The Leadership Advantage

How the Best Companies Are Developing Their Talent to Pave the Way for Future Success

Author: Robert M. Fulmer , Jared L. Bleak
Pub Date: 2007
Your Price: $24.95
ISBN: 0814409253
Format: Hardcover

• The Leadership Advantage
• Sample Chapter
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Chapter 2

Making Leadership Development a Strategic Lever

Have you ever lived in a city that had failed to do adequate planning for growth and development? With due respect to our friends at the American Productivity and Quality Center (APQC), we feel that Houston may be a prime example of this sort of failure. Beautiful buildings coexist with ramshackle structures. An upscale furniture store sits adjacent to a used-car lot. The net effect, in our opinion, is that Houston does not meet its potential for becoming a beautiful city. Although we are admittedly biased, we believe Santa Barbara is an example of success in urban development. The city took advantage of a 1925 earthquake to reinvent itself. With strong civic leadership provided by Pearl Chase and downtown merchants, the city established and enforced strong zoning requirements that demanded consistency in architecture and created a harmonious appearance in the business areas of the city.

In recent years, many human resource (HR) and human resource development (HRD) departments have grown haphazardly, without regard for an overall plan or strategy. For example, typically one system was introduced a decade ago and seemed to work reasonably well, yet was not fully integrated with newer systems. This led to inconsistencies and ultimately to each component of HR having a manager who may be more interested in the elegance of his or her system than in how it connected to other parts of the company. One of the major shifts in human resources during the past decade or two has been away from almost-independent components and to a consciously articulated leadership and human-resource strategy that is integrated and aligned with overall corporate strategy. However, this transition is far from complete in many firms.

Just as Houston has attractive neighborhoods that fail to come together to create a cohesive urban environment, so some organizations have pockets of excellence that fail to be integrated into a unified whole. Excellent educational programs that are not part of the strategic direction of the firm or that fail to support the business objectives of the organization reduce the overall potential of the group. Likewise, strategic goals that are not supported by reward and promotion policies are likely to be ignored.

Strong, aligned leadership is essential to business success. Sometimes a traumatic, or at least dramatic, event can lead to a conscious reinvention that moves an organization ahead on its path to greatness. But leadership is an essential element of the success of any strategic change effort. Indeed, no strategy is good enough to succeed without strong leadership.

The skills and abilities of effective leaders can be developed through many avenues, such as coaching, mentoring, exchange with peers, skill building, stretch assignments, and opportunities to practice. These skills and abilities are just as important as individual qualities such as emotional intelligence, self-motivation, and being results-oriented. Attempts to create change must be communicated by, and to, those who are most impacted by the change. And change cannot be sustained unless organizations engage in self-examination, revise their systems and processes, and open decision-making opportunities to potential leaders.

Knowledge-building strategies such as leadership-development programs give high potentials access to information and highlight areas and opportunities for improvement. But in order to develop leaders in organizations, resources must be invested in the following:

• Skills building so that high-potential employees are exposed to a vast array of opportunities and knowledge
• Relationship building among executives, managers, and employees to remove inherent barriers between levels within an organization
• Strategies to ensure relevance and applicability to business goals within an organization

Creating a leadership-development strategy takes time. To implement a leadership-development strategy that lasts, executives and managers must support the building of leadership skills, devise the programs so new leaders are continuously developed and involved, and change policy and program decision making to encourage employee participation. There is no cookie-cutter model for leadership development. However, through our best-practice research, we have identified world-class practices to help other organizations see opportunities to adapt, rather than to copy, these practices to fit their unique situations.

Leadership pathways are affected by the resources, history, relationships, and other attributes of both the individual and the organization. They must be designed and crafted to meet the needs of each organization's culture, values, business strategy, and potential leaders. Figure 2.1 identifies some typical concerns of business leaders and suggests some ways that human resources can address these issues.

Setting the Context for Leadership Strategy

Based on our experience in working with global firms, as well as our research on best-practice companies, we believe that the following seven principles set the context for creating a foundational strategy to develop better leaders for the present and the future.

