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How winning companies develop leaders mit sloan - fall 2000

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  • 1. MITMassachusettsInstitute of TechnologyFall 2000Volume 42Number 1Robert M. Fulmer,Philip A. Gibbs & Developing Leaders: How Winning CompaniesMarshall Goldsmith Keep On WinningReprint 4214
  • 2. Developing Leaders: How Winning Companies Keep On Winning 49 Robert M. Fulmer I Philip A. Gibbs I Marshall Goldsmith How do General Electric, Hewlett- Packard and Johnson & Johnson keep a steady stream of leaders moving up? By focusing on the five essentials of leadership development.Robert M. Fulmer is professor Last June, as the business world watched nization with strong leaders. When Ronaldof management at the expectantly, General Electric (GE) promot- Reagan was spokesperson for GE, theirGraziadio School of Business, ed three key executives (David Calhoun, slogan was, “Progress is our most impor-Pepperdine University. Philip Joseph Hogan and John Rice). Each would tant product.” Today the mantra could be,A. Gibbs is a visiting profes- report to one of the three potential candi- “Leaders are our most important product.”sor at the College of William dates to succeed CEO Jack Welch (Jamesand Mary, where he teaches McNerney, Jeffrey Immelt and Robert Leaders who keep learning may be thestrategic management and Nardelli). Thus, if one of the latter moves ultimate source of sustainable competitivemergers and acquisitions. into Welch’s office, another seasoned GE advantage. With that understanding, manyMarshall Goldsmith is co- professional will be ready to assume his companies are investing in leadershipfounder of Keilty, Goldsmith & role. Where do GE leaders come from? development (programs that help keyCo. Contact the authors at: They do not spring up out of the earth executives learn leadership skills). Asrobert.fulmer@business.wm. overnight. For many years the company early as 1993, Business Week estimatededu, philip.gibbs@business. has worked hard to develop ongoing that $17 billion was being spent annuallywm.edu and marshall@ sources of leadership talent — not only to on helping managers develop the thoughtkgcnet.com. prepare for Welch’s retirement next year, processes and company-specific skills that but also to enrich every level of the orga- could enable them to move up and leadSloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
  • 3. their business areas. Training magazine estimates that GE’s CEO, Jack Welch, described the company’s in 1998 U.S. companies spent $60.7 billion on train- Leadership Development Institute in Crotonville, New ing.1 But spending isn’t the only commitment. World- York, as a “staging ground for corporate revolutions.” class executives are investing significant amounts of In fact, innovative ideas such as the Six Sigma quality- their time personally guiding and mentoring future improvement program and GE’s expansion into leaders.2 To them, leadership development is not a emerging economies have come from presentations luxury but a strategic necessity. made at leadership-development events. Tremendous growth, reductions in the number of GE employees What processes transform managers into strong worldwide and significant delayering of the organiza- leaders ready for strategic action? How do the best tion in the 1980s and 1990s caused an enormous cul-50 leadership-development organizations design, manage tural shift. With fewer layers of management, individ- and deliver world-class programs? uals received fewer vertical promotions and hence fewer opportunities to practice being leaders. A new In January 1998, the nonprofit research group approach was called for. Today in the human- American Productivity and Quality Center, based in resource department’s “Session C” meetings, senior Houston, the American Society for Training and executives assess key GE personnel. After an initial Development, based in Alexandria, Virginia and meeting in March, there are two or three additional author Robert Fulmer set out to find the answers. The meetings and a wrap-up session in June or July to group developed a study to investigate best practices in leadership development; in 1999, they expanded Benchmarking Methodology the study to explore the challenge of developing leaders at all levels of an organization.3 Benchmarking, the study’s primary research methodology, involves Thirty-five organizations participated as sponsors. (See identifying outstanding practices and processes from any organiza- “Benchmarking Methodology.”) They sent representa- tion anywhere in the world, learning from them and adapting them tives to a planning session, completed data-gathering to a specific company’s needs. Modeled on the human learning surveys and attended or hosted on-site interviews. process, which also relies heavily on observation, benchmarking is (See “Study Sponsors.”) The consortium identified the process by which organizations learn. The underlying rationale six companies as having a strong or innovative is that learning from best-practice cases is the most effective leadership-development process. Those six agreed to means of understanding the principles and the specifics of effec- participate in the study as best-practice partners. (See tive practices. “And the Winners Are…Best-Practice Partner In phase one, the group conducting the study reviewed the litera- Organizations.”) They were chosen because they ture to identify leading companies in executive development; they exhibited commitment to developing leaders — but with talked with opinion leaders in management education, consulting