Leadership development has long been linked to the execution of successful business strategies, but a recent study from leadership development solutions provider Ninth House has uncovered several trends of top-performing organizations as well as a financial link between companies that have top-tier leadership development programs and those that do not.
Ninth House used financial data to identify 20 top-performing organizations in the Fortune 500 and conducted interviews with those companies to uncover how their approach to leadership development sets them apart from their competitors. “There seems to be a clear linkage between organizations that follow leadership development best practices and long-term financial return,” said Jeff Snipes, CEO and co-founder, Ninth House Inc. “If you look at the financial performance of these top-performing organizations, they consistently outperform their competition. Over a period of five years their total shareholder return was greater than their competitors’ in the same industry, and these organizations in general had a higher level of commitment and executive involvement and participation in their programs than the other organizations did.”
Three trends emerged from the study. The first, a broad financial market trend, indicated that companies that have outsourced training, embraced technology, created multiple efficiencies in their learning organizations and generally done everything “right” placed a greater emphasis on talent development as a way to differentiate themselves and create a competitive advantage. “These organizations have already been through enough of the economic cycle that they’ve cut what they could, outsourced the rest and now it’s just a matter of developing their talent to continue to improve performance,” Snipes said.
The second trend established a direct relationship between an organization’s bottom line and its leadership strategy, and roughly 70 percent of the survey’s respondents link their leadership development efforts to business success. Those companies have performed some level of assessment or measurement of their business objectives and adjusted their leadership development strategy accordingly, eschewing universal leadership programs that are more generic and not dynamic or reactive to their business needs.
Third, 85 percent of the top-performing organizations cited executive management commitment as a cornerstone of their leadership development programs. CEOs and senior management were actively involved. “They cited this as the most effective factor in the development practice,” Snipes said.
Developing competencies is a common practice in many leadership development activities, but this group of 20 top-performing organizations had, on average, a smaller set of competencies that focused on higher-priority groups of behavioral objectives. Snipes said instead of company leaders mandating that the whole organization master 32 or 64 different competency sets, they should narrow their focus to three or four. Four common competency-related categories emerged from the study: setting strategies, engaging talent, generating revenue growth and executing and operating efficiently. “A lot of organizations have not evolved yet to really focus and link their business issues to their leadership strategy,” Snipes explained. “And as a result they have kind of a scattered, more diluted approach that is having less effect on the impact of the organization.”
The first two basic measurement levels of the Kirkpatrick model are common tools for this pool of top-performing organizations to use when gauging organizational performance and the effectiveness of leadership development activities. However, Snipes said that roughly 46 percent of companies also were committed to higher levels of measurement. “These organizations all acknowledged real gaps in their current measurement strategies,” Snipes said. “While most of their current leadership programs are measured through things such as participant satisfaction, increases in competency and retention and how many hours of training are delivered, that’s not what they want to be measured in. Factors they’d like to measure include the linkage to retention of their leadership talent. That is a number-one objective. Number two is to tie it to their own financial results, meaning profit and revenue per leader and per high-potential in the organization. Then measure their employee satisfaction, customer satisfaction and organizational culture overall.”
Use of experiential or action learning and rotational assignments to ensure exposure to a broad range of skills were also important for top-performing organizations. Further, 85 percent of the managers in these organizations used executive coaches in the leadership development practice. “A lot of these organizations are using action learning and blended learning to really tie the leadership development to real-world assignments. They won’t just take a course and go back to work. They’ll take the course and have a cross-functional team assigned to apply course content to solve a specific business issue,” Snipes said. “Only 45 percent of the organizations were using a formal rotational assignments program, but that was higher than what the average non-top-performing organization was doing, which shows an increased commitment to give employees more perspective and visibility inside the organization.”
Snipes said that in many organizations the executive team sets the goals for the year and establishes the company’s direction. Often that’s where the leadership development conversation stops. Goals are cascaded down, and the organization translates them into tactics. “What’s different among these top-performing organizations is they say, ‘We’re going to go this way. Now, what’s the core competency that we need as people to get there? What skills do we need to have to get there that we don’t currently have?’ They stop, take a look at themselves, hold up a mirror and evaluate. ‘If we’re really going to do this, we’re missing some talent andsome competencies. Let’s focus on developing those competencies.’ The people drive the systems and processes and not the other way around. That’s the real difference.”