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2007 Hay Group. All rights reserved.1
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Companies are facing a massive leadership andtalent shortage
75 million US employees eligible to retire in the next 5-10years. Only 45 million people will replace them.
US Census Bureau
50% to 75% of current senior management will be eligiblefor retirement by 2010.
Forrester Research
97% of organizations report significant leadership gaps more than 40% say the gaps are acute.
Corporate Leadership Council
60% of the CEOs of Americas largest healthcare systemscan retire in 5 years.
American Medical Association
The UK is running out of head teachers.
National College of School Leaders and Hay Group
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The impending leadership shortage is global
In Bangalore, wage inflation is 20% per year, and averageturnover is running 40% per year.
The Economist
Senior managers in India and China are particularly scarce.
The Economist
Call centers are being located and relocated to Europebecause talent is now too scarce in India.
National Public Radio
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The impending leadership shortage is global
Regardless of where they are in the world, the companies in ourstudy felt the same high sense of urgency to develop leadership
Companies
Se
nseofUrgencyto
DevelopLeadership
EasternEurope
High
LowPacific Middle
East/Africa
CentralAsia
WesternEurope
EastAsia
NorthAmerica
South &CentralAmerica
Source: 2006 Chief Executive magazine/Hay Group Best Companies for Leaders Survey
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Even the best companies are feeling the effectsof the impending shortage
Even companies alreadydoing the best job atdeveloping leaders feel an
urgent need to continueto develop them.
Hay Group
Comp
aniesSenseof
Urgency
toDevelopLead
ers
AllOthers
20 BestCompaniesfor Leaders
High
LowSource: 2006 Chief Executive magazine/Hay Group
Best Companies for Leaders Survey
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Our database shows 34% of executivesand 24% of senior professionals can retire NOW
Source: Hay Group Survey Database
Entry-Level
Professionaln = 880
Mid-Level
Professionaln = 3,618
Senior-Level
Professionaln = 4,462
First-Level
Supervisorn = 12,262
Mid-Level
Managern = 21,189
Executive-
Leveln = 20,974
Percent of People at Different Ages in Each Job Level
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
55-69 (34%)
45-54
35-44
25-34
Distribution of
Age Groups(24%)
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Certain leadership abilities will be in particularlyshort supply
From Hay Group research, the retiring population is higher thanthe remaining population in almost all leadership competencies.The competencies particularly salient in the retiring populationare:
1. The ability to inspire ones organization through a compellingvision (Team Leadership)
2. Sensitivity to organizational and industry power dynamics(Organizational Awareness)
3. The ability to use sophisticated influence strategies toconvince others (Impact and Influence)
4. The ability to look over 5 years into the future to anticipateissues and develop strategies for addressing them(Initiative/Proactivity)
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Certain leadership abilities will be in particularlyshort supply
Team Leadership
Organizational Awareness
Impact and Influence
Initiative/Proactivity
Many of these departing abilities are maturational in natureand develop as a result of life growth experiences.
The development of these abilities needs to start early.The Best Companies for Leaders gives us insight into how todevelop more of this kind of leadership faster.
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The Best Companies for Leaders: 2006 vs. 2005
2006 Best 20 Companies for Leaders General Electric Procter & Gamble PepsiCo Citigroup
Johnson & Johnson HSBC Holdings BASF Home Depot IBM Coca-Cola Dell Microsoft Novartis Verizon Nestl Lockheed Martin GlaxoSmithKline Amgen Hewlett-Packard
BAE Systems
2005 Best 20 Companies for Leaders Procter & Gamble PepsiCo IBM General Electric
Johnson & Johnson Dell Microsoft Home Depot JP Morgan Motorola Pfizer FedEx BASF Verizon BAE Systems Johnson Controls Siemens BP LOral
Colgate-Palmolive
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The Best Companies for Leaders report havingmore & better leaders
The Best Companies report:
more leaders
better leadersFor all organizations, havingenough leaders is the morecritical issue.
Companiesreportonnumber
an
dqualityoflead
ers
Qualityof Leaders
Numberof Leaders
20 Best Companies
All Others
High
Low
Source: 2006 Chief Executive magazine/Hay Group Best Companies for Leaders Survey
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Why study the Best Companies for Leaders?
