is the “right” level of turnover for bringing in innovative ideas and needed strategic or culture change. The ExecutiveBench Survey attempted to shed light in this area by measuring the level of concern about a potential talent shortage. Companies were asked how confident they were that they would have sufficient high potential talent to meet their future growth needs. Only 25 percent of companies reported that they were highly confident in their ability to meet their future growth needs with high potentials. The remaining 75 percent were only “somewhat confident” or “not at all confident” about the state of their internal capacity to meet future leadership demands.3
Moreover, when the relationships between expected losses of senior leaders, anticipated numbers of outside hires, and confidence levels were jointly examined, a consistent pattern emerged. The number of senior leadership departures through 2010 and the number of anticipated outside hires were also both significantly correlated with confidence levels (Spearman’s rho = .262 and .330 respectively, p < .01).
Thus, companies that expect more senior leader departures and also anticipate having to rely on outside hires to replace senior leaders are the least confident that they will be able to meet future growth needs. These companies do not appear satisfied with the greater reliance on outside hires to fill key roles. And perhaps for good reason: the CCL study cited earlier found that external hires are much less likely to be successful than internal hires under a range of common conditions like highly volatile industries, when industry and product knowledge is vital, and in organizations with firmly rooted cultures (Sessa et al., 1998). This suggests that the anticipated mass changing of the guard at the top of companies will likely bring significant change and discontinuity as seasoned leaders depart and are replaced by a combination of less seasoned insiders and new external hires.
Figure 1.3. Company Confidence That High Potential Talent Will Address Future Growth Needs
Level of Preparedness for the Future
Experience building bench strength. Another goal of the ExecutiveBench Survey was to understand how prepared companies are to meet the challenges of managing and growing key talent. The survey explored how long companies have been formally identifying and developing future leaders. We found that formal attendance to the growth of future leaders is a fairly recent practice for most companies, with 57 percent reporting that they have been identifying and developing future leaders for less than three years. The most frequently endorsed response was “1 to 3 years,” with 31 percent of companies endorsing this response.
Company size seems to matter (see figure 1.4). Companies with over $1 billion in revenues have, on average, been developing future leaders longer than smaller companies. For example, of the twenty-two companies that have been identifying and developing future leaders for seven years or longer, 64 percent were companies with over $1 billion in revenue.
Figure 1.4. Longevity of Formal Development Programs for Future Leaders
Senior management commitment to future leaders. The commitment of the senior executive team is particularly crucial when building sustainable talent development programs. Identifying and developing high potential talent is by its nature a long-term proposition that is unlikely to reach fruition without the firm endorsement and support of senior management. In addition, future leaders are by definition company resources that the senior team needs to understand in order to make wise decisions in terms of future assignments. And at some point the development needs of future leaders will aggregate around broader and higher-level abilities like strategic thinking and planning and managing cross-functional teams from a distance, and senior leaders will be needed to coach and mentor future leaders in these key areas.
When asked what roles the senior team plays in the identification and development of future leaders (see exhibit 1.2), by far the most frequently endorsed activity (91 percent) was the identification of individuals with high potential. (In comparison, the second most endorsed activity, at 69 percent, was defining the leadership abilities needed in future leaders based on the business strategy.) Since, in many companies, future leaders may be positioned several levels below the senior team, the question emerges of how well the senior managers actually know their future leaders. In some companies, the senior team devotes a great deal of time to talent roundtables where potential future leaders are discussed regularly and in detail. In other firms, senior leaders are regularly assigned as mentors to younger managers with high potential. However, it is unlikely that these practices are utilized by 90 percent of companies (since, for example, only 67 percent of respondents said that their senior leaders coach and mentor future leaders). If many senior leaders do not have direct exposure to their high potentials, the question becomes this: How else are executives gathering reliable and credible data about future leaders? This is a topic that will be covered in more detail in Phase 2 of the research program. Preliminary results from the interviews point to two additional areas: some companies develop future leaders using action-learning projects (Marquardt, 2004) that involve senior leaders as advisors or sponsors; other companies invite future leaders to off-site meetings or other events carefully designed so that senior leaders can get to know them in a social setting.
We found that senior leaders generally are playing an active role early in the development process. In addition to identifying high potentials, 65 percent of companies said their senior leaders allocate resources for future-leader development, and 63 percent make future-leader development a strategic priority. However, only 46 percent of respondents reported that their senior managers hold others accountable for talent development. This result suggests that while many companies are increasing their focus on talent development, far fewer have figured out how to weave the practice into their cultural fabric as a way of doing business. This result may be due largely to the fact that growing future leaders is a fairly recent priority. In companies that have been identifying and developing future leaders longer, senior leaders are more involved in growing their future leaders, as evidenced by the positive correlation between longevity of formal programs with the endorsement of a greater total number of development activities performed by senior management (Spearman’s rho = .358, p < .01).
Exhibit 1.2. The Senior Team’s Role in Future-Leader Development
Q: What roles do you and your senior team play in the identification and development of your company’s future leaders?
(Percentage of companies that endorsed each activity, N = 115)
| • Identify individuals with high potential | 91% |
| • Define leadership abilities based on strategy | 69% |
| • One-on-one coaching or mentoring | 67% |
| • Allocate resources for leadership development | 65% |
| • Make development of talent a strategic priority | 63% |
| • Hold others accountable for talent development | 46% |
| • Select external leadership development partners | 39% |
| • Uncover stretch roles | 38% |
| • Other | 6% |
