What Lies in the Middle is Really the (Hidden) Top! Insights from Aon Hewitt's Top Companies for Leaders study 2012

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1 Consulting Talent and Rewards About Aon Hewitt Aon Hewitt is changing how employers manage their human capital. We are the No. 1 human capital consulting and outsourcing firm in the world with the resources, expertise, and global reach to solve your evolving human resource needs. We deliver the strongest team of professionals in the industry, with 29,000 colleagues in over 90 countries around the world. Our team has access to the widest breadth and depth of research, platforms and services, in more locations and for more industry segments than any other human capital firm. What Lies in the Middle is Really Insights from Aon Hewitt's Top Companies for Leaders study 2012 We serve over half of the Fortune 500, providing distinctive value, top-rated customer service, and measurable business impact. Our proven track record of success and ability to deliver both global and local solutions means you can count on Aon Hewitt to provide the broadest range of integrated and flexible solutions to solve some of your most complex business needs. Key Facts Ÿ No. 1 human capital consulting and outsourcing firm in the world Ÿ 29,000 employees Ÿ Serving more than 20,000 clients in over 90 countries Ÿ $4.3 billion combined revenue Ÿ Clients include over half of the Fortune 500 Contact Us Nidhi Singh is a Senior Consultant with Aon Hewitt's Talent & Leadership Practice in India. She can be reached at nidhi.singh.7@aonhewitt.com. Avantika Malhautra is a Consultant, with Aon Hewitt India's Talent & Leadership Practice. She can be reached at Avantika.malhautra@aonhewitt.com. ŸVolume 5 ŸIssue

2 Glocal What Lies in the Middle is Really Diverse Thought Empowered Intent By Nidhi Singh, Senior Consultant, Talent & Rewards Practice, Aon Hewitt and Avantika Malhautra, Consultant, Talent & Rewards Practice, Aon Hewitt Being in the middle is tough, regardless of context. In a family, the oldest child often has more authority and responsibility, while the youngest has everyone's attention. The middle child is often left betwixt and between, with neither the authority, nor the attention that his/her siblings receive. Interestingly enough, employees within an organization are no different. Mid-managers' dissatisfaction levels are a testament to their dwindling numbers and instability within the organization. Surprisingly, the paper by Ethan Mollick, titled "People and Process: Suits and Innovators: Individuals and Firm Performance", suggests that middle managers may have more influence on your organization's performance than any other group. Their influence is especially strong in knowledge-intensive industries. They are the "glue" that binds top management and the younger workforce together and have a crucial responsibility to provide support to each. A case in point is a large Asian banking and financial services organization growing rapidly in the Asia-Pacific geography. This organization has a senior leadership team consisting of homegrown leaders who have been with the organization for an average of 15 years. The organization lacks a ready middle management as all the decision-making is done by the senior leaders. Yet most of these leaders will retire in the next decade, and herein lies the challenge. The bank needs to gear up to fill this upcoming vacuum in their leadership pipeline by unleashing the potential of its middle management. If they do not, they will not have the necessary capability to manage scale as they grow further. Given the high cost of turnover and the importance of middle managers in executing strategy and change, how do you "do the right things" to help retain and develop this group of often invisible leaders? The Top Companies for Leaders study, conducted biennially by Aon Hewitt since 2001, is the most comprehensive study of organizational leadership practices around the globe. Our sixth consecutive study conducted in 2011 uncovered a strong link between financial success and great leadership practices. We identified several elements differentiating these Top Companies for Leaders from the others. In this issue of HR Connect, we will focus on one of these differentiating issues, along with our recommended solutions. To engage middle management employees (a most critical, valuable layer of organizational talent), we recommend that companies invest in three key dimensions -- a "glocal mindset" that combines global and local perspectives; diverse thought; and an "empowered intent" three dimensions that define the mold of next generation leaders. Unlocking the potential of the hidden middle in organizations A Glocal Mindset Many in Geography, One in Mind The demand for growth and access to new markets and talent is compelling companies to cultivate leaders who can thrive globally. Identifying potential early and giving mid-managers opportunities to become future global leaders is the key to success in a global knowledge-based economy. Asia Pacific is proving to be the next growth region. Powered by the rapid economic development of the twin giants, China and India, Asia Pacific's economies will increasingly grow in terms of their contribution to the overall world economy. 97% of the companies that participated in the Top Companies for Leaders Study 2011 established global business experience as the most critical skill for future success. Having said that, it's not just global experience that is critical for this set of managers. Not only do they need to be able to "connect the dots" and understand the impact of changes in economies in other part of the globe, but they also need to understand the intricacies of the different local markets in which they operate. For example, Unilever, a Top Company for Leaders 2011, took "glocalization" to a new height in the early 1990s. It marginally adapted its products to the local markets by customizing the basic product, instead of investing in an expensive total adaptation. For instance, they identified the need for a regional ice cream in Asia and very successfully launched a variety of Wall's ice cream flavors that were specifically adapted for Asian tastes. In 2000, Wall's had laid claim to a market share of 41%, compared to Nestle's 15%. Our Top Company for Leaders Study illuminates how leading organizations are gradually inculcating this glocal mindset within this layer of the organization. Some of their key practices include the highly touted global assignments, sustainable investments in company priority assignments, and the last, but not so well known, cross-industry consortiums.

