Why is the best investment strategy a human one?

Transcription

1 Why is the best investment strategy a human one?

2 Contents 01 Introduction 3 02 Leadership capability gaps widening 03 4 leaders of every stripe are in disrepute... the tireless and often superficial teaching of leadership has brought us no closer to nirvana and followers nearly everywhere have become disappointed and disillusioned. Barbara Kellerman, author of The End of Leadership Turning leadership spend into leadership investment 6 04 Align, measure and control your leadership development 7 05 How effective is your Leadership Strategy? 8

3 01 Introduction Each year, the world s companies spend USD$50 billion developing leadership capabilities 1. Yet, when it comes to assessing whether they are getting an appropriate return on this investment, boards and the C-suite are flying blind. Organisations need a robust, joined-up strategy to ensure leadership development delivers the right leaders with the right capabilities to drive long-term, sustainable success. Boards and executive teams have tremendous insight into the value and effectiveness of an organisation s financial and physical assets. These assets are protected by high levels of governance discipline, including detailed reporting and stringent controls. Yet, intangible assets of which leadership talent forms a significant portion are not controlled in the same way. Few boards can confidently state that their leadership initiatives are producing the right talent, with the right capabilities to deliver exceptional performance. Most struggle to get a joined-up view of all their leadership activities let alone understand whether and how each initiative is aligned to organisational success. In fact, the impact of leadership spend is barely measured even in organisations spending hundreds of millions per year. 2x Effective leaders deliver 2x better performance than average leaders 2 35% 35% of leaders have the right capability to execute their strategy 2 No wonder that, in recent interviews, board members and C-suite executives told us they are looking for assurance on leadership across four critical questions: 1. Do we have the leadership to effectively execute our strategy? 2. Are we bearing organisational and reputational risk due to the behaviour of our leaders? 3. Do we have a sustainable pipeline of leaders to ensure our long-term success? 4. How can we measure our progress against these priorities effectively? Given the size of the investment at stake and the value of getting it right, this paper looks at how organisations can begin to manage their investment in leadership talent with the same rigor applied to financial or capital assets. 10x Purpose-led companies outperformed the S&P 500 by 10x between If any capital-intensive organisation managed its capital assets in the same way most companies deal with leadership spend, the board and CEO would be fired. Adam Canwell, EY Global Leader, Leadership Consulting 1 Kellerman, B. (2012), The End of Leadership, New York, HarperCollins. 2 DDI Global Leadership Forecast Why is the best investment strategy a human one? 3

4 02 Leadership capability gaps widening Ineffective leadership can cause severe organisational damage. Quality leadership is indisputably a driver of organisational success and, in the current turbulent business and geo-political environment, it has never been more important. Today s leaders must: Make the right decisions to successfully navigate digital disruption and global volatility Prepare and adapt organisations for a constant state of change Foster employee creativity and innovation Drive purpose and inspire across generations and cultures Develop tomorrow s leaders. But a growing body of research and anecdotal evidence suggests that leadership development efforts are not delivering the leaders organisations need today let alone tomorrow. According to the DDI Global Leadership Forecast (GLF), human capital is the top CEO challenge, ahead of customer relationships, innovation and operational excellence. Yet only 27% of leaders rated themselves as very prepared to create an optimal workplace where employees deliver their best. 3 Most organisations do not believe they have the right level of capabilities in their leadership population to execute their strategy. A High-Resolution Leadership study, based on 15,000+ day-in-the-life assessments of executive leaders, found: 45% 20% Impact of good leadership on performance Research undertaken by DDI shows that organisations with highly competent Executives achieve revenue growth 45% above the average. Organisations with competent executives achieve revenue growth 20% above the average. 12% 27% Only 12% of leaders are strong at driving strategic execution Only 27% of executives are ready to meet the business challenge of shaping organisational strategy Impact of bad leadership on performance Those who are negative or draining have a 4-7 times stronger negative impact on performance than the positive effects of relationships that are energising. 3 Global Leadership Forecast , Development Dimensions International, Inc., Revised A High-Resolution Leadership , development dimensions international, Inc Why is the best investment strategy a human one?

