Are You Prepared for the Coming Leadership Crisis?
by Mike Horne, Ph.D
It was September 11. The radio was playing. I was relaxed, sitting in my office chair facing the computer monitor and beginning the day's work. The first reports of aircraft crashes into the World Trade Center and the Pentagon came over the airwaves. As the reports increased in their frequency and intensity, I turned to the television. I was horror-struck by what I was witnessing. In the early hours of watching the tragedies unfold, we connected with family, with friends, and remembered what was really important. beyond
In the first hours of the disaster, some organizations came face-to-face with the grim facts. They suffered a loss of key executives in the buildings or on the planes. Among the organizations that sustained a loss of talent were: Cantor Fitzgerald, FDNY, Marsh & McLennan, AON, Fiduciary Trust International, and Carr Futures. These organizations endure severe and irreplaceable losses.
No amount of preparation can prepare an individual or an organization for disasters of the magnitude of September 11. Nearly a year later, coping with unexpected has become expected. Succession management-the identification and development of leadership talent-promotes organizational resiliency. In "normal" times, well-designed succession management systems prevent chaos and confusion. They assist organizations to deal with executive departures, to cope with and to lead industry and marketplace changes, and to focus the organization on excellence. Succession management enables the organization to deliver its future promise.
In our work, we have identified four questions that assist in building an organization's leadership pipeline. How you answer these questions, and how well you can integrate your answers, will provide you with insight and perspective into succession management.
Will you be ready when there are too few leaders?
An alarming gap in the supply of leadership talent is confronting US-based organizations. It's estimated that 1 in 5 top management positions and 1 in 4 middle management positions could be vacant within the next few years. Within the next decade, organizations in every business sector will begin to feel the impact of baby-boomers exiting the workforce. Over the next 15 years, a 15% decline in the number of 35 to 44 year olds will occur. This decline equates to fewer people available to fill top and middle management positions. The future will bring an increasing demand, and smaller supply, of leadership talent. No organization will escape these factors, and no industry segment will be unaffected.
Unfortunately, most companies are unprepared for the coming leadership shortage. Nearly half of US organizations with sales in excess of 500 million have no meaningful process for grooming potential chief executives. Approximately 25% of the Fortune 500 companies do not consider succession management a top priority, and about 40% of organizations rate their approaches to leadership development as low or very low.
Succession management assists an organization to answer questions similar to these:
- Do we have enough qualified people to fill key positions now and to grow our business in the next 3 to 5 years?
- Will we have a sufficient pool of qualified candidates ready to fill key positions in the next 5 to 10 years?
- Do we have diversity and inclusiveness in our leadership positions?
- Will we have continuity of leadership for key executive positions?
- How will we retain high-potential employees in a competitive environment?
Succession planning is not replacement planning. Jobs and organizations change too quickly to identify potential successors based on today's criteria. Many jobs formerly considered important have become unimportant or unnecessary. Replacement planning has the potential effect of alienating people and disenfranchising future leadership. Succession planning is more than an organization chart of the future.
Well-designed succession management prepares an organization for its future. It brings about a sense of responsibility for organizational success. Effective succession management requires careful examination of business strategy. The business needs to understand where it is, where it's going, and how it wants to get there. Successful succession management ensures a supply of competent talent to lead the organization into the future.
How does talent identification relate to the organization's leadership competencies?
Do you remember the last review of talent with your company's chairman or chief executive? The all-too common scenario is an annual review, based on weeks of preparation by the human resources department, squeezed onto an already overcrowded agenda. Executive responses during the annual review may have included:
- Who? I don't know that person.
- Why are we always thinking of the same people? Don't we have any other talent?
- He's too (fill in the blank) or She doesn't show enough (fill in the blank).
These types of responses cause many executives to believe that the right talent for the organization's future lies outside of the enterprise.
Nearly everyday, the business press reports on untimely CEO departures attributable to mismatched organizational and individual expectations. Typical CEO searches are time-intensive, and usually, prospective executives undergo rigorous scrutiny. Positions below the CEO level often receive less attention, raising the probabilities poor choices. Bad choices are costly to employee performance and to the bottom-line. Stated simply, it's less risky to focus on internal employee development than to rely on an uncertain and diminishing supply of external talent.
Talent identification begins with executive agreement on the leadership competencies needed to maintain and to sustain the organization. The best competency models blend organizational needs and individual leader capabilities to form a list of desirable leadership behaviors, characteristics, and skills. In application, competency models provide an ongoing assessment tool for leadership development. Leadership development plans are the logical outgrowth of competency models.
Multiple methodologies for talent identification exist and frequently include ranking protocols. Best practice organizations use multiple assessment methodologies. Regardless of methodology, effective talent identification can not be a secret process. Talent identification systems deliver on their promise of creating individual and organization excellence when the processes are open and public.
Untapped reservoirs of talent exist in organization. Sadly, talents often remain hidden because identification discipline and rigor is lacking. Weak talent identification systems are bureaucratic and wasteful while robust systems stimulate meaningful approaches to leadership development. Systematic approaches to talent identification eliminate executive guesswork and promote effective individual and organization development. You wouldn't rely on your CFO's memory to produce the general ledger nor should you rely on individual executive memories for talent identification when the very future of the organization is at stake.
