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Steve Krupp
Partner
Oliver Wyman – Delta Organization & Leadership

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

How serious is the looming global shortage of corporate leaders capable of taking businesses into the next decade and beyond?

The shortage of leadership talent is critical for a large percentage of organizations today and will increase in the coming years. With the Economist Intelligence Unit, we published a Global Leadership Imperative research study last year based on interviews with more than 220 executives around the world. The findings revealed that more than 75 percent say they face shortages in their leadership bench to meet the pressing business challenges confronting their company now and in the future. This has become even more acute in 2007 and been confirmed repeatedly in discussions and research with company executives, board members and HR leaders, many of whom are concerned with gaps in succession plans for key roles at the top as well as deeper in the pipeline. It is especially exacerbated in hyper growth markets like India and China where some companies are growing by 25 – 100 percent annually.

What are the key issues that have contributed to this global leadership pipeline crisis?

There are several reasons for this crisis:

Baby boomers are nearing retirement. This creates a demographic short fall. A number of companies interviewed by Oliver Wyman are faced with more than 50 percent of senior leaders eligible for retirement over the next five years.
Global growth has changed the game. Companies with growth strategies have a greater demand for more “ready now” leaders then they currently have in the pipeline. Growth in emerging markets creates a particularly strong demand for globally astute leaders who can keep pace with global expansion, understand local markets and lead in a global world. Few companies have robust talent pipelines in growth markets, and the need can’t be met by expatriot assignments. Moving talent to meet demands of growth markets has had limited success, and only provides short term relief.
The business environment is more complex. Our globally diverse, regulated, digitalized world requires a different leader profile than in the past. It is no longer possible to succeed with a narrow, technically or functionally based skill set. Companies need broader, “whole” leaders who can develop strategies, deal with ambiguity, collaborate across boundaries, motivate globally diverse teams and relate with people of different values and cultures.
Investment in assessment and development for leaders has not kept pace with demand. As companies downsized, cut costs and focused on survival in the early part of the decade, they neglected building leadership capacity for the future. Flattening of organizations has resulted in wider spans of control with fewer leaders adequately prepared to step into more challenging leadership roles.
Lack of Board and CEO attention. Although succession and talent bench strength has become a top priority for many directors today, this has not been the case in the past. A minority of progressive CEOs or companies have been forward thinking in anticipating and preparing for future leadership needs.

Why are today’s top corporate “leaders in training” apparently unwilling to relocate for great opportunities?

There are a number of reasons why some up and coming leaders don’t want to take global assignments:

Lifestyle choices cause some leaders to decline.
There are sufficient opportunities for the best and brightest so they are not obliged to relocate.
Many times global assignments don’t work out for the person or their family, compounded by an increased fear about certain assignments in a post 9/11 world.
There are too many cases where there is not a well-planned approach to repatriation or a next assignment waiting to continue the grooming process.
Many companies don’t do an effective job of defining what a leader is expected to learn or accomplish nor do they evaluate the degree of goal achievement, especially in terms of leadership learning.

How do current business leaders develop a thorough assessment plan that can accurately pinpoint talent risk exposures and identify success metrics?

The most evolved companies develop a leadership talent strategy that is linked directly to their business strategy. They understand or quantify the enterprise risks associated with losing key talent or not having the right leaders in key roles. In some companies, talent risk or retention risk is included in the firm-wide enterprise risk analysis. This includes:

Defining the leadership requirements for the strategy to succeed (e.g. strategic thinking, risk taking, lateral and virtual leadership, driving growth, collaborative decision making, building talent, global or cross cultural awareness).
Identifying the mission critical roles which will make or break the strategy.
Determining the leadership bench strength needed in specific roles to achieve the strategy.
Evaluating the current leadership pipeline against the needs (numbers) and requirements (behaviors) to document gaps and risks. There are some good processes and tools companies can use to accomplish this.
Developing succession plans and risk mitigation strategies to achieve the plan.

What are these key metrics?

The first metric is how many leaders will be needed to achieve the business or growth plan and the second is how the current bench stacks up against it.
Other metrics relate to succession and high potential strategies such as:

Percentage of key roles or senior positions without “ready now” successors and the percentage that have a unique successor (someone who is not also slotted against other roles).
How often openings are filled by internal candidates.
Retention rate, especially of key talent.
Frequency of cross-functional moves, rotations and development moves.
Success measure for global assignments (e.g. percent of assignment completions, percent that develop their successor from within region).
Percentage of successor filled by high potentials.
Percent of leadership team, especially in growth markets, but also on top team, who are from outside US (if US company).

How does one foster an environment that facilitates the development of “being global” and, more importantly, of being able to lead major business enterprises?

Companies who aspire to be global must look at the composition of the leadership team at the top and in key markets and take determined efforts to build culturally diverse and representative leadership teams. Top leaders must ensure they visit, connect with and understand the business markets where they operate. They must create business and leadership models which reflect the reality of where and how they do business. They must allow for regional customization and ownership of key processes while advocating global consistency where it’s important. The most advanced companies orient and educate their executives about leading in a global world. In addition, companies must give their executives on-the-job opportunities dealing with transnational, international, and global business issues; whether it is as part of their regular job or as a special assignment abroad. Companies invest in the assessment and development of whole leaders: Head (the ability to provide clear purpose, strategy and direction), Heart (the ability to understand, work with and develop others) and Guts (doing the right thing based on clear values) to succeed as enterprise leaders in a globally complex environment. This includes targeted development plans, intensive education, action learning, coaching, mentoring, global assignments all focused on the key success factors for leadership within the company’s strategy.

Steve Krupp is a Partner at Oliver Wyman – Delta Organization & Leadership, where he leads the Executive Talent Management business. He consults with CEOs and their teams on large-scale change, mergers, or business transitions to translate business plans into compelling leadership strategies.

His clients have included Siemens, BP, Merck, J&J, Merrill Lynch, UAL, Time
Warner, Astra Zeneca, Wyeth, BNP Paribas, Monsanto, MMC, and BlackRock.

Prior to joining Oliver Wyman – Delta Organization & Leadership, Steve was the Senior Managing Vice President for the Americas at Right Management Consultants, where he received the prestigious “Power Award” in 2004 for outstanding performance, leadership, and client contributions. Before his role at Right Management, Steve was the Managing Partner at Key Management Strategies Inc., a consulting firm focused on organizational change, leadership, and team effectiveness.

Steve earned his PhD in Organizational Development from Temple University. He is a licensed psychologist and has numerous publications and presentations on organizational change, leadership, and executive talent management.