Research Report — January 2000

Introduction

Leadership is the one factor that is critical to business success. Without it, there can be no clear vision, and opportunity will be squandered. Without it, resources will be wasted, and a workforce's full potential will remain woefully untapped.

Senior executives responding to Watson Wyatt's 1997 global survey cited leadership development as the single most important human resource issue facing their company in the second half of the 1990s. But the fact that so many firms fail to perform to their potential suggests that it's much easier to talk about developing leaders than to accomplish it.

According to Watson Wyatt's new study, the more companies do to develop their leaders, the greater their financial success. So, putting action behind the words actually pays off. This new report aims to provide suggestions on how to build the kind of leadership that is vital in today's fast-paced, globally competitive environment.

About The Survey

To learn what leadership entails - and how to improve it - interviews were conducted with CEOs at 75 of the world's premier global companies. Based on information from these interviews, Watson Wyatt developed a survey questionnaire, which was completed by 1,057 top executives in 18 countries around the world.

The objective was to create a fresh, practical framework that could be used by business leaders throughout the world.

The balance of this report focuses on four topics:

1. Study results that show what leaders need to do, organizationally, to build high-performance global organizations;
2. Study results indicating what leaders need to do, interpersonally, to build high-performance global organizations;
3. Study results on the relationship between investing in leadership development and the bottom line; and
4. A recommended step-by-step process for building leadership strength in any organization.

What Leaders Must Do Organizationally

What kind of leadership matters most on an organizational level? To find out, we developed a list of behaviors and responsibilities based on our CEO interviews. We divided them into three distinct areas: those relating to people, those relating to processes and programs, and those relating to the marketplace. We then surveyed our top executives to see how they rated each of these focal points both in terms of their importance and their need for improvement.

Worth noting is that the very same items the executives rated as most important in creating high-performance global organizations are the ones they feel need the most improvement. That speaks volumes about where companies should focus their efforts. People What's the best way to build leaders? Top executives indicated that establishing formal programs is the most important priority. (Note that this item was defined to include leadership development at all levels.) Figure 1 shows these results.

Processes & Programs
What processes and programs do leaders need to foster? Top executives place nearly identical importance on three of four items (see Figure 2). Linking pay with performance is their least important priority. They report that the areas of greatest challenge are fostering innovation and knowledge sharing.

Marketplace
All leaders must continually grapple with how their company should position itself in the marketplace. In that area, which decisions, actions and priorities deserve the most focus? According to those surveyed, customer satisfaction is by far the most important item (see Figure 3). The second area of emphasis concerns the need to transform the global corporate vision into effective business strategies.

What Leaders Need To Do Interpersonally

The subject of leadership is organic and complex and involves many levels - from the general, organization-wide leadership priorities such as those just discussed to the individual characteristics of the people at the helm.

In addressing leadership on the individual level, the survey focused on three dimensions:

1. personal leadership qualities,
2. influencing others and
3. mobilizing people.

Personal Leadership Qualities
According to those surveyed (see Figure 4), there seems to be no substitute for the hard work of demonstrating through actions - rather than mere words - which personal leadership qualities are needed for organizational success. According to those surveyed, leaders must themselves exhibit the work habits, attitudes and priorities they expect of their subordinates if their leadership is to be most effective. Exhibiting confidence in an increasingly uncertain world is the second most frequently noted personal leadership quality.

Influencing Others
Leaders inevitably need to act as teachers and coaches, conflict mediators and consensus builders. According to top executives (see Figure 5), the most important factors in influencing others include inspiring people, followed closely by managing effective two-way communication. A few regional differences in Table 5 are worth noting. Top executives in North America assign greater importance to two-way communication, while top Asian executives place more importance on engendering common goals and values in the workforce.

Mobilizing People
Figure 6 shows the relative importance that top executives place on leadership behaviors that help mobilize groups of people. By far, the most important leadership initiative is creating a culture for learning and innovation. Of least importance is making job security a corporate value.

Leadership Development And The Bottom Line

But do soft-sided leadership issues actually tie to the bottom line? Watson Wyatt's research indicates that they do indeed. The results show a statistically significant relationship between leadership development efforts and financial success. Specifically, the more comprehensive a company's leadership development efforts, the better their financial results were with regard to four financial measures included in the analysis (see Figure 7).

One might argue that successful firms simply have more money to invest in these programs - hence the upward-sloping curve shown in Figure 7. On the other hand, it is difficult to argue that ignoring leadership development would enable companies to produce the same economic gains. In fact, rather than debating the cause-effect relationship, it would, at the very least, seem prudent to emulate the behavior of successful enterprises.

How To Build Leadership Strength

This report has thus far presented a number of concepts related to leadership, identifying widely held views on leadership priorities, highlighting both strengths and weaknesses of leadership within the surveyed organizations, and illustrating the relationship between financial success and leadership development.

There are five key elements to building a solid leadership pool:
 

1. Define what leadership means in your company.
2. Ensure that high-quality leaders are recruited.
3. Assess leaders on a regular basis.
4. Provide meaningful leadership developmental opportunities.
5. Reward effective leadership.

Define Leadership for Your Company
What a particular management team means by leadership is best answered through a comprehensive discussion of:

• Core corporate values
• Future business scenarios for the company
• Strategic business objectives
• An overarching leadership concept, such as "establishing direction, aligning people and resources and motivating people"
• Core competencies that support the leadership model and that relate to the company's strategic business objectives

Ensure That Quality Leaders Are Recruited
Acquiring the right talent is key to building a company's leadership pool. However, good recruitment and selection processes require clarity about the type of talent needed.

Armed with solid definitions of leadership competencies, it is relatively easy to build assessment tools (e.g., structured interview guides) to facilitate and support the recruitment and selection process. This puts more rigor and precision in the decision-making process.

These definitions also enable companies to launch other programs, such as delivering feedback to leaders on their performance as leaders.

Assess Leaders - Regularly
The leadership model and the defined competencies are foundation blocks for leadership assessment. Whether one uses rating scales to gather quantitative input or qualitative comments, feedback on the way a leader demonstrates a company's prescribed leadership competencies can provide a wealth of insight for that individual.

However leadership assessment is conducted and whatever tools are used, three critical things need to happen at the conclusion of the assessment cycle:
 

• Feedback should be delivered in writing as well as through a discussion with a coach, whether with one's manager, mentor or a third party.
• The individual leader must set improvement goals - but only a few. People can generally accommodate one or two (maybe three at the outside) improvement goals in the course of a year.
• Companies miss opportunities for profiling their leadership pool if the data from these assessment activities are not captured in a single database. Understanding how the pool is progressing provides a wealth of information to support the design of other leadership development initiatives, such as succession management.

Provide Meaningful Developmental Opportunities
Meaningful development occurs when the experience is viewed by the leader/participant as:
 

• Relevant to his/her work; and/or
• Requiring him/her to exercise "leadership muscles" that haven't received much attention to accomplish something important; and/or
• Reinforced on the job by his/her superiors - which means leaders at all levels support development and are also, in some way, participating in development.

Conclusion

Building a talent pool of solid leadership takes more than sending people to a seminar. An entire network of people management systems must converge to support and reinforce desired behaviors. Fortunately, the leadership model and the steps for implementing it are easy to access and execute. What it takes is the determination of top management to deliver on Peter Drucker's observation that "leadership can be learned." More important, it must be learned as companies look for more ways to create competitive advantage.

The call to action is clear: invest in your leaders - or yield to competitors who invest in theirs.