What are the organization's approaches to leadership development?
Training is insufficient to develop leadership capacity. Organizations plunder their succession management investment when leadership gaps are consistently responded to with training programs. Organizational resources are additionally squandered with one-size fits all development approaches. Talent is a corporate asset that needs to be optimized for the corporation's long-term interests. Best practice organizations serve those long-term interests using multiple development methods.
Organizations have scarce leadership development resources. Typically, less than 20% of corporate training budgets are dedicated to leadership development. Because of this resource scarcity, best practice organizations deploy their resources selectively. In other words, they recognize that leadership development approaches include an identified subset of the entire employee population. In best practice companies, companies concentrate their development resources on less than 5 percent of the total employee population. Laser-like focus pays significant dividends to the entire organization by deeply developing a pool of leadership talent.
Promising leaders have differing development trajectories. In the past, succession management failed because of standard set of rotations and training. This historical approach was to create executives who were equally good at everything. That approach fails today because of the accelerating pace of change. The focus in leadership development today relies on the creation, implementation, and follow-through of individualized development plans. These individual development plans link directly to the organization's leadership competency model.
Companies that succeed at succession management recognize that it is a long term process that includes learning opportunities incorporating the possibilities of failure and success. Consider these examples of learning opportunities: promotions, lateral moves, course work, and special assignments. As leadership scholar Morgan McCall stated, the organization itself is the "best school" for learning.
People need to be held accountable for development. It is futile to think that development occurs because of words recorded either electronically or on paper. Development is a combined organizational, managerial, and employee effort.
Does readiness exists for successful succession management?
Effective succession management begins with careful consideration of organizational strategy. Approaches to talent identification and leadership development are unique to the organization implementing succession management. Four factors contribute to the successful development of the leadership pipeline.
- Support from the top. The most effective means to ensuring a return from succession management is support from the organization's top team. When senior executives are involved in succession management, a pan-enterprise view of leadership development is fostered. Pan-enterprise views are essential for three reasons. First, top team involvement creates assurance that succession management links to the organization's strategic plan. Next, executive involvement provides a lens to calibrate talent quality across the enterprise. Third, top team involvement limits talent hoarding and underscores the concept of talent as a corporate asset. Additionally, top team involvement contributes to the development of a long-term view to succession management. Top team involvement increases the linkage to the production of long-term shareholder value.
- Alignment of human resources systems. Succession management successfully integrates three mainstays of the human resources function: development, performance management (compensation), and selection. Succession management is not an end in and of itself. The relationship between development, performance, and selection protects the organization's investment. An integrated view of these systems safeguards against the possibilities of talent frustration and eventual talent loss. Alignment of these systems requires strong human resources leadership and powerful conversations among HR executives and business leaders. Varied approaches to integration have cost and time consequences. To provide meaningful data for decision-making, regular review and use is required.
- Development of critical mass. Succession management supports the development of leadership cadres or pools within the organization. The support for leading and changing organizations is a difficult task, and the task becomes nearly impossible when there are few sponsored candidates for leadership development. Accountability is further reduced when organizations rely exclusively on external university-based programs or courses. Leaders need other leaders to change. Critical mass accelerates organizational change through the creation of shared language and experiences. The propensity for leadership prosperity is influenced through the early and deep identification of leaders. The challenge in developing critical mass is to be both selective and inclusive. With social support, new ideas and behaviors have a long-term chance for survival.
- Environment for success. During the last 20 years, significant progress has been made in leadership identification and development. Many businesses have moved from 'survival of the fittest' to embrace leadership development. The embrace, however, is often a short-lived one-week training program, a 360 degree feedback process, and opportunistic job placements. Despite progress, methods and processes to reliably produce leadership remain on the horizon. Tough economic and competitive times often cause organizations to diminish, mothball, or eliminate leadership development. It requires commitment and determination to create new generations of leaders. True succession management success occurs when people across, down, and up an organization believe that leadership development is indispensable to the future success of the organization. This belief contributes to the innovation and organizational renewal.
Can you imagine an organization without leaders? Our ideas of organization and leadership are inextricably connected. It's difficult to think of one without the other. As a concept, leadership outlives any organizational form. The reason, in part, is that organizations do a poor job of planning for the future. Succession management-the identification and development of an organization's leadership capacity-is essential to perpetuate the organization. Few organizations consciously seek to expire but many do because of failures in leadership identification and talent.
There are no shortages of demands on organizational leaders. They cope with pressure and disaster, and they react without panic. They are resilient because they believe in the future. Succession management creates and sustains possibilities for the future. It builds on organizational needs, it assists in the identification of leaders, it grows and adapts organizational capacity and responsiveness.
Consider the story of 40-year old Howard Lutnick, CEO of Cantor Fitzgerald. One week after September 11, he was interviewed by television personality Larry King. King asked how the events of September 11 changed the hard-driving, bottom-line focused businessman. Lutnick responded simply, "How could I not change." How are you preserving the future of your organization?
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