marked diversity of approach, emphasis and culture. and business; and they administered a survey to various people to identify their organizations’ leadership-development support, spe- cific innovative approaches and willingness to be best-practice The Strategic Perspective partners. At the end of phase one, the study team had compiled a Most significant: Best-practice partners reported that list of candidates for potential best-practice partners and a screen- they tied leadership development closely to business ing report. Sponsors met to review the initial report, select the strategy and that they invested financial resources in final best-practice partners and discuss their objectives for the it. CEOs did not support the programs out of a respect study. for education but from a conviction that such pro- grams can assist in aligning functional areas with cor- In phase two, representatives from the study sponsors visited porate strategy. Johnson & Johnson, for one, revised best-practice partners for a day, seeking answers to detailed ques- succession planning and performance-management tions about the evolution, design, execution and successes of their systems to reflect the qualities anticipated by a leader- leadership programs. The study sought to identify innovative prac- of-the-future exercise in a leadership-development tices and applicable quantitative data, such as budgets, program conference. details and assessment criteria. The deliverables at the end of phase two were site-visit summaries, a two-day knowledge-trans- Increasingly, programs that focus on developing future fer session (in which all the study sponsors and best-practice part- leaders are seen as a source of competitive advantage. ners participated) and a final report. Fulmer • Gibbs • Goldsmith Sloan Management Review Fall 2000
  • 4. select employees who will attend the executive- behaviors required to be valued and trusted businessdevelopment courses at Crotonville. At the end of the advisors in an ever-changing marketplace.” To meet theyear, corporate leadership development, like all cor- needs of a business that continues to diversify andporate functions, is measured by whether it was able globalize, managers aim to keep the program closelyto support GE initiatives. Steve Kerr, GE’s chief learn- linked with Arthur Andersen’s evolving business strategy.ing officer, says jokingly, “Crotonville is GE’s onlyunbudgeted and unmeasured cost center.” Then he Hewlett-Packard, under the leadership of CEO Carlyadds seriously, “Everyone would know if we weren’t Fiorina, is rushing to reclaim its status as a top high-delivering strategic value.” tech innovator. Fiorina must convince the public and HP employees that HP is the hottest new company ofRalph Larsen, chairman and CEO of Johnson & the Internet era — without losing the old-time com- 51Johnson, champions J&J’s Executive Conference. mitment to quality and integrity. Past HP glory ledFaithful to the company’s decentralization tenets, he many excellent engineers to focus on what used toleaves the program’s details to subordinates around the be important, instead of on the future. Once HP start-world but takes the time to suggest program themes. ed to improve leadership development, the company could make better business decisions.At Arthur Andersen, the mission of the PartnerDevelopment Program (PDP) is “to help partners Today HP’s senior executives actively participate inworldwide acquire and build the knowledge, skills and leadership development. Fiorina uses management meetings and leadership-development programs to articulate her vision of making the company “represent Study Sponsors the next decade rather than the past one.” Her prede- cessor, Lewis E. Platt, showed his support for leader- Lucent Technologies ship development by making personal appearances at AARP Lutheran Brotherhood all HP Accelerated Development Programs, opening Aerojet Medrad and closing them with an opportunity for participants Allstate Insurance Nortel to have a dialogue with him. And Bob Wayman, HP’s American General North American Coal CFO, was the internal champion for a worldwide Ameritech PDVSA-CIED broadcast on closed-circuit television. During the Amoco Pharmacia & Upjohn broadcast, Wayman played an active role as facilitator Buckman Laboratories Shell International of the panel discussion “Challenging the Growth Canadian Imperial Bank of Smith & Nephew Barrier.” Senior HP executives have served as faculty Commerce Sprint in part of every core program. Fiorina’s early commit- Celanese Thomas Cook Group ment to communication with her management team Chevron The Timken Co. has led to an expectation within the company that Compaq Computer U.S. Dept. of Treasury she will continue using leadership development as a Deere & Co. U.S. Postal Service “bully pulpit” for strategic change. Eastman Chemical Honda of America USA Group USDA Graduate School Cor Herkstroter, the former chairman of the Royal Manufacturing Wachovia Corporation Dutch/Shell Group (which has dual headquarters in Johns Hopkins University Warner-Lambert the Netherlands and the United Kingdom), once Applied Physics Lab Ziff-Davis asked his top 50 to 60 leaders to suggest improve- Johnson & Johnson ments in the company’s financial performance. Shell’s committee of managing directors decided that a new leadership-development process could be a catalyst And the Winners Are… for organizational change, and Shell’s Leadership and Best-Practice Partner Organizations Performance (LEAP) program was created. After the program showed measurable returns in the United States and elsewhere, Shell made it corporatewide. Arthur Andersen Johnson & Johnson General Electric Co. Shell International When James Wolfensohn joined the World Bank as Hewlett-Packard Co. The World Bank president in 1995, he created a mission statement thatSloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
