strategy to ensure leadership development delivers the right leaders with the right capabilities to drive long-term, sustainable success.
This paper looks at how organisations can begin to manage their investment in leadership talent with the same rigor applied to financial or capital assets.
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Leadership capability gaps widening
Ineffective leadership can cause severe organisational damage. Quality leadership is indisputably a driver of organisational success and, in the current turbulent business and geo-political environment, it has never been more important.
Today’s leaders must:
- Make the right decisions to successfully navigate digital disruption and global volatility
- Prepare and adapt organisations for a constant state of change
- Foster employee creativity and innovation
- Drive purpose and inspire across generations and cultures
- Develop tomorrow's leaders
But a growing body of research and anecdotal evidence suggests that leadership development efforts are not delivering the leaders organisations need today – let alone tomorrow.
Human capital is the top CEO challenge. Yet only 27% of leaders rated themselves as ‘very prepared’ to create an optimal workplace where employees deliver their best.2 Global Leadership Forecast
Looking to the future, capability gaps are only likely to grow. The digital world requires leaders with a new set of skills and a new mindset.
Turning leadership spend into leadership investment
With boards and the C-suite becoming increasingly accountable for the quality of leadership, organisations need to ask themselves:
Today’s leaders must:
- How much are we spending – and what are we spending it on?
- What impact did the spend have on business and leadership performance?
Three critical focus areas when evaluating the success of leadership investment:
Organisations that grow their own leaders have three times higher financial performance than those that don’t. Yet, according to the Global Leadership Forecast survey, 85% of organisations say they don’t have enough leaders coming through the ranks.
The processes traditionally used to develop future leaders are not translating into the right talent. They are either focused on skills that are no longer critical to future success or they aren’t really focused at all. Most leaders do not believe they have the right capability at the right levels to execute their strategy or deliver on the commitments they have made.
How leaders lead is as important as what leaders do. Organisations should never tolerate bad/poor/unethical behavior from leaders. The experience we create for the workers across our organisation translates into the customer experience – and ultimately into organisational performance.
Align, measure and control your leadership development
It’s time organisations applied the same discipline to their leadership asset as they do to other organisational assets.
The frenzied tactical activity we see in most organisations is clearly failing. Instead, organisations need a joined-up, rigorous approach to aligning, measuring and controlling their investment in leadership development.
In developing this approach, boards and the C-suite need to consider:
Purpose and profit
Organisations need leaders who behave in a way that is in tune with their culture – while also delivering exceptional performance.
Individual and collective capability
Arguably, the ability to work effectively in high performing teams has a greater impact on organisational performance – and more leadership investment needs to be focused here.
Prediction and performance
Performance in a current role is a poor predictor of success in the next role up. Yet most organisations base promotion decisions on current performance. We need to start using predictors of potential.
Leadership and context
Organisations need to identify both the broad context agnostic skills that all leaders require alongside the context-specific skills and capabilities needed in this particular organisation or industry.
The leader and the system
To build an effective leadership architecture or system, organisations need to consider everything that develops leaders for the long term. This might mean performance management, career mobility, reward, mentoring or development at key transition points.
How effective is your Leadership Strategy?
Aligning, measuring and controlling leadership investment starts with a strategy, which in turn needs to clearly support organisational performance. Only then can your focus switch to tactics and processes.
Developing an effective strategy begins with answering the following questions:
- Do we have the leadership to effectively execute our strategy?
- Are we bearing organisational and reputational risk due to the behaviour of our leaders?
- Do we have a sustainable pipeline of leaders to ensure our long-term success?
- How can we measure our progress against these priorities effectively?