Leadership awakened Generations, teams, science

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Leadership continues to be a pervasive concern among HR and business leaders around the world, ranking higher in importance than it did in last year’s global survey. As organizations become increasingly team-centric, the workforce becomes both younger and older, technology catalyses faster change, and business challenges grow more global and diverse, fresh challenges in leadership development emerge. Organizations need to refocus on leadership as a whole to build versatile leaders earlier in their careers, form leadership teams that mix different generations and varieties of leaders, and develop leaders deeper in the organization—all with a structured and evidence-based foundation for leadership priorities, programs, and investments.

• The leadership challenge is urgent and growing in importance. In 2016, 89 percent of companies see leadership as an important or very important issue (up from 87 percent in 2015), and 57 percent cite leadership as very important (up from 50 percent).
• Twenty-eight percent of respondents reported weak or very weak leadership pipelines.
• The profile for top leaders is complex and evolving. Organizations need to develop fundamental leadership capabilities among critical individuals and teams—capabilities that include the ability to collaborate across boundaries, conceptualize new solutions, motivate diverse teams, and develop the next generation of diverse and global leaders.

Why is it so difficult for so many organizations to identify potential leaders and develop them?

Leadership remains a top priority in C-suites worldwide, ranking second in overall importance in this year’s survey. (See figure 1 for our survey respondents’ ratings of leadership’s importance across global regions and selected countries.) The percentage of companies that rate this issue as important or very important grew to extremely high levels. Nor is this surprising, as the challenges are immense.

Today, organizations need to explore new approaches to leadership development. They should seek to apply rigorous, structured, scientific approaches to succession planning and development, aiming to identify potential leaders earlier and fast-track them into leadership positions. Also important is to find ways to develop leaders who can collaborate extensively, recognize the need for new leadership skills (such as conceptual thinking), and focus on new leadership cohorts (Millennials, women, and diverse individuals). All of this requires implementing a comprehensive culture around leadership to address the leadership gap continuously and systemically.

While companies believe they are making progress in some areas—for instance, the percentage of companies with strong role-based and experiential leadership programs grew from 9 percent last year to 20 percent this year—many major gaps remain:

• Only 7 percent of companies believe they are “excellent” at building Millennial leaders.
• Only 13 percent of companies report they are “excellent” at building global leaders.
• Only 14 percent of companies surveyed described themselves as “strong” at succession planning throughout the business.

These data, along with the data gathered by Global Human Capital Trends over the past three years, suggest that the leadership development paradigm that many companies around the world follow is simply not delivering what is expected and necessary.

Last year, companies spent nearly $31 billion on leadership programs.¹ Yet, as Barbara Kellerman of Harvard University (The End of Leadership) and Jeffrey Pfeffer of Stanford University (Leadership BS) have recently written, the leadership world continues to be dominated by stories, myths, and fads, often promoting superficial solutions that appear effective but fail to address the issue of helping leaders to learn and that do not deliver measurable impact and results.² Indeed, 40 percent of our survey respondents believe that their current leadership programs provide only “some” value, and 24 percent report that they yield little to no value.

Why do organizations find this issue so intractable, even after investing heavily in leadership programs? If investment in IT and learning delivers results, why can’t HR show similar benefits from investments in leadership development? Why is it so difficult for so many organizations to identify potential leaders and develop them?

First, despite a 10 percent increase in spending on corporate leadership programs last year,³ the quality, rigor, and investment for leadership efforts remain uneven across companies. High-performing companies outspend their competitors on leadership by almost four times.⁴ Not only do they spend more, they spend smarter. Surprisingly, most leadership programs are evaluated primarily by so-called “smile sheets”—in effect, feedback from participants on how they enjoyed the leadership program, instructor, and venue. Too few leadership programs are designed on a foundation of research, clear priorities, and assessments of needed leadership thinking and outcomes. Best-practice organizations are developing an integrated system of leadership that includes a specific leadership strategy, detailed pre- and post-program assessments to measure effectiveness, research-driven content, and blended learning programs with stretch assignments, intensive coaching, and continuous opportunities for leadership development—all relying heavily on data, evidence, and science-based approaches.

A second reason leadership remains a challenge may be that, as organizational design shifts from a structured hierarchy to a network of teams, companies require different types of leaders and inclusion capabilities. As organizations grow flatter and more diverse, and as the global operating environment becomes increasingly more complex, there is a stronger demand for people who can lead at all levels of the company. Companies in this environment are finding that they must identify potential leaders much earlier in their careers and accelerate their movement through the leadership ranks.