1. Start with the business-and know the desired results. The creator of Sherlock Holmes, Sir Arthur Conan Doyle, began writing his mysteries by focusing on the last chapter. The mystery of great leadership development may be just this simple. When attempting to craft a leadership-development strategy, ask, "What is the business issue I wish to address, and what is the result that will let me know that my organization has been successful?" In other words, start with a strategic mission for leadership that supports the overall business strategy.
2. Insist on a systemic, integrated approach. A program is seldom the solution to any problem. Building an exciting program isn't easy, but it is much less challenging than laying down the fundamental experiences that help individuals move through their careers while also moving the organization toward its strategic goals. However challenging, creating an integrated approach is critical to an organization's success in developing its people.
3. Think about building organizational capability, as well as individual leaders. We believe that "management development" is dead among leading firms. Obviously, there is still a strategic need to develop individual leaders, but focusing on individual development apart from organizational strategy is simply providing competitors and headhunters with better people for recruitment. Action learning designed to address key organizational challenges can often provide solutions just as insightful and pragmatic as can outside consultants and it also contributes to the development of both the individual and the organization. Most important, however, is the capability that your best and brightest will have developed through the experience, and that you will have established the connection between individual and organizational development.
4. Teach people to master (business) challenges, not competencies. Competency models are important, but only if they address current and anticipated business issues. The key is for leaders to understand and master the business and for the competencies to align with that business.
5. Measure outcomes and organizational impact regularly. Chapter 6 addresses the challenge of assessment in greater detail. At this point, we simply want to emphasize that the plan for measurement of impact should be built into the original design of the business strategy.
6. Request extensive C-suite and board participation. Senior executives may believe that they are too busy for detailed participation in corporate learning initiatives. This study and previous research indicate that truly great leaders understand that there are few ways of leveraging their efforts and that sharing their visions is more effective than discussing their teachable point of view with the next generation of leaders.
7. Keep the strategy flexible to allow the organization to respond to changes in the business. Corporate HRD typically sets the agenda for major leadership programs. This department is responsible for ensuring that programs align with and support the overall corporate strategy. Divisional or strategic business-unit programs should connect with the corporate strategy, but they should also reflect environmental or competitive differences in their challenges. A program that was tremendously successful in its first iteration may become antiquated in a couple of years if it is not continually refined and improved.

An effective tool for involving senior line executives in program design and for enlisting their support is to ask about the major challenges that the key leaders of their business will need to address. Rather than soliciting topics to include in the educational program, ask line executives the following questions:

• What does your competition look like? How does this competition impact your need for change?
• Can you tell us about your company's, and top leaders', business challenges?
• Do you have the right people and capabilities to execute your strategy for future growth? If not, what are priority areas? Gaps?
• What leader competencies and behaviors are required to support the future direction of the organization? What obstacles inhibit organization growth today?
• How would you evaluate your current leadership pipeline? What needs to change?
• What programs and development experiences are best in class? What is missing?
• What else would you add to our discussion that "keeps you up at night"?

The rest of this chapter focuses on several aspects of developing a leadership strategy and builds on the aforementioned principles, such as acting on change, linking leadership development to corporate goals, communicating the leadership-development strategy, and building the strategy on a sound vision.

Key Findings on Strategic Design

Key findings on strategic design include organizations' use of "teachable moments," the linking of business and leadership-development strategies, the communication of strategy, and the identification and implementation of lean competency models.

Organizations Have Teachable Moments, Too

Key Finding 1.
Organizations experience major change events leading to profound teachable moments.

Much has been written about the importance of providing developmental opportunities for individuals at the appropriate "teachable moment." There is ample evidence to suggest that executives and managers alike benefit more from educational experiences that occur "just in time" for them to apply their knowledge, rather than "just in case" they eventually need a new set of skills. These teachable moments often occur when individuals have just been asked to change their roles-for example, to become managers rather than individual contributors, to become managers of managers, or even to become general managers with overall operational responsibility for a business unit. In the case of executives, these moments often occur when they are asked to take the organization through a major transition, resulting in a shift in organizational identity or strategy. Another way to view this finding is to suggest that a new CEO or general manager who doesn't align the human resources systems with strategic initiatives is overlooking one of his or her most powerful implementation tools.

In this study, we found that best-practice partners use teachable moments to introduce new leadership-development initiatives to their respective organizations. Especially, organizations seem to have moments when the development and articulation of a leadership strategy are appropriate. These opportunities generally occur when there is a new CEO who wishes to align the organization around a new strategy, when two or more organizations have merged, or when there is a significant organizational crisis.

A recurring theme in our research findings was that each of the study's best-practice partners could name a specific situation in which it became clear to key line executives and senior human resources leaders that this was a strategic opportunity-a teachable moment. Each of the partners began the alignment of systems, along with the creation of specific leadership-development strategies, approximately three to five years before we started our research.