  • 5. continued the bank’s longstanding commitment to the University of Navarra, Spain) — which offers five dispersing knowledge and financial resources but weeks of classroom training and a project to help the placed a stronger emphasis on the goal of reducing bank become more of a world leader.4 poverty worldwide. The new focus required change. Recognition of that need led to the Executive Development Program (EDP) for managers — a unique The Five Critical Steps collaboration among Harvard Business School, the Pronouncing a strategic vision is not enough to bring Kennedy School of Government, Stanford University, about change or to tie leadership development to the INSEAD and IESE (the graduate business school of company’s goals. Our data suggest that there are five critical steps to achieving those ends. (See “Making52 Leadership Development Strategic.”) Examples of Making Leadership Development Strategic each step can be found in the corporate leadership programs of benchmark companies. Five-Step Process Best-Practice Programs Assessment Awareness • Arthur Andersen: Seeks quantifiable The need for a process to build leadership skills has measures. best-practice organizations looking both inside and • Shell: Looks for 25:1 ROI in its outside their organizations for approaches that work. action-learning projects. The foundation of such companies’ leadership devel- • World Bank: Uses internal and external opment is awareness — awareness of external chal- evaluation. lenges, emerging business opportunities and strategies, internal developmental needs and the ways other Alignment • Johnson & Johnson: Ties 360-degree leading organizations handle development. feedback to J&J’s Standards of Leadership and succession plans. Arthur Andersen uses both internal and external data • General Electric: Uses a nine-block to determine the learning and development needs of system (similar to competency ratings) the partners in the firm. Internal data come from and “Session C” meetings (where senior client-satisfaction and employee-satisfaction surveys, managers assess candidates for upward communication and analysis of what the firm development). calls 450-degree feedback (360-degree feedback plus • Hewlett-Packard: Considers strategic client evaluations).5 Arthur Andersen wants to know needs for diversity and new leadership how its partners are perceived in terms of their techni- models. cal competence and their responsiveness to customers. Action • General Electric: Uses programs called External data about new financial and managerial Work-Out and Change Acceleration tools or about challenges in the business environment Process. come from market research, business trends and • Johnson & Johnson: Uses real-time leading-edge thinkers. The partner-development pro- business issues in its action learning for gram also exploits the research Arthur Andersen does executive and midlevel managers. while serving clients — and the conversations on emerging trends partners routinely have with leading Anticipation • Shell: Uses forward-looking, hypothetical thinkers in management education and business prac- scenarios. tice. The PDP also makes use of the literature on • Johnson & Johnson: Uses a program new concepts in leadership development. called Creating Our Future. To ensure that its leadership-and-performance pro- Awareness • Arthur Andersen: Is data-driven, uses gram does not simply react to the immediate needs feedback and surveys. of the business, Shell’s LEAP team has an ongoing • Shell: Uses committee of managing conversation with the committee of managing directors directors and Global Research Consortium (representing all of Shell’s geographic and functional (a group of transnational companies that areas) about corporate transformation. LEAP staff sponsor research). members negotiate an agreement with the executive Fulmer • Gibbs • Goldsmith Sloan Management Review Fall 2000
  • 6. of the business unit and the critical players who will potential challenges or the impact of emerging tech-go through the program. Together they create budgets nologies; decentralized strategic planning (planningfor the team project and set time expectations and goals. that builds on many organizational levels’ imagining of the future); analysis of future scenarios; and theTo gather external perspectives, Shell has joined the Delphi method (successive rounds of composite pre-Global Research Consortium, a group of transnational dictions used to build awareness and consensus).6companies that sponsors research. The consortiumgives its members the opportunity to hear and discuss Strategy guru Gary Hamel recommends decentralizedthe latest on leadership and learning. Like other best- planning because revolutions are beneficial and theypractice companies, Shell also works with consultants “seldom start with the monarchy.”7 The participativeand professors to stay abreast of the latest in leader- and future-centered Merlin Process is an example of 53ship research. decentralized planning.8 Managers imagine the orga- nization a decade from the present and describe whatThere is greater awareness today that best-practice it would look like if totally successful. In contrast toorganizations’ corporate leadership-development more conventional, top-down strategic planning, thefunction is specifically for strategic