Improving returns on leadership investment

Citation

Ellehuus, C. (2011), "Improving returns on leadership investment", Strategic HR Review, Vol. 10 No. 6. https://doi.org/10.1108/shr.2011.37210faa.002

Improving returns on leadership investment

Article Type: Strategic commentary From: Strategic HR Review, Volume 10, Issue 6

Thought leaders share their views on the HR profession and its direction for the future

Many organizations are facing a mounting leadership challenge, caused in part by the uncertainty inflicted by the global financial crisis.

Continued market unease means that few business leaders are outperforming their targets.Recent research conducted by Corporate Executive Board’s Corporate Leadership Council (2010) revealed that just 39 percent of leaders exceeded their management by objectives expectations over a six-month period in 2010.

At the same time, organizations’ ability to create a pipeline of ready, future leaders is being impaired further as many high-potential employees have become increasingly disengaged during the recession.

Leaders turning to HR and talent teams

Business leaders are looking to their HR and talent management departments to address the leadership gap emerging in their organizations. Under pressure from the CEO to deliver, and as part of the wider efforts to play a more strategic role in supporting business growth, HR departments have responded by upping investment in their development programs to improve individual leader readiness.

The traditional focus of this investment has been on developing an internal pool of high-potential employees rather than going out to market to secure new talent. The Corporate Leadership Council found, however, that investing in existing talent is not delivering desired returns. In fact, while 71 percent of European heads of HR have been assigned larger budgets for their leadership programs, less than one in five HR directors say that they are satisfied with the results.

More worryingly, 85 percent of HR directors do not believe that the additional investment is resulting in ready, future leaders, with 87 percent of these future leaders deemed unprepared for their next big role.

Seeking a better way to address leadership challenges

The lower-than-anticipated impact that these programs are having in terms of addressing organizations’ leadership challenges is leading HR directors to ask: “How can my leadership strategy drive better business performance; how can I increase the business impact of my current leadership program; and what leadership investment should I make?”

The answer does not lie necessarily in further investment. Leadingorganizations have been able to achieve 37 percent greater leadership effectiveness by taking the following three steps to improve the returns on investments in talent management already made:

1. Measure leadership behaviors and outcomes instead of leadership program activities

Rather than measuring the success of leadership programs based on more practical considerations, such as how many employees have participated in leadership training, the most successful HR departments are tying the success of their leadership programs more closely to expected leadership activities and behaviors that impact on the strategic goals of the business, for example, decisiveness, customer orientation and risk taking. The effectiveness of these programs is focused on measuring whether the organization is building the collective leadership capabilities required for the success of the business.

2. Look to tomorrow’s leadership challenge

Best practice organizations are fully integrating leadership planning into business strategy, delivering critical insights into leadership capability gaps and strengths in the organization to guide business decisions. Based on our study, however, just 26 percent of HR directors today believe that business strategy decisions are informed by critical leadership insights, increasing the risk that unrealistic business objectives will be set.

Too often assessments and decisions about leadership challenges and needs are made in isolation from the organization’s long-term strategy. Organizations must ensure that business decision-making is informed and guided by an explicit emphasis on future leadership risks and challenges. We have found that organizations that make integrated decisions about leadership and business priorities and objectives can improve leadership effectiveness in their business by up to 39 percent.

3. Coordinate talent management programs across the organization

Organizations that coordinate effectively across their leadership and HR programs exhibit 35 percent stronger leadership effectiveness than organizations with ineffective integration. Only 45 percent of heads of HR believe, however, that their leadership programs and activities are actually effectively integrated across the organization.

While there has been a considerable focus on what is termed “Integrated Talent Management,” which often implies large-scale investments in talent management programs and IT integration, the study found that a lot of these investments are unnecessary and are not driving better leadership outcomes.

Indeed, HR departments that look to simply prioritize and raise awareness of the most important interactions between leadership programs and activities are having greater success in plugging the leadership gap in their organizations and are typically seeing up to a 32 percent improvement in leadership effectiveness.

The question of leadership is likely to continue to loom over organizations if they fail to foster greater integration between existing leadership activities and the organization’s strategic priorities, and improve coordination across the many leadership programs and activities that are often in train.

Christoffer EllehuusManaging Director of the Corporate Executive Board’s Corporate Leadership Council.

About the author

Christoffer Ellehuus is Managing Director of the Corporate Executive Board’s human capital practice (Corporate Leadership Council) in Europe, the Middle East and Africa (EMEA). Prior to his current role, he was the practice manager of the Corporate Leadership Council in Washington, DC. Before joining CEB, he worked as an economist at the European Union in Brussels and at the Danish Ministry of Economy and Trade in Copenhagen. A native of Denmark, he received a Master’s degree in Economics from the University of Copenhagen and a Master’s degree in European economic and political affairs from the College of Europe in Bruges, Belgium. Christoffer Ellehuus can be contacted: ellehuuc@executiveboard.com