At the beginning of each partner's leadership-development story is a major change event, either a merger or an industry refocus. These change events led to the creation of a leadership-development mindset that remains embedded in each organization today. At some point, each organization redirected its vision to focus on people. From this people focus emerged a leadership-development strategy that ensured the security, growth, and profitability of the organization well into the future.

For example, when Jim Owens became CEO of Caterpillar in 2004, one of his early decisions was to empower the College of Leadership within Caterpillar University to create a Leadership Quest program for the organization's highly promotable leaders. This program was built on an earlier initiative that Owens had been involved in as a young executive and also took inspiration from a program that had stressed the organization's leadership framework or competency model. The new initiative was intended to "give our next generation of leaders an infusion of `yellow blood'" (a reference to the color of the organization's logo and many of its products).

As part of the Leadership Quest program, midlevel leaders were challenged to articulate what the strategy of Caterpillar should be in the year 2020. These recommendations were presented to the CEO during the program and circulated to the Strategic Planning Committee, which in October of 2005 articulated a new strategy called Vision 2020. Reflecting its namesake, this strategy predicted in detail the organization's needs through the year 2020. The fifteen-year outlook led executives to focus on the organization's future goals and to think about the requirements of future leaders. People were identified as a key element in this new strategy, an element that would help shape and support the strategic goals of the organization. The pyramid illustrated in Figure 2.2 has become a foundational graphic for conversations about strategy, operational planning, and leadership development at Caterpillar.

In order to create the culture needed to compete in the new environment for assurance, tax, and advisory services, in 2001, PricewaterhouseCoopers (PwC) articulated a set of corporate values, strategies, and leadership competencies that lead to the creation of a PwC University experience for all partners, along with a suite of other initiatives designed to enhance a culture totally aligned with the firm's strategy. The merger of Price Waterhouse and Coopers & Lybrand redirected PwC's energy, and a new vision surfaced to reflect the new regulatory and competitive environment. The PwC vision was one of distinction and differentiation. In order to achieve the vision, leadership development became a central focus. PwC believes that the path to profitability starts with developing leaders who will be distinctive in the industry, ultimately leading to profitable growth.

In 2002, Washington Group emerged from financial restructuring with a new threefold mission statement that identified people as its first priority (see Figure 2.3). Washington Group, like the other best-practice partners in this study, approaches the future with the idea that developing its people will lead to sustainable long-term growth. As with the other partner organizations, Washington Group believes that a focus on people and on developing their talents will naturally enhance the organization's profitability.

PepsiCo's change event, which occurred in the mid-1990s, was a combination of mergers and new leadership. Today, PepsiCo has established a tradition of selecting new CEOs who use high-potential learning programs as a means of conveying both strategy and values to future corporate leaders. This tradition began with Roger Enrico, who as vice chairman of PepsiCo spent more than 120 days coaching and mentoring the next generation of PepsiCo leaders. With his vice president of executive development, Paul Russell, Enrico personally developed a program called Building the Business, and he led this program ten times in eighteen months.

When Steve Reinemund became CEO, he saw the opportunity to build capabilities in leaders for the organization's future and he developed his own approach to meeting this challenge. In October 2006, Indra Nooyi succeeded Reinemund as CEO. An experienced PepsiCo executive born and educated in India, she is evidence of the organization's commitment to diversity, internal development, and talent management. She is currently planning her unique approach to the next stage of the powerful PepsiCo tradition of CEO as "teacher in chief."

Cisco's teachable moment followed the dot-com crisis in the late 1990s. CEO John Chambers recognized the need for reinvigorated commitment to developing "emerging leaders" and "global leaders," and he brought Pat Keating, a former business school professor, to Cisco. As director of worldwide leadership education, Keating emphasizes the importance of maintaining a balance between growth and productivity. In Cisco's view, productivity requires collaboration and teamwork-two major thrusts of learning at Cisco.

Linking Business and Leadership-Development Strategies

Key Finding 2.
Winning organizations build a strong linkage between business strategy and leadership-development strategy.

Many organizations develop an overarching corporate strategy and then build supporting strategies and systems around it to ensure that all programs are in alignment. There is a strong correlation between strategic alignment and the ultimate success of a strategy. In the case of a leadership-development strategy, the direct link between it and business strategy can provide great benefit to the organization and its employees. Organizations that realize the importance of this link establish a leadership-development philosophy that permeates all organizational levels and is applicable to all employees. This alignment embeds strategic leadership development in the DNA of the organization.