issues; more-tactical Merlin Process has groups throughout the organiza-management skills and business-specific challenges tion describe their ideal. The resulting presentationsare usually left to business units. That seems to work provide insight and input for senior executives andwell — corporate leadership efforts in best-practice lead to more-formal planning sessions.organizations complement learning experiences with-in the business units and don’t compete with them. From 1993 to 1996, J&J followed that pattern. DuringBusiness operations are better equipped to handle its second set of Executive Conferences, executivestheir own management-skill training; corporate lead- from around the world worked together for a weekership programs concentrate on helping decision with outside consultants to create a vision for a decademakers become more effective at using those skills. later. Participants challenged conventional wisdom about the evolution of the health-care industry andAll the best-practice leadership programs tap leaders focused on actions their divisions could take to createwith extensive line experience. At Arthur Andersen, their future. J&J 2002, an extended scenario developedJohnson & Johnson and Shell, the heads of the from future-focused interviews with more than 100leadership-development process have senior-level executives in six countries — and from publishedbusiness experience. The use of business leaders is predictions about the future of health care — projectedbased on a belief that participation from executives multiple trends and discontinuities. Using a modifiedwill help ensure buy-in from the businesses and will Delphi approach, participants assessed the probabilitykeep the programs practical. and impact of 14 hypothetical developments. An inte- grative exercise called the Merlin Exercise was usedGE and Shell International bring in high-potential to tie the various aspects of the program together. (Aindividuals on two-year rotational assignments to over- Merlin Process asks people to create a future visionsee leadership development. HP recruits key people of the company; the Merlin Exercise has participantsfrom line positions for the same purpose. In addition apply course concepts to that vision.) Participantto drawing on the business units, best-practice orga- groups made formal presentations of the desirednizations access the experience of individuals in future to the CEO or the vice chairman.corporate education, human resources and academia.The director of GE’s Crotonville center came from a The Merlin Exercise gets results. Upon being congrat-university setting, and the head of World Bank’s EDP ulated about a significant promotion to head a newhas a background in corporate education. J&J venture, one program graduate responded, “Well, it took almost a year, but I finally got our Merlin.”Anticipation The first step in the envisioned future had become aAlthough business cases traditionally focus on the past reality because of his commitment to the potential.and best-practice reviews focus on the present, thebest leadership-development programs emphasize the For some organizations, anticipation involves devel-future. Top leadership-development companies use oping a list of the competencies that the companyanticipatory learning tools: focus groups that explore will need. (See “About Competencies.”)Sloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
  • 7. Action Recommendations made by the participant teams are Action, not knowledge, is the goal of best-practice usually implemented. Students in one management leadership-development processes. Best-practice course went to Russia and developed proposals for groups bring the world into the classroom, applying GE’s operations there. A quality report from an indi- real-time business issues to skill development.9 The vidual in another course led to corporatewide adoption answers to tough questions are not in the instructor’s of the Six Sigma initiative, a quality-assurance program head; learners must discover them on the spot. And designed to eliminate defects from all products. with program participants implementing their own recommendations, the learning experience benefits both the organization and the learner. Such action Best-practice partners were more likely54 learning can be complicated and costly, however. That is why Arthur Andersen, for example, uses a modified to have developed their competencies approach that still includes prework and postwork. Before the course begins, the firm gives participants internally or with limited use of outside criteria for selecting a client with a business problem and a protocol for interviewing that client. Learners consultants rather than pursuing work in a team to develop client recommendations. After the course, the team must make a presentation extensive, formal competency studies. to the actual client or the program sponsor. At GE, Welch himself has been the one to choose the GE also supports what it calls the Change Acceleration action-learning topics for each of the three annual Process (CAP), a systematic attempt to turn managers business-management courses and for the annual into professional change agents by disseminating executive-development course. Participants in both GE’s accumulated knowledge about how to initiate, courses are highly motivated to carry out projects, accelerate and secure change. If CAP is successful, important as they are to the company’s direction. says Welch, “people who are comfortable as coaches About Competencies A majority of the best-practice organizations Three-fourths of the organizations surveyed The