Yet another challenge is that the entire concept of leadership is being radically redefined. The whole notion of “positional leadership”—that people become leaders by virtue of their power or position—is being challenged. Leaders are instead being asked to inspire team loyalty through their expertise, vision, and judgment. The number of employees supervised by each first-line manager is increasing, to more than 10 among US companies and as high as 13 in industries such as health care.⁵ This broad span of control demands leaders who are skilled coaches, not strictly supervisors—leaders with the ability to attract, inspire, and retain great people, not just make the numbers. Collaboration, too, is becoming a critical leadership skill: With organizations continuing to evolve rapidly beyond vertically integrated enterprises to networks and ecosystems, groups of leaders are being forced to work together in new ways, including collaboration across generations, geographies, functions, and internal and external teams.

Lastly, the demographic realities of an aging population cut in different directions, causing a leadership shortage at some companies and limited leadership opportunities for younger employees at others. At companies where senior leaders are reluctant to yield up their responsibilities, HR should develop solutions that promote development among up-and-coming leaders. These solutions could include implementing active career management for high-potential employees, constructing teams with multigenerational leadership, and offering other opportunities for younger leaders to develop experience before they are ready. The goal is to create a robust pipeline of new, more innovative leaders that takes advantage of the strengths and skills of both younger and older leaders.

Surprisingly, 59 percent of respondents to our survey report little to no investment in diverse leaders, with similar findings for Millennials (59 percent) and women (49 percent). Such investments, though, are extremely important to allow companies to leverage the strengths of Millennial leaders—often well-suited to fast learning and conceptual thinking—and Baby Boomer leaders in their 50s and 60s—who often bring strengths in behavior and influence along with valuable institutional knowledge. The challenge is to combine and build the strengths of leaders at all levels and of all descriptions.

This leads to an important question: Are companies ready for the new leaders who are needed today? Many organizations may not be prepared to accept a new generation of leaders, or even to build an environment that allows them to emerge. Yet consider some of today’s leaders. Google’s Larry Page was 38 at the time of his appointment; PetSmart’s David Lenhardt, 43; GameStop’s J. Paul Raines, 46. This new breed of CEOs is younger, more global, and more digitally savvy than their predecessors. They rose up from the ranks, often leapfrogging incumbents to go on to transform their businesses.⁶

At the same time, the impact of leaders is too high to simply jettison one generation of leaders for another. As organizations become flatter and more dispersed, companies need better strategies for developing leaders to perform both as individuals and in teams—to operate in dyads and triads as well as on one’s own.

Important to this effort is to think systematically about leadership. A portfolio approach that simply assembles a selection of offerings from different vendors is unlikely to promote consistency in leadership development or to ensure that future leaders receive the training they need to direct today’s team-focused organizations. Identifying and developing exceptional leaders require a far more rigorous process, including:

• The use of evidence and analytics to identify game-changers who may be going unnoticed
• Expanding the use of online tools to enable organizations to identify high-potential employees earlier in their careers and potential leaders around the world
• Better use of leaders in the later stages of their careers to team with, mentor, and develop the next generation of leaders
• The development of a comprehensive leadership system—not simply a collection of training packages—that can effectively assess talent across the organization; focus training on high-potential employees; and provide opportunities for younger leaders to gain the skills, experiences, and insights they need to thrive in leadership roles

Every aspect of leadership—from strategy and assessment to leadership development and program evaluation—should be executed with a degree of rigor and the use of data that is simply not part of most leadership programs today.

Rigorous analysis and evidence should inform every step of the leadership development process.

Lessons from the front lines

In 2012, Macquarie Group Limited, a global investment banking and diversified financial services group, reevaluated its leadership development programs.⁷ The company’s goal was to ensure that leadership offerings continued to build capability at the director level in order to allow Macquarie to identify and take advantage of new opportunities in a complex and rapidly evolving market. Macquarie aimed to design and deploy a best-in-class global leadership development experience. The new program would have a clear focus on fast-tracking leaders and on further broadening its leaders’ perspectives. The program needed to be highly practical and business-focused, while also underpinned by a strong scientific foundation and rigorous learning methodology.

Following a six-month analysis and design process, Macquarie launched a pilot program in early 2014. Offered to a selection of associate directors located in Macquarie’s major hub cities in Europe, Asia, Australia, and the United States, the program consisted of two three-day workshops delivered over a 12-month period, supplemented with a series of one-on-one coaching sessions, a 360-degree assessment, and a skilled volunteering experience.