3 Global Programs These are programs that span across vertical, horizontal, demographic, geographic, and stakeholder boundaries and may run for three-to-twelve months to build global working capabilities. Aimed at developing global business acumen, they result in a more aware and well networked set of managers. These programs also create leaders with an appreciation for global socio-political and economic dynamics and their future impact on people, resources and processes of the organization. An obvious side benefit is that the middle management gets an opportunity to collaborate and work across different functions and geographies, which in turn, results in their own development and networking. A Top Company for Leader 2011 finalist said "Our focus is on connecting the dots to drive and create a consistent culture. With operations in many different time zones, it becomes very important for us to build a true working network across the globe. As a company, we focus not just on functioning in different markets, but in truly becoming a global company. Global Assignments as a Development Practice Allow for a very Robust Leadership Pipeline Senior Middle Front Line High Potentials Source: Aon Hewitt Top Companies for Leaders Study 2011 Company Priority Assignments Finalist Organizations are also focusing heavily on these assignments to help build future leaders. Currently, Non-Finalist Other Critical Positions almost all organizations recognize the need to invest in their high potentials; however, it is those who recognize the potential of their large pool of "B Players", who are able to differentiate themselves. There is an emerging trend within the Top Companies for Leaders to utilize this avenue for their benefit. They recognize the value of their burgeoning middle management and know that while not all of them are "A Players", they are nonetheless critical to steer growth. They keep this group engaged by exposing them to assignments/projects that are key to the organization or high in visibility in terms of board or C-suite sponsorship. These programs include strategic business assignments, board and council cross-organizational initiatives, as well as the running of new company businesses, often across the globe. Aon Hewitt believes that employees must work on real-life business opportunities and that success metrics should be based on how much business gets generated out of these opportunities. Future Leaders Global Consortiums Every company needs leaders who understand the challenges of globalization. However, experienced, effective global leaders cannot be developed in isolation. What is required is a learning platform where representatives from diverse regions and multiple industry segments come together to understand trends in business and society at a global level. This can be brought to life by nominating talented mid-managers to participate in consortium programs where cross-learning occurs through interaction with high potentials from a number of different global organizations. Consortium activities develop a strong global cohort of highly talented colleagues in the business world and also help participants gain a clearer understanding of individual company challenges and opportunities in light of the best-in-class. To learn from the best-in-class and take in new business perspectives, cultural sensitivities, work values, and ethics is key to this initiative. A Top Company which clearly demonstrates the impact of leveraging information from varied geographies and the value of being led by managers with a glocal mindset is McDonald's. Around the world, McDonald's strategy is to listen to local consumers and then act on it. Some of McDonald's local favorites around the world include the McItaly burger, the Maharaja Mac in India, the McLobster in Canada, and the Ebi Filet-O in Japan. McDonald's in Japan also has novelty and seasonal items on its menu such as the Teriyaki McBurger with seaweed shaker fries, the croquette burger, and bacon potato pie. India is the only country where McDonald's doesn't sell its beef burger, which is extremely popular in most markets, yet India outlets are bursting with customers all across this vast country. If it were not for their ability to leverage some of their best global practices in terms of running quick-service restaurants across the world, while staying nimble enough to adapt to local markets, McDonald's would not have emerged as one of the most preferred brands across the world. Innovation and fast food don't seem like the most ideal bedfellows, yet this is the combination that continuously yields success for McDonald's. Recognizing that cultural agility is paramount to success in emerging markets, it is essential that leaders across all rungs of the organization "think globally, but act locally."