three broad categories of competencies have identified leadership competencies or at believe that once competencies are defined, are business development, personnel devel- least have tried to define characteristics of they should be pursued consistently. Best- opment and personal development. The com- successful leaders, but any discussion about practice companies considered position, busi- mon theme is leadership. The Partner competencies is generally controversial. ness unit and geographic location before Development Program group aims to develop Some even question whether competencies deciding about which competencies would be an Arthur Andersen partner who can be defined at all. considered essential. Johnson & Johnson • is a change agent sent a team around the world to make sure • plans strategically Although not all the best-practice partners that what made a leader successful in the • is globally aware define competencies, each tries to pinpoint United States would translate to Europe and • promotes advanced business and the characteristics of successful leaders with- Asia. Although some of the wording for its professional knowledge in its particular organization. That is also true competencies had to change, the behaviors • is a marketer of the study sponsors, but the best-practice were consistent. • is a trusted business adviser partners were more likely to have developed • provides valued integrated services their competencies internally or with limited Arthur Andersen defines a competency as a • leads the team use of outside consultants rather than pursu- statement of the behaviors necessary to per- • develops people ing extensive, formal competency studies. form a job task. Although Arthur Andersen • builds relationships The best-practice companies had more self- has no organizationwide set of competencies, • is a skilled communicator confidence about their ability to identify the the partner-development program has created • develops self key skills for leaders. And they made a point its own list for company partners. It concen- of keeping their competencies and develop- trates on nontechnical competencies that Other companies also have competencies mental activities updated. apply to all the service lines. geared to their particular business. Fulmer • Gibbs • Goldsmith Sloan Management Review Fall 2000
  • 8. and facilitators will be the norm at GE. And the otherpeople won’t get promoted.”10 The best companies are beginning toAt Johnson & Johnson, the purpose of the third group integrate and align assessment,of Executive Conferences, which started in 1997, wasto emphasize J&J’s Standards of Leadership (a model development, feedback, coaching anddeveloped by key executives working with McKinsey succession planning.consultants) and to tie the standards to specific busi-ness issues through action learning. The principalsession lasted five days, with prework and follow-up questionnaire, in which participants rate their perfor-extending the experience. Before the core session, mance in many areas and get ratings from supervi- 55each operating unit discussed the business topic it sors, peers and subordinates. Plans may be made forwould focus on. participants to be coached later or to engage in activ- ities to strengthen weak areas as part of the program,Different J&J executives in the various businesses but the facilitators’ assessments are not typically fed“sponsor” each conference session. Those who directly into succession planning.choose the topic are asked to pick one that can havesignificant or transformational impact. Past pro- Although the data were not conclusive, we believegram topics have included top-line growth, product- the best companies are beginning to integrate anddevelopment cycles, new-market entries and leader- align assessment, development, feedback, coachingship development. Once the topic is defined, the and succession planning. In the integrated model,executive sponsor chooses 50 to 130 program partici- leadership development becomes an important partpants, who do additional preparation, such as gather- of maintaining a steady flow of information through-ing data and interviewing people in the company out an organization and ensuring that top talent iswho might have some relevant insight. tracked and continues to grow.Participants go through the program and return later GE openly ties leadership development to successionfor a day to report on implementation results. planning. All employees are rated in a nine-blockTypically, the process takes six to nine months. J&J’s system for the annual Session C review. The reviewExecutive-Conference approach includes work teams includes discussion about people’s performance andfrom the business area that is experiencing the prob- their adherence to the values in GE’s value statement.lem being studied. The company’s action-learning The system is an approximation of a typical compe-approach at the middle-management level, however, tency model but was created quickly, simply and withbrings together high-potential individuals from all GE self-confidence from a comment by Welch andparts of J&J to tackle a more broad-based issue. The elaboration by his HR team. It features a chart onExecutive-Conference issues aim more at organizational which an employee’s bottom-line performance isdevelopment, whereas middle-management programs rated on one axis, with adherence to GE values onfocus more on development of individuals’ skills. the other axis. Those who don’t make their perfor- mance numbers but do adhere to GE values areAlignment given a chance to improve those numbers and get aBecause best-practice