Recognizing that Macquarie staff lean strongly toward intellectually challenging and practical learning, the associate director program provided Macquarie leaders with a strong mental framework as well as easily digestible and readily applicable tools for their day-to-day work. The cornerstone of the program’s success was to not give participants a set of generic answers, but instead to teach leaders a set of questions they could ask themselves to help solve their own unique challenges. They were not taught how to behave, but how to think: The program’s catchphrase is “Think. Lead. Act.” Built around six core capabilities such as “setting direction,” “inspirational leadership,” and “collaboration,” this flexible and innovative approach to learning allowed the content to be applied easily across business lines and geographies.

Since 2014, over 500 associate directors have enrolled in the program. Feedback from both participants and the business has been overwhelmingly positive, indicating that the program’s commercially focused and cognitive approach to development was much more effective than more traditional, static approaches. Participants reported the ability to readily apply their newly gained knowledge to their roles, enabling directors to thus focus more on commercial priorities. In addition, in Macquarie’s recent global staff survey, alumni of the program were significantly more positive in their attitudes toward career progression and development opportunities than their peers.

Based on the success of the associate director program, Macquarie designed and piloted a program at the division director level in 2015. This program builds upon the associate director program’s highly practical approach to broadening participants’ thinking through simple and memorable concepts, while integrating several new learning innovations. These include a “lab-based” approach to learning in which participants work on challenges as a group, supported by several coaches in the room. The program also focuses on establishing greater connections between participants, giving them a more integrated understanding of each arm of the business as well as helping them identify commercial synergies and potential client opportunities.

Where companies can start

• Take a fresh, hard look at leadership development strategy: Many companies find that this is the best place to start. Nearly two in three of our respondents (61 percent) report that they have updated their leadership strategy in the last year or are currently doing so. Perhaps most important is to challenge the current strategy: Is it delivering the impact, results, leadership pipeline, and caliber of leaders the business needs now and in the future?
• Cast a wider and deeper leadership net: Many organizations are trying to broaden the definition of leaders and leadership, yet too often that definition is still not broad enough. The potential leadership pool must expand teams and networks of teams beyond organizational boundaries.
• Build leadership programs on a foundation of evidence, data, and analytics: Insights from data can help organizations identify the DNA of successful leaders. Rigorous analysis and evidence should inform every step of the leadership development process, including candidate identification, development, coaching, and career progression. Leadership programs should be evaluated by their impact—their ability to strengthen leaders and the results they deliver—and rapidly move beyond the edutainment focus of many of today’s programs.
• Broaden and deepen leadership capabilities: Today’s leaders need both traditional leadership capabilities and new skills. Rotational programs may be an effective way to identify and develop future leaders. Stretch programs across functions and businesses, as well as in nontraditional areas (for example, the social and not-for-profit sectors), can offer opportunities to develop and test emerging leaders.
• Identify and foster teams of leaders: An important goal for most organizations is to develop new models of leadership teams, combining leaders of different generations and perspectives. For many organizations, this is a new focus and will be critical in the future, when organizations will need both teams of leaders and leaders who can drive and motivate teams.
• Focus on young, diverse leaders: Identifying great leaders as early as possible is an important way to deepen the leadership bench and promote dramatic change.
• Rethink leadership investment: Simply spending more money on leadership programs is unlikely to be enough. To deliver a superior return on investment, leadership spending must be far more focused on and targeted at what works. Leading companies both spend more and spend more wisely, with a focus on evidence and results.

Bottom line

We have written in the past of the “overwhelmed employee.”⁸ Today, perhaps the theme should be the “overwhelmed leader”—underscoring the need to identify new leaders early and develop them appropriately.

Is the organization’s leadership strategy, pipeline, and programs up to the task? Our data on this question over the past several years suggest not. To make progress on the perennial and pervasive challenges of leadership, companies need to ask hard questions. Who in the organization is likely to be a true game-changer? Does the organization tend to promote people who look and think like current leaders? Do current leaders conduct deep analyses to identify and develop people with potential, wherever and whomever they may be? How much time do leaders in the organization spend on elevating team effectiveness? Are the strategy, focus, and rigor of leadership programs up to the needs, skills, and challenges of the future? Only by answering such questions can organizations find ways to effectively cultivate the leadership talent that they will need to compete—today and in the future.

Deloitte’s Human Capital professionals leverage research, analytics, and industry insights to help design and execute the HR, talent, leadership, organization, and change programs that enable business performance through people performance. Visit the “Human Capital” area of www.deloitte.com to learn more.