4 Diversity in Thought In an increasingly complex world characterized by fast growth patterns and slow recovery loops, in a world where information is available at the click of a button, and where networking is now enhanced by a wide variety of avenues for social networking, it is essential that organizational leaders understand the significance of these ever-changing parameters, which impact their environment. Leaders today need to appreciate the diversity and promise that the next generation and that the one to follow, hold within them. Aon Hewitt suggests that focusing on creating an inclusive culture that taps innovation and creativity and truly engages a diverse, mid-management workforce will prove to be critical for success in the next phase of growth. Gender Nationality Diversity Business Experience Nationality Diversity Indian companies spent USD 28.4 billion on outbound M&A activities in the year In line with the rapid global expansion figures and growing trend of moving businesses across geographies, it helps to have a regional representation of leaders to foster a smoother integration and dissemination of global business acumen within the organization. This is being implemented by consciously recruiting individuals from among the many different nationalities residing locally. The goal is for organizations to create and sustain a culture that is accepting of individual differences and respects and leverages the diversity of its own workforce. This diversity benefits the business and facilitates active involvement with the community. Diversity of Business Experience Thus, Diversity must extend beyond gender, race, age, education, disability, religion, sexual orientation, background, or family situations in order to build a workplace where everyone feels valued and respected. According to recent global research by a consulting firm covering 2,000 senior-level managers at global companies, 44% said they plan to keep working past the age of 64. This situation poses a unique opportunity wherein companies could leverage the diversity of four generations i.e., the Traditionalists (born ), Baby boomers (born ), Gen X (born ) and Gen Y (born ), who are all part of the workforce today. These groups have different viewpoints, experiences, thoughts and lifestyle needs. Organizations that are able to build innovative and engaging careers, especially for the mid-managers who will soon manage their Gen Y employees, while being led by the Baby boomers will truly be ahead of others in the next few decades. Building the House for Gender Balance and Diversity" Gender Balance The middle management pool is continuously shrinking due to the attrition of women in the workforce when they reach the mid-management level. Attracting women back to the workplace is a beneficial way to help plug this leak. Placing great emphasis on their representation, companies can increase their women hires by offering programs, policies and processes, such as flexi hours and part-time jobs, to retain or attract women who want to work but have other priorities to juggle at the same time. Work-from-home opportunities, maternity leave, and work-life balance workshops can be implemented; structured mechanisms can be used to track and monitor the same. A Top Companies for Leaders Global Winner 2011 has a target to recruit 100 women at the leadership level within the next three years. These targets have been tied in with the goals of the senior leaders and are embedded as part of the organization's values and changing culture. Another Top Companies for Leader Global Winner 2011 has a program for mentoring high potential women employees to become leaders in the organization: Given that 29% of the workforce in this organization is women, the aim of this program is to retain and groom highpotential employees in middle management for higher responsibilities and leadership roles. This proposed concept implies having fungible resources and an open mind to movement of leaders from one industry or business to another as long as they have the right mix of leadership skills. Leveraging leaders within the organization regardless of domain knowledge and creating an influx of resources as per organizational requirements is the key to this approach. This will also help create exposure and consistency in the leadership culture within the organization, transcending individual businesses. A Top Company which is a large multinational conglomerate have a well-articulated policy of moving people within and across businesses. Their Head of the Insulators business was moved and made head of the Insurance business as he had demonstrated tremendous leadership and delivered business results in his previous roles. This is a stark example and is based on the premise that leadership remains the same across businesses. It's about leading people, leading teams and understanding one's organization.

