Fast Track To Leadership

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© 2007 Hay Group. All rights reserved.

Companies are facing a massive leadership and talent shortage 75 million US employees eligible to retire in the next 5-10 years. Only 45 million people will replace them. US Census Bureau

50% to 75% of current senior management will be eligible for retirement by 2010. Forrester Research

97% of organizations report significant leadership gaps – more than 40% say the gaps are “acute.” Corporate Leadership Council

60% of the CEOs of America’s largest healthcare systems can retire in 5 years. American Medical Association

“The UK is running out of head teachers.” National College of School Leaders and Hay Group 2

© 2007 Hay Group. All rights reserved.

The impending leadership shortage is global In Bangalore, wage inflation is 20% per year, and average turnover is running 40% per year. The Economist

Senior managers in India and China are particularly scarce. The Economist

Call centers are being located and relocated to Europe because talent is now too scarce in India. National Public Radio

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© 2007 Hay Group. All rights reserved.

The impending leadership shortage is global Regardless of where they are in the world, the companies in our study felt the same high sense of urgency to develop leadership Companies’ Sense of Urgency to Develop Leadership

High

Low Eastern Europe

Pacific

Middle East/ Africa

Central Western Asia Europe

East Asia

North South & America Central America

Source: 2006 Chief Executive magazine/Hay Group “Best Companies for Leaders” Survey

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© 2007 Hay Group. All rights reserved.

Even the best companies are feeling the effects of the impending shortage High

Companies’ Sense of Urgency to Develop Leaders

Even companies already doing the best job at developing leaders feel an urgent need to continue to develop them. Hay Group

Source: 2006 Chief Executive magazine/Hay Group “Best Companies for Leaders” Survey

Low

20 Best Companies for Leaders 5

© 2007 Hay Group. All rights reserved.

All Others

Our database shows 34% of executives and 24% of senior professionals can retire NOW Percent of People at Different Ages in Each Job Level 100%

Distribution of Age Groups

(24%)

90%

55-69 (34%)

80% 70% 60% 50%

45-54

40% 30% 20%

35-44

10%

25-34

0% Entry-Level Professional

Mid-Level Professional

Senior-Level Professional

First-Level Supervisor

Mid-Level Manager

ExecutiveLevel

n = 880

n = 3,618

n = 4,462

n = 12,262

n = 21,189

n = 20,974

Source: Hay Group Survey Database

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© 2007 Hay Group. All rights reserved.

Certain leadership abilities will be in particularly short supply From Hay Group research, the retiring population is higher than the remaining population in almost all leadership competencies. The competencies particularly salient in the retiring population are: 1. The ability to inspire one’s organization through a compelling vision (Team Leadership) 2. Sensitivity to organizational and industry power dynamics (Organizational Awareness) 3. The ability to use sophisticated influence strategies to convince others (Impact and Influence) 4. The ability to look over 5 years into the future to anticipate issues and develop strategies for addressing them (Initiative/Proactivity) 7

© 2007 Hay Group. All rights reserved.

Certain leadership abilities will be in particularly short supply  Team Leadership  Organizational Awareness  Impact and Influence  Initiative/Proactivity Many of these “departing” abilities are maturational in nature and develop as a result of “life growth” experiences. The development of these abilities needs to start early. The Best Companies for Leaders gives us insight into how to develop more of this kind of leadership faster.

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© 2007 Hay Group. All rights reserved.

The Best Companies for Leaders: 2006 vs. 2005 2006 Best 20 Companies for Leaders                     9

General Electric Procter & Gamble PepsiCo Citigroup Johnson & Johnson HSBC Holdings BASF Home Depot IBM Coca-Cola Dell Microsoft Novartis Verizon Nestlé Lockheed Martin GlaxoSmithKline Amgen Hewlett-Packard BAE Systems © 2007 Hay Group. All rights reserved.

2005 Best 20 Companies for Leaders                    

Procter & Gamble PepsiCo IBM General Electric Johnson & Johnson Dell Microsoft Home Depot JP Morgan Motorola Pfizer FedEx BASF Verizon BAE Systems Johnson Controls Siemens BP L’Oréal Colgate-Palmolive

The Best Companies for Leaders report having more & better leaders The Best Companies report:

Companies report on number and quality of leaders

High

 more leaders  better leaders For all organizations, having enough leaders is the more critical issue.

20 Best Companies All Others

Low

Quality of Leaders

Number of Leaders

Source: 2006 Chief Executive magazine/Hay Group “Best Companies for Leaders” Survey 10

© 2007 Hay Group. All rights reserved.

Why study the Best Companies for Leaders? Five-year Avg. Total Shareholder Return

Having a strong leader pays.

