Leadership in lock step with talent management has seemingly become the primary focus of this millennium’s business consultants, authors, and associations – and, for good reason; people are the only long-term competitive advantage we can develop!
1. The total quality management (TQM) “revolution” of the ‘60’s, and its evolution through Six Sigma, ISO standards, and other efficiency and quality methods, has essentially eliminated a competitive edge through better product quality, for any serious business competitor. All have excellent quality.
2. Ubiquitous global access to raw materials, components, and even labor and recently, more advanced professional services made available through supply chain management, digitally based communication, and access to information have tended to standardize costs across those same serious business competitors. Another competitive strategy defused!
3. And finally, The speed of change in product life cycles, the rise of new competitors, as well as emerging new productivity, communication and distribution systems lessen the old long-term advantages of size, capital investment, and even real estate. Even new product development excellence that creates unique innovative offerings has been mitigated by reverse engineering and differing global standards for the protection of intellectual capital.
So what’s left? People! That is, having better people, because they innately have more ability, can be deployed to their best utilization, are receptive to training and development to maximize their capabilities, and can be nurtured and supported to maintain their, and therefore our, sustainable competitive advantage. The World Class Sales Research Benchmarking Project (continuing since 1992 (insert link)) demonstrates, quite powerfully, that even sales growth has less to do with quality, price, marketing, than the effectiveness of the (human) salesperson interfacing with the customer.
That brings us to leadership – the art and science of organizing, directing, and motivating people is the sole domain of a leader. And while the most critical skills will differ by the type of organization, e.g., public or private, big or small, fairly stable or rapidly changing, the common thread is what we call Leadership.
We had never applied TQM to people, not to mention Six Sigma or ISO … so we are still operating primarily through tribal wisdom, personal experience, or collections of anecdotes to help us figure out what to aim for, whom we should use, and how to channel their efforts toward these goals. Most recently, there is a movement toward the same kind of “analytics” used in other business functions.
Chally has been compiling analytical research applying the principles of TQM to the human side of organizations with the surprising, but irrefutable, evidence that our old “star” mentality of attempting to select the right people, motivating them with exceptional rewards, and supporting them with all the other non-stars just doesn’t work for long in most public organizations bigger than one.
TQM research in organizations teaches us that business stars are exciting, praise worthy, and often great authors. However, these stars are usually over-rated as business resources. Jim Collins has documented the flaws of the well-positioned, flamboyant types, who are indeed very good, but out-performed by those who are less flashy and often invisible outside their own organizations. Jack Welch, for example, led GE from $26.8 billion (the year before he assumed leadership) to over $150 billion the year before he retired. However, under the leaders he put in place, GE lost over $300 billion in the next 10 years. In contrast, companies reported by Collins such as Walgreens, with a much less visible leader have continued to grow through leadership succession.
Chally Worldwide and its partners believe it’s time to move past research for “marketing value” to research that can advance our organizational effectiveness. We are focused on three differentiators from the typical annually published corporate Olympics ranking of leaders and companies through a panel of experts as if this were figure skating or diving competitions.
- First, we have assembled a broad team of both academic and business experts … to design the data collection … and analyze the data collected. This does not remove all the problems of self-report data, but does insure that the data is provided by individuals who have first-hand knowledge versus outsiders who may or may not have intimate knowledge of the companies involved.
- Second, this research project will become an ongoing progression of data and analysis with each year building further insights on the previous years’ findings, and tracking changes and trends in leadership development techniques.
- Third, we’ll develop categories or levels of leadership development effectiveness since the economic indicators suggest that there are little to no effective differences between companies within the same quartile.
Phase one research results are available here
Brief Findings:
Top-ranked companies for developing leaders produce substantially better financial performance than bottom-ranked companies.
- Top-ranked companies had a 10-year growth of market cap of 17% while bottom-ranked companies lost 2%.
- Top-ranked companies produced 5% total returns to shareholders, while the bottom-ranked companies lost 39%.
The required competencies for different “C-level” positions are substantially different.
- Only CEOs are seen as having responsibility for strategy.
- Only COOs had as many as two of the four most important competencies in common with the CEO; Finance CFOs who are most likely to rise to CEO, had only one. This suggests that job rotation may be invaluable for understanding the business, but less helpful in preparing high potentials in planning strategy for the future.The most frequent sources of succession failure or “leadership risk factors” are related to people skills.
- This failure was amplified if the promotions were internal.
- The primary cause of leader failure was reported as “failure to adapt to the culture.”
The data is insufficient, but there are strong indicators supporting real differences in required competencies in Asia and the Far East.
- Non-Western companies are more likely to share strategic reasonability across several “C-Suite” leaders.
- Less personal, profit-driven economies, such as China, seem to have dramatically different leadership requirements.
The extent of the CEOs personal involvement in the Leadership Development Process is a critical key to the program’s overall effectiveness.