Leadership Development Factbook 2012
Benchmarks and Trends in U.S. Leadership Development
Bersin & Associates, 2012
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Bersin & Associates, a California-based research and consulting company, has developed an extensive library of up-to-date material on leadership development, corporate learning and talent management. Usually, Bersin provides information only to its "research members" – more than 750,000 human resources, talent and learning professionals worldwide in more than 3,500 client organizations. In this report, Bersin analysts Karen O'Leonard and Laci Loew explain the statistics and trends affecting the current state of leadership development at US firms. If you want a benchmark for your leadership development program based on the latest norms, getAbstract suggests this thorough study. It shows exactly how firms of all sizes develop senior leaders, middle managers and promising executives.
Take-Aways
· The latest research on leadership development in the US provides benchmarks for comparing your company's efforts to those of other organizations.
· American firms spend more on leadership development now than they have in the past.
· In the recovering economy, firms need leaders who can exploit global opportunities.
· Enterprises with "mature leadership development programs" invest more in their initiatives and report better results than firms with newer programs.
· More and more organizations are investing in grooming leaders at all levels, not just their senior personnel.
· Most US companies today target and develop "high-potential employees," or "HiPos."
· The "70-20-10" model calls for on-the-job learning to make up 70% of leadership development; coaching and networking, 20%; and formal education, 10%.
· Assessment tools such as 360-degree feedback discover and track promising leaders.
· Senior executives add value to development programs as "leaders teaching leaders."
· Top firms such as Dow Chemical, Mars and Hewitt Associates are on the cutting edge of leadership development.
Summary
Start with Information
Information about leadership development programs around the US provides helpful benchmarks for human resources and learning and development (L&D) professionals, who can use this data to compare their activities against those of similar organizations. The statistics in this study come from surveys and interviews involving 379 firms of different sizes, from 100 employees to more than 10,000.
"With the economy improving and corporate restructuring behind them, executives are looking to the future."
This research assessed existing development programs for different levels of leadership within a firm: "first-level leaders," who directly manage staff; "midlevel leaders," or middle managers; "senior-level leaders," including CEOs and top executives; and "high potentials" ("HiPos"), employees at any position who show promise as future leaders.
"Companies are investing more resources in developing leaders than they have in years."
The information researchers gathered allowed them to create eight benchmarking metrics: "spending per participant, change in spending, budget allocations by leader level, delivery methods, staff-to-leader ratios, change in staffing, staff time allocations by leader level" and "use of assessments by leader level." These measures let you determine how much your company spends on its leadership development activities and how much you're allocating per leadership level. You also can judge how other enterprises are addressing their varying leadership development needs and how firms with "mature leadership development" are realizing its benefits.
Findings
Research into the current state of leadership development in US organizations arrived at these conclusions:
· Highlight Copy
Firms anticipate a "surge in spending" – Because of an improving economy, US companies will increase spending on leadership development by 14% for 2012 compared to 2011, for a total expenditure of $13.6 billion. The money goes to creating and delivering wide-ranging programs, increasing the number of training and development staffers, and buying special tools to find and cultivate future leaders. "Midsize" firms – those with 1,000 to 9,999 employees – will register the largest spending gains, 23%.
· Organizations need "global, agile leaders" – To increase their commercial reach worldwide, US firms are working to develop leaders with international acumen – innovative, entrepreneurial people who understand the customs of the countries where they operate. In addition to offering traditional leadership development activities, firms on the cutting edge of talent management are providing their up-and-coming leaders with more "cross-functional and cross-regional" learning experiences.
· "Mature companies invest more" – Companies with long-established leadership development programs spend more than twice as much on these programs as firms that are just getting started. The payoff for this boost in funding includes improved business outcomes and better employee retention, productivity and commitment.
· Companies are making a "greater investment in all leader levels" – In the past, most firms focused their development dollars on their senior managers. Today, companies are more committed to fostering leaders at every level. Building first-level and midlevel leaders accounts for two-thirds of most development budgets, with senior leaders and HiPos roughly splitting the remainder.
· "High potentials [are] an investment in the future" – HiPos have "the potential, ability and aspiration for successive leadership positions within the company." Two-thirds of organizations target HiPos for their "talent initiatives." These companies invest in identifying and assessing likely HiPos and provide budding leaders with formal training and "experiential opportunities, coaching, mentoring and collaborative activities."
· Organizations are "moving toward 70-20-10" – As leaders advance in their careers and gain knowledge and expertise, they spend less time taking part in traditional training and more time participating in hands-on experiences and collective activities. The goal is to further 70% of development through on-the-job learning; 20% through such activities as coaching and networking; and 10% through formal education.
· "Assessments are an important component" – For all leadership levels, the most widely used assessment tool is 360-degree feedback. More than 80% of US companies employ assessments to target and develop HiPos and to identify and address their particular strengths and weaknesses.
Benchmark to the Best
To ensure that your corporate leaders "create a magnet for high performers," benchmark your leadership development efforts against six best practices:
1. Make sure all executives feel fully engaged in the program.
2. Design leadership development activities to correspond with company strategic goals.
3. Spell out the critical capabilities for leaders in your organization.
4. Cultivate leaders at all levels of the organization.
5. Ensure that leadership development aligns with talent management.
6. Create a focused program and delivery.
"High-potential leaders are the centerpiece of many organizations' talent initiatives."
While achieving all six characteristics is a long-term objective, gauge how far along your company is by rating its position in the "Leadership Development Maturity Model":
· "Level 1: Inconsistent management training" – Executives at firms at this level provide minimal backing for leadership development. Standard training opportunities are unaligned with corporate strategy, and leaders "sink or swim" on their own.