5 Looking to the future, capability gaps are only likely to grow. The digital world requires leaders with a new set of skills and a new mindset... The 21st Century demands leaders New leadership capabilities Descriptor Who can thrive in a world where change is constant and the competitive environment is swiftly evolving Who can build and deliver value from ecosystems within and across organisations Leading with purpose Balancing technology and human Mind clarity Virtual leadership Super Connector Culturally connected Be purpose driven and connect others to a greater good Leverage technology, and know when to turn it off for meaningful people connections Be fully present and lead with an open mind Lead through technology and cultivate dispersed/virtual teams Build effective networks and act with agility Stay on top of demographic/geopolitical shifts and embrace diversity Who can truly lead and not just manage With an evolved mindset that thrives in the complex environment embracing the opportunities that diversity brings Inspiration Empathy Embracing disruption Intellectual innovation 360 thinking Resilience Paint a compelling vision of the future and engage your people in it Truly understand the perspective of others Navigate disruption to the business and know when to pioneer it Invest in learning and lead with innovative thinking Think holistically and make fully-informed decisions Embrace ambiguity and drive to success with persistence of leaders feel they have the leadership capability to execute their strategy (GLF) 35% 18% of HR professionals say they have a good supply of future leaders (GLF) 1 in 4 organisations say their leaders are not VUCA capable (GLF) <1/3 of consumers in the developed world trust CEOs as a credible spokesperson (Edelman Trust Barometer) Why is the best investment strategy a human one? 5

6 03 Turning leadership spend into leadership investment With boards and the C-suite becoming increasingly accountable for the quality of leadership, organisations need to ask themselves: How much are we spending and what are we spending it on? Incredibly, many organisations find it difficult to identify their total investment in leadership development or even to understand where they are spending their money. Activities are usually carried out ad hoc, with little integration and often no attempt to link development initiatives with identified future capability gaps. Coming from different budgets, with different owners and often entrenched in tradition or aligned with personal interests leadership development has few controls. What impact did the spend have on business and leadership performance? Even worse, few companies are able to measure the impact of their spend beyond tracking the satisfaction of the participants attending leadership programs. Reflecting on the millions her company had spent on a development program with a leading business school, one executive was of the view that, while leaders loved the program, there was little, if any, evidence that it had improved business performance. It s hard to imagine any other corporate spend of this magnitude that would be seen as successful and permitted to continue unchecked every year without delivering clear impact. We believe organisations should focus on three critical areas when evaluating the success of leadership investment: 1 Flow Organisations that grow their own leaders have three times higher financial performance than those that don t. Yet, according to the Global Leadership Forecast survey, 85% of organisations say they don t have enough leaders coming through the ranks. 2 Capacity The weakness of succession benches is yet another demonstration of what many executives fear: that leadership development programs don t work. The processes traditionally used to develop future leaders are not translating into the right talent. They are either focused on skills that are no longer critical to future success. Or they aren t really focused at all. Most leaders we talk to do not believe they have the right capability at the right levels to execute their strategy or deliver on the commitments they have made. Purposeful companies outperform their peers (Beacon research) 3 Behaviour 15% STRONG Future Bench: only 15% of companies (GLF) 37% Only 37% of Leaders Our leadership development program is effective (GLF) <50% Less than half of critical positions can be immediately filled by internal candidates (GLF) 40% 25% Leadership quality is high 40% of leaders; 25% of HR executives (GLF) How leaders lead is as important as what leaders do. Especially at a time when more organisations are defining and publicising their purpose, culture and values and digital transparency is shining a bright light on the degree to which values are lived, particularly by leaders. Organisations should never tolerate bad/poor/unethical behaviour from leaders. The bad behaviour we walk past is the culture we are nurturing. The experience we create for the workers across our organisation translates into the customer experience and ultimately into organisational performance. 5 Global Leadership Forecast , Development Dimensions International, Inc., Revised Why is the best investment strategy a human one?