organizations recognize the higher rating. Those who make their numbers butimportance of alignment between leadership develop- don’t demonstrate the GE values are rated low in thement and other corporate functions, they often tie four-level model, which gauges promotion suitability.educational efforts to formal succession planning. At Those who do neither are rated lowest.a few of our best-practice partners, the leadership-development function and the succession-planning Senior managers spend most of their resources devel-function report to the same executive; other enter- oping their best and brightest. They see thatprises merely emphasize that a natural link exists. approach as delivering the most mileage: creating both role models and alignment on what is valued.At J&J, all development functions use 360-degree- Crotonville’s leadership-development offerings are tar-feedback evaluations as a part of leadership develop- geted at high-potential individuals, people the organi-ment. Facilitators assess a multiple-choice, behavioral zation refers to as its “A Players.” Each year the insti-Sloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
  • 9. tute trains about 10,000 of GE’s approximately the right people in the right programs. The goal of 300,000 employees. Shell’s LEAP program is to create leaders at all levels, so the programs are open to anyone within the orga- It is commonly said that, at GE, the corporate head- nization (although certain programs are targeted for quarters owns the top 500 people in the company those with the highest potential). GE and HP are and just rents them out to the businesses. To encour- more selective about entrance because they want to age the sharing of business talent, GE includes a focus only on those individuals with the potential to negative variable in its performance appraisals for move quickly through the ranks. managers who hold back talented employees. Outstanding business performance and development Assessment56 of leaders go hand in hand. Best-practice organizations always assess the impact of their leadership-development process. To collect Hewlett-Packard provides myriad opportunities for information on the perceived value, the best-practice emerging leaders to develop and grow. Platt, the for- partners use a number of tools and techniques. The mer CEO, recognized that many people who grew up Kirkpatrick Four-Level Model of Evaluation (partici- with the founders were retiring and that their imme- pant reaction, knowledge acquired, behavioral diate successors looked a little too much like one change, business results) is typical.11 Participants, another. He saw that as the company became more human-resource-development staff, consultants and, global, it would need more diversity of ethnicity and in some instances, financial staff, do the assessments gender. Having a female CEO now may help change — the latter weighing program expenditures’ return perceptions about who is leadership material. And on investment. (See “An Executive Primer.”) HP’s leadership-development process is clearly sup- portive of diversity goals, providing stretch assign- Most best-practice partners use an assessment method ments for the most promising people and making called the Kirkpatrick levels to quantify the effect of accelerated programs available for individual contrib- leadership programs on business results. But both the utors and first-level managers. study sponsors and best-practice partners use other metrics, too — including corporate performance, cus- Best-practice organizations use the goals of their tomer satisfaction and employee satisfaction. In gen- leadership-development program as guides to putting eral, best-practice partners were more aggressive than An Executive Primer: Five Steps Help Managers Get the Most From Leadership-Development Programs Awareness — Make it a point to interview Be sure that current challenges don’t keep documents. Make sure they reflect a consis- key executives about leadership development. you from focusing on the future of your com- tent set of terms, values and models. If they Keep a record of your findings to use in pany. Define possible scenarios and how you don’t, work to align them more closely. succession planning and human-resource- would respond. development (HRD) initiatives. Insist that the Assessment — Evaluate whether your head of HRD or your chief learning officer Action — Ask your HRD team members leadership-development activities have been brief you on at least one conference per year which business results have originated from successful. Ask for evidence that programs that reflects the latest thinking on leadership your company’s educational programs. Discuss reflect standards of success when you autho- development. Ask other key members of HRD the strategic initiatives that need their imple- rize a budget. (Shell doesn’t consider a pro- to prepare short summaries of events they mentation assistance. Explore how you can gram valuable unless its returns are 25 times attend at corporate expense. use executive learning to make such initia- greater than its cost. Johnson & Johnson has tives happen more quickly and effectively. used 360-degree feedback to assess observ- Anticipation — Start your meetings (with able performance change in key leaders.) managers at all levels) with a request for the Alignment — Look at your performance- most significant trend or prediction that they management system (performance apprais- Overall — Think about how you want HRD, in think will affect your business. Ask them to als), your succession-planning profiles, your general, and education, in particular, to support summarize the most forward-thinking article, major education and development agendas your strategic efforts. How must you change book or presentation to help you learn and to and possibly a “competency model.” Observe your human-resource profiles so that your get colleagues thinking in anticipatory terms. the consistency and alignment among the company can become what you want it to be? Fulmer • Gibbs • Goldsmith Sloan Management Review Fall 2000