· "Level 2: Structured leadership training" – At this stage, organizations agree on "a core set of competencies" and design programs to build leadership skills. Senior management accepts leadership development as a "strategic imperative."
· "Level 3: Focused leadership development" – A quantum leap occurs at this point, when firms perceive their leadership development as a strategic activity for the organization as a whole and not just as a program to groom individual leaders.
· "Level 4: Strategic leadership development" – At this phase, leadership development is part of all talent management processes, which engage leaders in wide-ranging programs. Top executives are active participants in leadership development.
"The relationship between good leadership and employee commitment is undeniable."
Compared with companies at Level 1, organizations operating at Level 4 do a better job of retaining their employees, enhancing their growth, developing a performance-based corporate culture, training future leaders who can provide "a strong bench" and keeping their leaders.
Firms realize the most benefits when they transition from Level 1 to Level 2, but they also can profit from reaching Level 3, where the synergy of leadership and strategy takes place. Fewer than 10% of enterprises achieve Level 4, "best in class" status. Progressing through the levels can take years, and there are no easy shortcuts.
"Most large businesses are opening up new markets, requiring leaders with entrepreneurial skills as well as knowledge of local customs."
In collecting data for your own benchmarking initiatives, focus on the following five measures:
· "Number of participants" – Tally the total number of leaders who have attended or participated in organized leadership development activities in the past year.
· "Spend per participant" – Divide total annual expenditures on development by the number of individual participants. Include salaries and benefits of L&D professionals, consulting expenses, materials costs, and so on.
· "Staff per 100 participants" – Include everyone who contributes in any way to your leadership development activities. Prorate the time part-time employees spend.
· "Delivery methods" – Determine how much of each kind of training your leadership curriculum contains, such as classroom work, e-learning, coaching and job rotation.
· "Use of assessments" – Segment this data according to the specific tools you use – for example, 360-degree feedback, personality testing, and the like.
"Leadership Development Spending"
Most companies spend upward of $6,000 per senior-level leader for leadership development, almost four times what they spend on a first-level leader. But they spend the most on high potentials – approximately $7,100 for each HiPo.
"Leaders themselves play a key role in supplementing an organization's leadership development staff."
Companies at Levels 3 and 4 carefully cultivate their future leaders: Take Dow Chemical, which is spearheading its corporate transition from a product-oriented approach to a customer relationship model. Through individually tailored programs of coaching, developmental job assignments and classroom training, Dow's leadership programs target the people managers believe can lead that fundamental change in strategy.
"Assessments can help companies select the right candidates for first-level leadership positions and create development plans to address skills gaps."
Small companies spend more money than midsize or large firms on leadership development per person, averaging about $2,300 in costs for a first-level leader. This compares to the roughly $1,900 that midsize companies spend and the $900 that large companies incur.
However, when it comes to leadership development for senior leaders, small companies spend less on average than their bigger cohorts, largely because small firms can't afford expensive solutions for executive-level development.
"Formalized job-rotation programs become more common as individuals move up the leadership ladder."
Firms across the board are now investing in leaders at every phase of their careers. On average, Level 1 firms spend the least on leadership development for HiPos ($4,917), mostly because they have not yet developed programs to identify HiPos.
In contrast, Level 4 firms spend close to $8,000 on HiPos. Mars, a multinational food manufacturer, targets its expenditures on regional leadership development, particularly in Asian growth markets. The firm has instituted an Asia Leadership Forum, bringing together teams from China, Japan, Korea, India and other countries in South Asia to create new networks and "a strong talent pipeline" across the region.
"Leadership Development Staffing"
To deliver a better leadership development experience, firms are expanding their human resources and development staffs. During the year 2011, departments devoted to leadership development increased their personnel by an average of 18%.
"The most successful senior-level leaders are those who know themselves very well, play to their strengths and create teams that compensate for their weaknesses."
Leadership development involves a high staff-to-leader ratio in comparison to other forms of corporate training – at large firms, one full-time leadership development professional manages 100 leaders, while one full-time generalist in L&D handles 400 employees.
Paradoxically, organizations with the most mature leadership development programs actually employ fewer personnel than enterprises that operate with less-sophisticated programs. Seasoned programs reap the benefits from past investments in the foundational planning, development and implementation of their programs. They also outsource more of their activity. In contrast, Level 1 firms need more staff to build their capabilities and deliver traditional leadership training.
"Formal classroom learning can only ever form a part of leadership development, with the most significant learning experienced in the role, supported by manager coaching and peer mentors."
A company's senior team can be of great value in helping to prepare upcoming leaders. These "leaders teaching leaders" impart their experience in and knowledge of strategic issues, effective networking, and business essentials to junior colleagues.
"Signature Solutions"
As leaders advance in their careers, their experience with leadership development initiatives evolves: First-level leaders spend much of their time in formal training in classrooms or online to learn fundamental skills. Midlevel leaders migrate to activities like coaching and team assignments. Senior level leaders and HiPos both undergo "experiential learning" that uses strategic projects and experiences across different functions and geographies. Wise organizations structure their leadership development according to the 70-20-10 breakdown.
"The primary objective should be to develop an entire leadership team capable of moving the company forward."
Most companies use assessments to evaluate their current and prospective leaders on "intellectual ability, achievement motivation, skill proficiency, leadership style, personality characteristics and performance." Hewitt Associates, a global consultancy, reorganized its myriad regional leadership development initiatives into one program that fosters its "five core expectations" of present and future Hewitt leaders: "business acumen, operational excellence, client focus, personal impact and domain excellence."
About the Authors
Karen O'Leonard is a principal analyst. Laci Loew works at Bersin & Associates as a senior analyst.
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