7 04 Align, measure and control your leadership development It s time organisations applied the same discipline to their leadership asset as they do to other organisational assets. The frenzied tactical activity we see in most organisations is clearly failing. Instead, organisations need a joined-up, rigorous approach to aligning, measuring and controlling their investment in leadership development. In developing this approach, boards and the C-suite need to consider: JJ Purpose and profit Organisations need leaders who behave in a way that is in tune with their culture while also delivering exceptional performance. This needs to be an and not an or. JJ Individual and collective capability For too long, the focus of leadership spend has been on the individual leader, with individual capability and performance as the most important unit of measure. Yet we know that most of our work as leaders is in teams or in groups. Arguably, the ability to work effectively in high performing teams has a greater impact on organisational performance and more leadership investment needs to be focused here. JJ Prediction and performance Performance in a current role is a poor predictor of success in the next role up. Yet most organisations base promotion decisions almost entirely on current performance. We need to start using predictors of potential both tried and trusted psychological assessments and also patterns in data identified by people analytics. JJ Leadership and context People often see leadership either as a set of skills and capabilities agnostic to environment, or as being entirely context specific. We believe both perspectives are correct. There are some generic skills and capabilities that all leaders need (such as influencing); whereas, others are very definitely context specific (such as making things happen within a particular culture with the right tradeoffs). Organisations need to identify both the broad context agnostic skills that all leaders require alongside the context-specific skills and capabilities needed in this particular organisation or industry. JJ The leader and the system We need to stop pretending that spending on a single time limited program will have a sustained impact on an organisation s leadership capability. To build an effective leadership architecture or system, organisations need to consider everything that develops leaders for the long term. This might mean performance management, career mobility, reward, mentoring or development at key transition points rather than broad sheep dips. By ensuring leadership investment delivers a clear impact, boards and executive teams will effectively manage the risk of a leadership capability deficit damaging the long-term health and performance of their organisation. Spend out of control A global financial services company is currently spending hundreds of millions of dollars on leadership development, with no measurement of its value or impact A global pharmaceutical company has different initiatives at different levels in all its business units. There is no common thread and no integration across the programs A global manufacturing company spends millions on leadership development but it does not have a common definition of leadership and therefore no effective measure of success Why is the best investment strategy a human one? 7

8 05 How effective is your Leadership Strategy? Aligning, measuring and controlling leadership investment starts with a strategy, which in turn needs to clearly support organisational performance. Only then can your focus switch to tactics and processes. Developing an effective strategy begins with answering the following questions: Do we have the leadership to effectively execute our strategy? Are we selecting the right leaders and investing in the right capabilities? Are our leaders delivering exceptional performance? How do we know? Are we bearing organisational and reputational risk due to the behaviour of our leaders? Are our leaders delivering exceptional performance in the right way? How do our leaders behave? Is this causing us risk as an organisation? How well-aligned are leaders behaviours to our organisation s purpose and values? Do we have a sustainable pipeline of leaders to ensure our long-term success? Are our processes aligned and building leadership capability sustainably? How will current promotion and retention trends impact the leadership bench in the next 2-5 years? How can we measure our progress against these priorities effectively? How are we measuring the impact of all that we are doing? Where are we currently spending and is this investment effective? Are the board and executive team confident that we are producing the right leadership talent? If you can t answer all of them, it s time to take a long, hard look at your Leadership Strategy. 8 Why is the best investment strategy a human one?

9 How we can help EY has an appropriate approach to working with our clients to custom-develop Leadership Investment Strategies that align to business strategy and organisational needs and provide impact Are we selecting the right leaders who fit and are we investing in the right capabilities? Measurement Framework Individual Leadership Business Alignment Have we got the right leadership to service our strategic intent (purpose and strategy)? Who leaders are Behaviour Sustaining Processes Competency The skills they possess Leadership Demands Are our processes aligned and building capability sustainability? Have the board and executive team got confidence we are producing the right leadership talent? Current Capability and Gap Analysis Collective Leadership Are our leaders providing exceptional performance? Assessment and strategy Turning spend into investment Understand where you need to get to and co-create sustainable investment plans. Working with you to facilitate your spend systematically improves leadership capability. Productivity Supporting you to create conditions for all leaders across your business to perform. Evaluation Continuously reviewing the impact of your investment, learning and adoption. Why is the best investment strategy a human one? 9

10 Start improving your leadership capability now Leadership is one of the true strategic advantages an organisation can build for the long term. To find out how much value an effective Leadership Strategy could generate in your organisation, contact: Adam Canwell EY Global Leader Leadership Consulting Practice Oceania Tel: adam.canwell@au.ey.com Anne Giugni EY People Advisory Services Leader Oceania Tel: anne.giugni@au.ey.com Juliet Andrews EY Oceania Leader Leadership Consulting Tel: juliet.andrews@au.ey.com Bruno Cecchini EY Rewards Leader Asia Pacific Tel: bruno.cecchini@au.ey.com Stephen Koss EY Talent Leader Asia-Pacific Tel: stephen.koss@au.ey.com Jenelle McMaster EY Performance Leader Asia Pacific Tel: jenelle.mcmaster@au.ey.com 10 Why is the best investment strategy a human one?

11 Why is the best investment strategy a human one? 11

12 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com Ernst & Young, Australia. All Rights Reserved. APAC no. AU S ED none This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. Liability limited by a scheme approved under Professional Standards Legislation. ey.com/au