All of the study's partners indicated that leadership development is tied to their corporate planning process, yet this was true of only a third of the study sponsors, as shown in Figure 2.4. Indeed, the development and articulation of a leadership philosophy linking leadership to business strategy is a foundation of best practice and an important predictor of success. In our research, we found that alignment of strategies is key to ensuring that the leadership-development strategy is relevant to each business unit and, more important, to the overall business strategy.

Recently, Caterpillar realized that learning had to be linked to corporate strategy and critical success factors. At Caterpillar, alignment is achieved by receiving input from the executive office, business units, and process owners of the critical success factors; however, the foundation of the alignment is the Enterprise Strategy (see Figure 2.2.). At Caterpillar, stakeholder inputs tie learning to business goals that eventually become the part of the Enterprise Learning Plan for the year. (See also the Caterpillar case study in Part II of this book.) To further embed leadership development in the business strategy, the company established metrics to connect leadership behavior to business success.

PricewaterhouseCoopers (PwC)'s leadership-development strategy is directly related to its "distinctive firm" strategy, which has business goals in three areas: client service, employee development, and quality work. These business goals and corporate strategy became the framework for the leadership strategy for PwC in North America. As a consequence, corporate and leadership strategies are linked. The leadership-development programs reinforce the corporate strategy and ensure success. Senior line executives sponsor the programs. Their sense of a program's value in achieving the firm's goals is a key factor in program success.

Washington Group also formally links its business strategy with its leadership-development strategy. It holds a series of strategic planning sessions during the year that encompass both the corporate strategy and the human resources strategy as they relate to business objectives. In these sessions, the organization's business strategy is reviewed and refined, and it becomes the basis for formal employee-development plans. In fact, all of these strategies guide leadership development. At Washington Group, the direct connection between business strategy and leadership-development strategy allows for employee development with near- and long-term action plans that ensure success in providing the leaders needed to confront future challenges.

PepsiCo's leadership-development strategy is grounded in the belief that strong leaders are needed to be successful in the marketplace. This belief is fundamental to PepsiCo's two-pronged HR approach, which includes a career-growth model and a talent-management model for leadership development. (See the PepsiCo case study in Part II.) This two-pronged HR approach aligns with corporate strategic initiatives, which in turn link with the organization's sustainable competitive advantage.

Cisco uses executive sponsors to tie its leadership-development strategy to its business strategy. To further strengthen this link, HR partnered with Global Operations to create the Global Leader Program in support of the company's worldwide strategy.

As we said, all best-practice partners closely tie their leadership-development strategies to their business strategies to ensure that emerging leaders are prepared to lead their respective organizations well into the future. Common sense would indicate that this tie is always present. Unfortunately it is not. Taking time to make this connection specific and deliberate is not common, but it is almost a requirement for excellence.

Communicating the Strategy

Key Finding 3.
Executives use leadership development as a powerful tool to formulate, translate, and communicate strategy.

While education is a relatively small portion of the entire development process for leaders, carefully crafted learning initiatives are important for gathering input from people in the organization and communicating key themes to everyone in the firm. Learning programs can effectively communicate the reasons for and implications of corporate strategy to managers, who need to translate that strategy for employees so everyone understands his or her role in creating the desired future.

As previously mentioned, one of the components of Caterpillar's Leadership Quest program was having participants present to the CEO their strategy for the organization in the year 2020. In October 2005, the Strategic Planning Committee announced the organization's Vision 2020 and reformulated Code of Conduct. Immediately, the College of Leadership, in partnership with key enterprise organizations, rolled out the new strategy and code down through the organization using a leaders-as-teachers approach. Also in October, learning sessions designed to achieve divisional alignment were conducted around the world. Sessions designed to communicate the vision to employees were completed by the following January. Essentially, all leaders were involved in communicating the essence of the new strategy to their subordinates and helping them see their roles in achieving the organization's strategic goals.

In its discussion of how to create a positive organizational culture, PwC focused on its core values of leadership, excellence, and teamwork, along with the critical attributes of good client service, trust and quality. The PwC University Experience has proved to be an effective and efficient means of sharing information about the organization's direction with all of the firm's partners and moving its culture in the desired direction.

