practices continues to be a challenge, in part because most companies still struggle to measure the effectiveness of their current leadership development practices.
The third area under consideration is best practices that are evolving in the identification and development of future leaders, as well as areas for improvement. We address these questions: What characteristics are companies looking for in their leaders? How are future leaders being identified? How do companies communicate with future leaders (and others)? What experiences have been found to be most important in growing future leaders?
Finally, the last area of inquiry is how to assess the impact and calculate the value added from investments in the future. How are companies measuring the effectiveness of their development processes? And how is the value to the company ascertained?
The ExecutiveBench Research Program
Research Goals
A growing body of literature published over the past decade has focused on how companies successfully grow leaders for the long term. The McKinsey report, “The War for Talent” (Chambers, Foulon, Handfield-Jones, Hankin, & Michaels, 1998), makes the case that high-performing companies consistently develop and reward their highest-performing employees, while High Flyers (McCall, 1998), The Leadership Pipeline (Charan, Drotter, & Noel, 2001), and Voice of the Leader (Corporate Leadership Council, 2001) explore, among other issues, what experiences best prepare young managers for the increased responsibility of senior leadership. At RHR International, our direct experience in consulting with hundreds of companies of all sizes has confirmed what the literature suggests: companies are taking very seriously the issue of developing future leaders and making it a strategic priority.
As companies are focusing increasingly on talent development, they are asking for guidance as to the best practices in developing leaders with high potential. And their questions about best practices are becoming more specific: How many individuals should be in a development program? How should they be selected? Do you tell them they are on a high potential list? The research I describe in this chapter was designed to answer questions like these in a systematic and reliable manner. We wanted to find out just how companies are managing the development of their future leaders, from design through execution. In particular, we wanted to know how practices are evolving (and what practices are most effective) and where companies are still struggling to effectively grow the next generation of leaders.
Research Design
Phase 1 of the research consisted of a survey of current practices in the selection and development of future leaders. Since we were looking for fairly detailed information about current development practices, we knew that the length of the survey could be a problem. We piloted two different versions of the survey in the spring of 2003. One pilot survey was administered at a Business Week conference cosponsored by RHR International. The other pilot survey was administered at the annual meeting of an international trade association. The pilot questions were evaluated for clarity and for the utility of the responses they generated. We rolled out the final ExecutiveBench Survey in October 2003, administering the survey both online and in hard copy. The target audience for the survey included senior line executives, senior human resources executives, and HR and organizational development professionals responsible for leadership development.
As of April 2004, 115 companies had completed the survey. The research results that follow are based on analyses of those 115 respondents. Phase 2 of the research, which began in October 2004, involves a series of follow-up interviews with a subset of the companies that responded to the survey. The interviews are designed to understand how companies’ development practices evolve over time and how the current leaders and organizational culture shape the choices companies make in refining and augmenting those practices. At the time of this writing, data collection is still in progress for Phase 2, so we are unable to report those findings in full here. Where possible, I will draw on preliminary data from the interviews to further inform the results from Phase 1, the survey of the 115 companies.
Research Sample
The 115 respondents to the ExecutiveBench Survey came from nineteen different industries.2 The majority of the companies, about 90 percent, were based in the United States. But over half of these U.S. companies had significant international business operations. In terms of company size, responses were fairly evenly distributed between companies over $1 billion in annual revenue (54 percent) and under $1 billion (46 percent). About a quarter (27 percent) of companies reported revenues under $200 million, 19 percent reported revenues between $200 million and $1 billion, 34 percent reported revenues between $1 billion and $10 billion, and 20 percent reported revenues over $10 billion. It appears to be a fairly representative sample of American businesses.
Individual respondents came from a variety of backgrounds, with the largest proportion of respondents (43 percent) being senior vice presidents of human resources. CEOs comprised 20 percent of the respondents, while other senior line executives made up 22 percent of the sample. HR/organizational development professionals below the level of senior vice president made up 15 percent of the sample. All in all, we were satisfied that our informants were in a strong position to comment on their company’s practices.
Findings from the Study
State of the Talent Market
Although the popular press and, to a lesser extent, some consulting companies have been warning of a looming talent shortage, just how seriously senior managers are taking this threat has been less clear. Is this a burning issue to business leaders or some vague, ethereal concern about the distant future? We wanted to go beyond case examples and assess how much of a talent shortage companies across the board are anticipating. Thus, one section of the ExecutiveBench Survey explores how current leaders view their bench strength, the role of retirements at the top, and their level of concern around having the talent to meet their future growth needs.
The overall picture of projected leadership needs through 2010 is a sobering one (see figure 1.1). Companies anticipate significant departures within the senior management ranks (defined as the two levels below the CEO) by the year 2010. Half of the companies reported that they expect to lose 50 percent or more of their senior managers, while 15 percent said they expect to lose 75 percent or more of their senior managers.
Figure 1.1. Anticipated Departures of Senior-Level Executives
Virtually all companies are relying to some extent on outside hires to replace departing managers (see figure 1.2). By far the largest proportion of companies, or 41 percent of respondents, reported that they expect to hire one-quarter to one-half of their leaders from outside over the next five to seven years. In addition, 60 percent of companies expect to hire at least 25 percent of their leaders from outside. It appears that companies are looking externally for talent at a somewhat increasing rate: a 1998 study by the Center for Creative Leadership reported that only about 30 to 40 percent of all executive placements were recruited from outside the hiring company (Sessa, Kaiser, Taylor, & Campbell, 1998).
Figure 1.2. Anticipated Hires of Outside Leaders
It is unclear whether companies regard the increased reliance on outside hires as a good