  • 10. sponsors about measuring and evaluating programeffectiveness. When asked to rank the importance ofOf all the best-practice organizations, Arthur Andersen various criteria in selecting an outsideis probably the most dedicated to assessment — andhas reaped the benefits. The vast amounts of data vendor, the companies put fees near thethe firm collects not only demonstrate the partner- bottom of the list.development program’s correlation with improvedbusiness results, but also show where the organiza-tion needs to head. To Shell’s LEAP staff, a program adds value only if the team project generates revenues at least 25 times 57Although measurement is expensive and sometimes greater than the project’s cost (a 25:1 ROI). Duringtricky, its benefits cannot be discounted. Arthur the initial contracting process, a LEAP staff memberAndersen combines impact research with participants’ and the leader of the business unit determine thecourse evaluations. Program attendees fill out evalua- desired project outcomes, including financial targets.tion forms before they take the class, immediately The business leader expresses his or her objectives inafter the class is finished and three months later. The sending the candidate to the program; in many casesforms contain questions about the knowledge partici- that defines the program and problem the team orpants believe they have gained. individual will address.The impact research consists of comparing, course by You get what you pay for. Best-practice companiescourse, partners who have attended PDP with those do consider costs, but their main focus is on the valuewho have not. The results show that attendance the program can provide. When asked to rank theincreases both client satisfaction and per-hour billings. importance of various criteria in selecting an outsideImpact research is done in a two-year cycle, with vendor, the companies put fees near the bottom ofinformation gathered on partners a year before the the list. Arthur Andersen invests approximately 6 per-program and a year after. cent of total revenues in education (more than $30 million). If course offerings achieve their objective toThe use of both participant-satisfaction and impact- improve business results, support is likely to continue.research measures helps provide a balanced set ofresults. Arthur Andersen found that one of its pro- Cost for each participant in the executive-developmentgrams was not getting a high participant-satisfaction program at the World Bank is $22,000, whichrating, but an impact analysis showed that the pro- includes travel, lodging and business school fees forgram was having a greater effect than any of PDP’s three modules and for the Grass-Roots Immersionother courses. (But, PDP staff members prefer to see Program (which gives managers one-week stints in aboth strong satisfaction and strong impact, so if part- developing-country village or urban neighborhood soners have a low level of satisfaction the course will they can acquire a firsthand understanding of poverty).not be recommended.) The cost is not charged back to the business groups but funded centrally through the bank’s $12 millionRegression analysis shows that course duration is an annual executive-education budget.important factor in how satisfied participants are. Theperception that a course is too long has a negative effect.(However, a belief that the program length is appropri- The New Strategic Reality ofate does not by itself improve overall satisfaction.) Leadership Development Globalization, deregulation, e-commerce and rapidAnother key factor in determining satisfaction is technological change are forcing companies to re-whether program participants have similar levels of evaluate the way they operate. Approaches that havefamiliarity with the topic. What may be an exciting worked for years are no longer effective. Developmentconcept for one person could be old news to another. of leaders who think strategically is increasingly aArthur Andersen believes that moving to a problem- source of sustainable competitive advantage. Hencebased course design will help it address different observations of companies known for excellentlevels of participant knowledge. leadership-development practices can be invaluable.Sloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