5 Empowered Intent A Sense of Ownership and Accountability A Top Companies for Leaders Asia-Pacific Winner 2011 expressed a philosophy called "flip the coin". Often, when there is a problem and an individual looks at it from the other side "flips the coin" -- the answer looks very different. Four years ago the company was facing a lot of attrition. The problem initially looked like it was because salaries outside were higher. When they analyzed the flip side, the issue was that they were not giving their talent enough opportunities to take on bigger roles. As a result, they adopted the concept of multitasking, which is now an established business practice to develop and retain talent - especially their mid-management executives. Highlighted below are several avenues that organizations are using to develop "Empowered Intent" among their middle management. Empowered Intent" refers to the practices of building a culture whereby individuals in organizations are encouraged to take decisions, ask for information and to build for future, just as if they were a CEO or owners of the company. This level of empowerment will help individuals, especially middle managers, to become more engaged and invested in the organization and will allow them to see the larger picture. Organizations may choose to function at varying levels on the scale of "Empowered Intent" depending on the culture and their stage of growth. CEO & Board Commitment The single most important thing a CEO can do to maximize his/her company's performance is to build the capabilities of their middle management team. This can be achieved by committing close to 40% of leadership time to development activities as is being done by the Top Companies for Leaders. Communication, involvement, and timely recognition contribute to a positive, highly engaged middle management workforce. Exposure and Visibility to CEO/Senior Senior Middle Front Line High Potentials Source: Aon Hewitt Top Companies for Leaders Study 2011 Finalist Non-Finalist Other Critical Positions Mentoring Your Mentor This approach involves managing the paradox of a broad-based talent development mechanism while at the same time providing customized learning opportunities across the organization. Future leaders are mentored by their seniors on content knowledge and, in return, future leaders mentor their seniors on areas such as changing and advanced technologies, changing mindsets, and new business concepts and perspectives. This two-way mutual exchange engenders a culture where learning is valued and promoted throughout all levels of the organization. Such mutual exchanges empower middle managers and make them feel valued. A Start-Up Culture Entrusting middle managers with important organizational design and implementation decisions, increases their buy-in, ownership, and ultimately, their accountability. Many organizations now are offering middle managers opportunities to stretch their talents, even if they are not completely ready. Most Top Companies are taking risks with employees in terms of developing new programs or practices to develop each employee's spirit of entrepreneurialism. A Top Companies for Leaders Global Winner 2011 revealed that they bet on their internal talent who are ready, or even 60% ready, for new roles. In fact, currently nine out of ten hires to new roles are internal. "Just the fact that they have been identified is such a motivation boost, and people strive extra hard to deliver on it. To conclude, it's difficult not to use an analogy from cricket. In cricket, the middle order batting is designated to the all-rounders who must continue to build the innings. They are adept at changing their game depending on the conditions. They put in and take out lower-order batsmen, balancing out the risks and opportunities associated with scoring too quickly or too slowly. Thus, it's all about the middle order performing and "clicking together" and putting in the scores that are required. They are the key to the team's success or failure. An organization's middle order is responsible for maintaining the delicate balance between continuing and taking forward the pace of the top order, while shadowing and supporting the bottom line. While the senior leaders constitute the foundation of every organization, they see their emerging leaders as the ones who hold the promise of the future. A robust, engaged middle level is critical to realizing that future promise. It's time for more organizations to wake up to this reality and start investing in a glocally aware, diverse, and empowered middle management to bind their organization together and deliver on the promise of the future.

6 Getting the Biggest Bang for Your Dollar Investment Benchmark Against the Global Best Top Companies for Leaders 2012 Strong Leadership: Competitive Advantage Approximately 500 leading organizations in the world participated in Aon Hewitt's Top Companies for Leaders 2011 Study and assessed their leadership systems, processes and culture to: Explore what "really matters Focus on execution and effectiveness, not just prevalence of leadership practices Look at not only how organizations are developing today's leaders, but also the pipeline of future leaders and how these practices may differ at each leader level. Identify both regional and global trends. If you would like to secure a copy of this report or would like to benchmark your organization against study participants, please contact Nidhi.Singh.7@aonhewitt.com. Top Companies for Leaders is the world's most comprehensive longitudinal study of leadership and leadership practices. The study, recognized for its global scope and research rigor, attracts hundreds of companies around the globe that seek outside-in insights on leader building and how the best develop and sustain their leadership pipeline. This year, Aon Hewitt worked once again with FORTUNE, the leading global business publication, and The RBL Group, the esteemed HR strategy and leadership consultancy founded by thought leaders Dave Ulrich and Norm Smallwood. The Top Companies for Leaders study truly is a unique opportunity for all companies, regardless of sophistication or size, to participate in building a common understanding of the most critical and least developed discipline of the 21st century. It is also a great opportunity for your organization to gain recognition and insights of your leadership practices.