Various studies have concluded that 60 to 70 percent of all strategies fail to be successfully implemented. The best-practice partners beat these odds by ensuring that everyone in their organizations understood the strategy, the reasons for it, and their roles in implementation. These companies also understand that leadership-development activities can be an effective means of sharing information and providing tools for successful implementation of strategy. Leadership development is a bully pulpit for corporate leaders-a way for them to share their views of an organization's future and to engage future leaders in dialogues about strategy and challenges of implementation. Senior executives recognize that these conversations about strategy can challenge their own sometimes insular thinking, can leverage communication efforts by engaging several high-potential middle-level managers simultaneously, and can provide opportunities to clarify thinking and articulate key concepts. Moreover, the executives gain insights into the essential skills and capabilities of younger leaders from throughout the firm.

Lean Competency Models

Key Finding 4.
Lean competency models and values are the foundation of strategic leadership development.

Clearly, alignment is a key concept for successful implementation of leadership-development strategies. A simple leadership model with a concise statement of values can be the central focus for that alignment. None of the best-practice partners had a scientifically valid competency model; most had created their own strategy or had adapted a set of competencies developed by an outside organization. We found, however, that all of the partners and most (81 percent) of the sponsors identified and implemented lean leadership competencies within their organizations.

Almost all of the study participants recognized the need to identify and develop competencies that would ensure the success of their organizations into the future. In other words, most firms sense the necessity of understanding the competencies required for success and that this is the starting point for planning leadership development. However, organizations differ in the ways they use their competencies to connect the strategic needs of the organization to the challenges of developing their people. The organizations that were able to keep their competencies relatively simple, or lean, were more effective in applying those competencies than were those with more complex models.

In 2001, PepsiCo revised its leadership model based on new leadership and changes in strategic direction at the time to identify three leadership imperatives, seven success factors, and seventeen competency dimensions, as shown in Figure 2.5. Although all seventeen competencies are important, the three leadership imperatives focus employees on what is truly important. Interestingly, the three major clusters of Caterpillar's leadership competencies framework are very similar: vision (setting the agenda), execution (doing it the right way), and legacy (taking others with you).

Additionally, this study found that all of the best-practice partners and almost all (84 percent) of the sponsors indicated that the competency models have behaviors tied to them. Also, all of the best-practice partners have had competency models in place for approximately the same time as they have had leadership-development strategies in place.

A competency model can serve as a foundation for planning and implementing a successful leadership-development strategy, especially if the models are developed in the context of a firm's future strategic direction. Washington Group relies on twelve competencies (referred to as "business skills" it believes to be critical to effective personal performance and thus to business performance. A business-skills booklet refers to them as the "softer skills" in contrast to technical or job-specific skills.

The connection between PwC's values and leadership framework is shown in Figure 2.6. This framework is tied to the organization's competencies and is often a foundation for leadership-development initiatives. Cisco uses its Grow Model ("Grow the business; Grow the team; Grow yourself") as its competency model. Each component of the model is tied to Cisco's cultural values (customers, teamwork, collaboration, integrity, judgment, and perspective).

The best-practice partners keep their values and competencies simple and straightforward. They understand that competencies should apply at all levels of an organization and directly lead to better performance. As we have shown, an integrated strategic leadership framework can add value to a business. Figure 2.7 can be helpful in addressing some of the key talent-management problems facing organizations today. Building content around these areas can help an organization ensure leadership continuity and prepare for future growth.

Leadership Strategy Development: Summary

Developing a leadership strategy requires organizational commitment, buy-in, and focus. Furthermore, creating and/or understanding an organization's culture and values are paramount before anyleadership-development strategy can be designed and implemented. The essential elements for developing a successful leadership-development strategy are:

• Experiencing a teachable moment and coupling it with the opportunity to change the culture
• Establishing a corporate business strategy that is visionary, then linking the leadership-development strategy to it
• Engaging in conversations about the leadership vision and gaining support through the communication efforts
• Creating a lean competency model and the values that can guide the leadership-development strategy

A sound leadership-development strategy builds a foundation and infrastructure that cascade knowledge, understanding, and motivation down through the organization. Additionally, it provides opportunities to available talent, facilitates the assimilation of external hires into the corporate culture, and aligns them with the direction of the company. A leadership-development strategy affords employees an opportunity to grow and eventually excel.

Chapter 3 will reveal how developing a strategy is only a beginning. Design is the starting point; a successful leadership-development architecture requires commitment, application, integration, and synergy. Any architect will tell you that beautiful designs are worthless unless someone is committed to making the project become a reality. This will only happen when the owner is willing to commit time, money, and effort to making the design become a reality.

© 2008 Robert M. Fulmer.
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