  • 11. Senior-level support for Johnson & Johnson’s executive Leadership development is now too conferences is evidenced by the fact that either the chairman or a member of the company’s executive specialized to relegate to human-resource committee participates in each session, articulating J&J’s credo and values — and the program’s link to departments. In best-practice companies, business success. top-level managers get involved. Although the best-practice firms differ in their empha- sis on making leadership development strategic, the development program of each includes elements of58 Leadership development has become too specialized the five critical steps: to relegate to human-resource departments. In best- practice companies, top-level managers get involved. • building awareness of external challenges, emerg- Without their support, leadership-development ing strategies, organizational needs and what leading processes would founder. Of course, corporate lead- firms do to meet the needs; ers are more likely to offer support if programs are • employing anticipatory learning tools to recognize producing business results. By monitoring the effec- potential external events, envision the future and tiveness of the leadership-development processes, focus on action the organization can take to create its capitalizing on quick wins and communicating suc- own future; cesses throughout the organization, the best-practice • taking action by tying leadership-development pro- companies sustain a virtuous cycle. grams to solving important, challenging business issues; • aligning leadership development with performance Development groups such as Arthur Andersen’s PDP assessment, feedback, coaching and succession plan- and the one at GE’s Crotonville site emphasize diligent ning; and crafting of programs, careful listening, constant moni- • assessing impact of the leadership-development toring and frequent communication. That helps senior process on individual behavioral changes and organi- executives understand how a leadership-development zational success. process can shape and disseminate an organization’s culture, overcome resistance to change and achieve Most people, even if they have heard of the specific strategic goals. leadership-development practices of Johnson & Johnson or GE, have not grasped how to manage an At GE, the corporate leadership-development group integrated set of variables in order to achieve excel- endeavors to maintain buy-in. It interviews company lence in developing executives. Increasing the budget leaders around the world on a regular basis to gauge for education or changing the name of a training future business needs and the characteristics future department to “corporate university” doesn’t guaran- leaders should have. Additionally, the group at tee improved performance. Our study shows that, Crotonville identifies early adopters of a given devel- despite the diversity of approaches to leadership opment initiative and leverages their support. development in the best-practice companies, all share common goals: anticipating, supporting and aligning Hewlett-Packard has garnered support for its leader- the organization’s strategic initiatives with develop- ship-development process by having both the CEO ment, as well as gaining and sustaining competitive and senior managers participate in its programs. The advantage. And increasingly, those companies choose executives serve as mentors, faculty and supporters in an action-oriented, ongoing learning process closely leadership-development design and programs. linked to the strategic needs of the business. Additional Resources by David Giber, Louis Carter and Marshall References Concepts introduced in this article are developed in Goldsmith, called “Leadership Development I 1. “Industry Report 1998: Training Budgets,” greater detail in Robert M. Fulmer and Marshall Handbook”; Jay A. Conger and Beth Benjamin’s Training, October 1998, 47. See also: Goldsmith’s “The Leadership Investment: How The 1999 book, “Building Leaders,” published by J. Reingold, M. Schneider and K. Capell, “Learning World’s Best Organizations Gain Strategic Jossey-Bass; and a 2000 book from the same To Lead,” Business Week, Oct. 18, 1999: 76. Advantage Through Leadership Development,” pub- publisher, “Coaching for Leadership,” which I 2. John A. Byrne, “PepsiCos New Formula,” lished this year by AMACOM. Other useful Marshall Goldsmith, Laurence Lyons and Alyssa Business Week, Apr. 10, 2000, 172; and resources include a 1999 Linkage, Inc. book edited Freas edited. T.A. Stewart, “How to Leave It All Behind,” Fortune, Fulmer • Gibbs • Goldsmith Sloan Management Review Fall 2000
  • 12. Dec. 6, 1999, 345-348. spective: boss, subordinates, peers and customers. 98; andI 3. G. Hollenback and W. Vestal, eds., Respondents rate themselves. Thomas A. Stewart, “Telling Tales at BP Amoco,”“Developing Leaders At All Levels” (Houston: I 6. For example, see: Fortune, June 7, 1999, 220-223.American Productivity & Quality Center, 1999); and M.A. Hammer, “The Power of Reflection,” Fortune, I 10. “General Electric: The House That JackR.M. Fulmer, J. Camillus and J. McMorrow, eds., Nov. 24, 1997, 291-295. Built,” The Economist, Sept. 18, 1999, 23-27.“Leadership Development: Building Executive I 7. G. Hamel, “Strategy as Revolution,” Harvard I 11. D. Kirkpatrick, “Evaluating Training Programs:Talent” (Houston: American Productivity & Quality Business Review 74 (July-August 1996): 69-81; and The Four Levels” (San Francisco: Berrett Koehler,Center and American Society for Training & G. Hamel, “Leading the Revolution” (Boston: 1994).Development, 1999). Harvard Business School Press, 2000).I 4. A.A. Vicere and R.M. Fulmer, “Leadership by I 8. R.M. Fulmer and S. Perret, “The MerlinDesign” (Boston: Harvard Business School Press, Exercise: Future by Forecast or Future by Reprint 42141998), 218-223. Invention?” Journal of Management DevelopmentI 5. Arthur Andersen uses the term “450-degree 12 (no. 6, 1993): 44-53.feedback” to emphasize that feedback from clients I 9. For example, see: Copyright © 2000 by the Sloan Management 59is included in the process. Technically, 360-degree Stratford Sherman, “How Tomorrow’s Leaders Are Review Association. All rights reserved.feedback is feedback from four quadrants of per- Learning Their Stuff,” Fortune, Nov. 27, 1995, 90-Sloan Management Review Fulmer • Gibbs • GoldsmithFall 2000
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