Having a strong leader pays.4.07%
0.54%
20 BestCompanies
S&P 500
Five-year Avg.
Total Shareholder Return
Source: Research Insight, Dec. 2006
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The Top Three Practices that predict more betterleaders are the same this year as last
2006 Best Practices
1. Having leaders at all levels who focus oncreating a work climate that motivatesemployees to perform at their best
2. Ensuring that the company makes leadershipdevelopment a top priority
3. Providing training and coaching to help intactleadership teams, as well as the individualleaders, work together more effectively
Rotational job assignments for highpotentials
External leadership development programsfor mid-level managers
Web-based self study leadership modules formid-level managers
Executive MBA programs for mid-levelmanagers
2005 Best Practices
1. Having leaders at all levels who focus oncreating a work climate that motivatesemployees to perform at their best
2. Ensuring that the company makes leadershipdevelopment a top priority
3. Providing training and coaching to help intactleadership teams, as well as the individualleaders, work together more effectively
Providing job-shadowing opportunities formanagers in mid-career
Ensuring that high potentials receiveobjective 360-degree assessments andfeedback on their leadership ability early on
Ensuring that mid-level managers getenough time to take part in leadershipdevelopment activities early in their careers
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Contribution to number and quality of leaders
Everything else
The next four
Contribution to number
and quality of leaders
High
Low
The top three best practices accountfor 68% of the difference in thenumber and quality of leadership.
Source: 2006 Chief Executive magazine/Hay Group Best Companies for Leaders Survey
Top 3 best practices
All other practices account for only2% additional.
Together with the next four, theyaccount for 74% of the difference.
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Some leadership development practices add no value
Some development activities at any level and some that arestarted too late in a persons career are negatively related toa supply of quality leaders and are a wasted investment.
1. Outdoor activity-based programs at all levels of management
2. Paper-based self-study leadership modules at all levelsof management
3. Job-shadowing for Senior Managers
4. Web-based self-study for Senior Managers5. Executive MBA for Senior Managers
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The 20 Best Companies for Leaders aredifferent in how they handle high potentials and theirability to fill positions internally
0 20 40 60 80 100
Actively manage the careers of high-potentials
Have a formal process for identifying individuals whoare likely to assume leadership roles in the future
Have career tracks for high-potential professionals
or individual contributors that are separateHave formal programs that are designed to
accelerate leadership development
Included marketing as an organizational functionfrom which they get their high-potentials
Mid-level manager positions are filled from within
Senior-level manager positions are filled from within
CEOs are promoted from within
20 best companies Rest of the companies Percentage Shown
The 20 Best Companies do these more
Resulting in more of thisSource: 2006 Chief Executive magazine/Hay Group Best Companies for Leaders Survey
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There were some significant differencesin Best Practices between Developing vs.Developed Countries
Developed Countries = North America, Western Europe, andAustralia/New Zealand
Developing Countries = Eastern Europe, Asia, Middle East/ Africa
Two of the top 7 Best Practices were the same for DevelopingCountries:
Holding leaders accountable for creating motivating climates
Helping leadership teams be more effective, as well as developingindividual leaders
Two practices were more important in Developing Countries: Providing for additional development activities for mid-level
managers
Providing mid-level managers mentoring by another seniormanager or executive
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Five key steps to identifying and managing potential
Know what youneed from people: start with strategy
Identify long-term potential through the growth factors notjust job-specific abilities, or past performance
Be able to answer Potential for what?
Fulfillment of potential
Create systems that enable effective talent management
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Potential equation
Potential is:
The fit between a persons current capabilities and possiblefuture roles
Taking into account the persons longer-term capacity forpersonal growth and possible derailers
Potential = XGrowth Factors
Derailers
FutureRole
Require-ments
PersonsCurrentAbilities
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Growth factors
Where should you invest your development resources?
Best bets are people who will be able grow and develop.
Look for these characteristics:
Thinking beyond the boundaries
Curiosity and eagerness to learn
Social understanding and empathy
Emotional balance
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Beyond identifying potential
The organizations responsibilities:
Fulfillment of potential providing opportunities andexperiences that enable employees to grow, develop andmake their full potential contribution to the company.
Create enabling systems for effective talent management to take full advantage of the potential of the employees
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