Effective Leadership Development Critical To Corporate Performance*

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A majority of global business executives believe that leadership shortages, specifically in their ability to adapt and respond to business risks, are threatening corporate performance, according to the results of first annual Global Leadership Imperative. The Global Leadership Imperative was launched by Mercer Delta Executive Learning Center, a global provider of senior executive programs, at a luncheon coinciding with the World Economic Forum in Davos, Switzerland.

Mercer Delta Executive Learning Center in cooperation with the Economist Intelligence Unit surveyed 223 senior executives in large corporations across 17 industrial sectors worldwide. The survey data was supplemented with a number of in-depth senior executive interviews. The study revealed that organizations that implement effective processes aligning leadership development with business challenges typically realize stronger corporate performance than those that do not have such processes in place. In fact, companies with effective processes for assessing individual leadership development needs were significantly more likely to have recorded an increase in sales and net income between 2003 and 2004. Additionally, interviews revealed that employing processes that continually refine and align leadership development activities to meet business challenges results in other tangible long-term benefits, including the ability to seamlessly fill key executive positions with fully-qualified leaders from the internal leadership pipeline. Despite these benefits, the research also indicates that a majority of companies still do not have quantitative processes in place to link leadership development initiatives to a company’s business challenges.

“Implementing processes that foster the competencies of multi-dimensional leaders has clearly become a critical factor in a company’s ability to manage risk and successfully execute global business strategies,” said Dr. David Dotlich, president of the Mercer Delta Executive Learning Center. “What was once largely considered a function of human resources, measurable leadership development and its impact on corporate performance is now viewed as a business imperative by enterprise leaders and the entire organization. Now that the challenge is recognized, the next step is to address it.”

The study uncovered the top four business risks facing business leaders and their ability to achieve business results over the next 24 months. According to 83% of senior executives, “increased competitive pressures” poses the greatest challenge to large businesses and requires the broadest leadership skill set, followed by, “responding to rapidly changing market conditions” (67%), “failure to innovate” (60%), and “satisfying customer expectations” (52%). More than three-quarters of respondents said these challenges had uncovered weaknesses within the organization’s leadership pipeline, and competitive pressures alone revealed deficiencies in more than 90%. Moreover, approximately 30% acknowledged that their companies did not have a good understanding of the leadership capabilities required to overcome these risks, specifically related to driving innovation. Approximately 72% said their companies were planning to take action to close these leadership gaps, yet only half of companies surveyed have made sufficient investments to do so.

“While creating cost efficiencies and streamlining operations remains a top priority for senior executives, those measures will only help companies to cut costs, not drive growth,” stated Dr. Stephen Rhinesmith, partner, Mercer Delta Executive Learning Center. “In order to overcome current deficiencies in the skills needed to drive innovation and growth, organizations need to invest the necessary resources in cultivating a healthy leadership pipeline that can effectively adapt to change brought about by globalization and increased competitive pressures.”

Leadership development programs were found to be most effective when they identify appropriate leadership performance measures. Executives from a wide range of companies have found success by aligning leadership competencies with the organization’s business strategies and corporate culture. Subsequent executive interviews indicate that no matter what leadership training tools are utilized, in order to effectively measure leadership competencies, they must be periodically evaluated to shift with dynamic business conditions.

The study found North American companies (63%) are more likely than their counterparts in Western Europe (47%) and Asia-Pacific (57%) to have identified the next generation of senior leaders and targeted specific individuals for development within their organizations; however they are substantially less likely to have established an effective process for assessing individual leader performance.

Senior executives identified the profile of today’s successful business leader as multi-dimensional, possessing a combination of three core competencies in order to rise above the top four business challenges. Mercer Delta Executive Learning Center categorizes these competencies as:

Head: Cognitive skills; providing strategy, direction and purpose

Heart: Emotional intelligence; understanding, working with, and developing others

Guts: Values; doing the right thing based on clear values

“Traditionally, cognitive skills were seen as the most important element of leadership,” added Dr. Dotlich. “‘Head’ leaders - often being “the smartest people in the room” - operate under the assumption that if they analyze the situation, absorb the data, and decide among rational alternatives, they are strong leaders. On the other hand, the Global Leadership Imperative supports that while the one-dimensional leadership approach may have worked in simpler times, partial leaders struggle during an era of paradox, ambiguity, and unpredictability. Our experience is that companies have a great supply of leaders who are strategic, analytical and purposeful (head) and a shortage of leaders who can develop talent (heart) and have the courage to do the right thing (guts).”

Survey results further show that the competencies needed to lead successful organizations in the changing business landscape are not fixed; rather they differ and are associated with varying levels of leadership within an organization. In order to manage all four categories of risk within the next two years, executives identified the capacity to “think like a customer” as the most important leadership capability for their organizations. In addition, they expressed the importance of requiring leaders to possess highly developed skills across all three characteristics. Survey findings illustrated that executives did not find competencies such as “creating trust” and “ethical leadership/values-based decision-making” a priority for helping to overcome business risks. In subsequent interviews, however, executives explained these are underlying measures of more action-oriented leadership competencies that directly link to business results.

*Reprinted by permission