4.07%

0.54% 20 Best Companies 11

© 2007 Hay Group. All rights reserved.

S&P 500

Source: Research Insight, Dec. 2006

The Top Three Practices that predict “more better leaders” are the same this year as last 2006 Best Practices

2005 Best Practices

1.

Having leaders at all levels who focus on creating a work climate that motivates employees to perform at their best

1.

Having leaders at all levels who focus on creating a work climate that motivates employees to perform at their best

2.

Ensuring that the company makes leadership development a top priority

2.

Ensuring that the company makes leadership development a top priority

3.

Providing training and coaching to help intact leadership teams, as well as the individual leaders, work together more effectively

3.

Providing training and coaching to help intact leadership teams, as well as the individual leaders, work together more effectively



Rotational job assignments for high potentials



Providing job-shadowing opportunities for managers in mid-career



External leadership development programs for mid-level managers





Web-based self study leadership modules for mid-level managers

Ensuring that high potentials receive objective 360-degree assessments and feedback on their leadership ability early on



Ensuring that mid-level managers get enough time to take part in leadership development activities early in their careers



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Executive MBA programs for mid-level managers

© 2007 Hay Group. All rights reserved.

Contribution to number and quality of leaders Contribution to number and quality of leaders High

The top three best practices account for 68% of the difference in the number and quality of leadership. Together with the next four, they account for 74% of the difference. All other practices account for only 2% additional.

Top 3 best practices The next four Everything else

Low

Source: 2006 Chief Executive magazine/Hay Group “Best Companies for Leaders” Survey 13

© 2007 Hay Group. All rights reserved.

Some leadership development practices add no value Some development activities at any level ― and some that are started “too late” in a person’s career ― are negatively related to a supply of quality leaders and are a wasted investment. 1. Outdoor activity-based programs at all levels of management 2. Paper-based self-study leadership modules at all levels of management 3. Job-shadowing for Senior Managers 4. Web-based self-study for Senior Managers 5. Executive MBA for Senior Managers

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© 2007 Hay Group. All rights reserved.

The 20 Best Companies for Leaders are different in how they handle high potentials and their ability to fill positions internally The 20 Best Companies do these more… Actively manage the careers of high-potentials Have a formal process for identifying individuals who are likely to assume leadership roles in the future Have career tracks for high-potential professionals or individual contributors that are separate Have formal programs that are designed to accelerate leadership development Included marketing as an organizational function from which they get their high-potentials

Resulting in more of this…

Source: 2006 Chief Executive magazine/Hay Group “Best Companies for Leaders” Survey

Mid-level manager positions are filled from within Senior-level manager positions are filled from within CEOs are promoted from within 0

20 best companies 15

Rest of the companies

© 2007 Hay Group. All rights reserved.

20

40

60

Percentage Shown

80

100

There were some significant differences in Best Practices between Developing vs. Developed Countries  Developed Countries = North America, Western Europe, and Australia/New Zealand  Developing Countries = Eastern Europe, Asia, Middle East/ Africa  Two of the top 7 Best Practices were the same for Developing Countries: • Holding leaders accountable for creating motivating climates • Helping leadership teams be more effective, as well as developing individual leaders  Two practices were more important in Developing Countries: • Providing for additional development activities for mid-level managers • Providing mid-level managers mentoring by another senior manager or executive 16

© 2007 Hay Group. All rights reserved.

Five key steps to identifying and managing potential

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

Know what you need from people: start with strategy



Identify long-term potential through the growth factors – not just job-specific abilities, or past performance



Be able to answer “Potential – for what?”



Fulfillment of potential



Create systems that enable effective talent management

© 2007 Hay Group. All rights reserved.

Potential equation

Potential =

Person’s Current Abilities

Future Role Requirements

X

Growth Factors Derailers

Potential is:  The fit between a person’s current capabilities and possible future roles  Taking into account the person’s longer-term capacity for personal growth and possible derailers

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© 2007 Hay Group. All rights reserved.

Growth factors Where should you invest your development resources?  Best bets are people who will be able grow and develop.  Look for these characteristics: • Thinking beyond the boundaries • Curiosity and eagerness to learn • Social understanding and empathy • Emotional balance

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© 2007 Hay Group. All rights reserved.

Beyond identifying potential The organization’s responsibilities:  Fulfillment of potential – providing opportunities and experiences that enable employees to grow, develop and make their full potential contribution to the company.  Create enabling systems for effective talent management – to take full advantage of the potential of the employees

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© 2007 Hay Group. All rights reserved.

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© 2007 Hay Group. All rights reserved.