Succession Planning: Trends &  Opportunities for HR Professionals                    Dr. Jeff Kudisch       Managing Direc...
Session Goals• Review the strategic importance of succession  planning (SP) amidst the war for talent• Highlight opportuni...
“The thing that wakes me up in the middle of the night is not what might happen to the economy or what our competitors mig...
“Your competition cancopy every advantageyou’ve got – except one.That’s why the world’sbest companies arerealizing that no...
Succession Planning:                      A Working Definition• “…a process that identifies important  company players and...
Food for Thought• How concerned are you about the competition for talent?• Is your SP process strengthening and growing yo...
Fast Facts• A recent survey of 425 senior executives in North America, Europe, and  Asia showed that attracting and keepin...
Strategic Importance of                   Succession Planning Provides a source of in-house replacements for key leadersh...
New CEO in 6 HoursApril 2004:• CEO Jim Cantatlupo died of a heart attack; less than 6 hours  later the Board of Directors ...
2011 25 Top Companies for Leaders    1.    IBM (1)                                                 14.    Deere & Company ...
U.S. Companies Committed           to Growing Tomorrow’s Leaders1    1.    IBM (1)                                        ...
Most Organizations Aren’t PreparedGlobal evidence that:• Many processes are broken – pipelines  are “bone dry”• Most firms...
Disenchantment of Rising Stars…• 1 in 3 admits to not putting all his/her  effort into his/her job• 1 in 4 intends to jump...
What do you see as the barriers    to effective succession planning?•   Organizational politics re: who owns the talent   ...
“Vitality” Starts at the Top                                                 100%                             100%   Perce...
“Acceleration Pool” Process1                                                      Phase 2:                                ...
Phase 1: IdentifyingHigh Potential Individuals    • Size of acceleration pool: Usually 1-2% of entire org    • Target job ...
HIPO-ID: A Tool for Measuring Employee Potential         Note: Per the Martin & Schmidt (2010) article, this abbreviated v...
Phase 2: Diagnosing DevelopmentOpportunities                                              On-the-Job                      ...
Rigor in Assessing Talent                            100%                                                                8...
Personality Inventories                                                               Some Recommended– Assess unique blen...
Cognitive Ability Tests•   Some Recommended Business-Related Tests    • Watson-Glaser Critical Thinking Appraisal; Employe...
Assessment Centers• Individuals participate in a series of          Popular Simulations:  situations that simulate the rea...
Sample Organizations Using/Have Used            Assessment Center (AC) Methodology                  Organization          ...
Importance of Using Multiple Tools                “Would Do” vs. “Can Do” Assessments                   Signs             ...
Importance of Diagnosing “Potential”     via Multiple Assessment Tools                                       General Manag...
Creating a Performance vs PotentialGrid (i.e., 9-block): Food for Thought• Provides leaders with a visual depiction of  an...
Phase 3: Prescribing Solutions toDevelopment  •     Job Rotations  •     Special Assignments (i.e., position on a task for...
How are Top U.S. Companies       Developing High Potentials?                       100%            90%             89%What...
Phases 4 & 5:Reviewing Progress & Act Accordingly    •   Review and measure progress regularly         • Executive Resourc...
Accountability for Success or    Failure of Leadership Programs                          100%     Who is held             ...
Accountability for Personal                Development                                                          96%Percent...
Accountability for Others’                 Development                                     100%                           ...
Linking Accountability for            Others’ Development to Pay                          100% What percentage of    avera...
HR Dashboards for Tracking                   Performance11 See   Ready & Conger (2007, June). Make your company a talent f...
Other SP Metrics/Scorecards  Retention rate of pool members/“A” players (voluntary and involuntary turnover)  Percentage o...
Closing Thoughts…• The essential ingredients for building and  sustaining an effective talent factory include:    – Top ma...
“The question of tomorrow’smanagement is, above all, aconcern for our society. Let meput it bluntly - we have reacheda poi...
Questions orComments?Thank You!              Feedback and follow-up is most welcome:             JKudisch@rhsmith.umd.edu;...
Supplemental Slides
Quality of LeadershipDevelopment & Total Shareholder Return1                                             100% Percentage o...
Global Companies Committedto Growing Tomorrow’s Leaders  1.    IBM                                            13.   TNT N....
U.S. Companies Committed         to Growing Tomorrow’s Leaders1    1.    IBM (6)                                          ...
Talent as a Corporate Asset                                      100%                  92%    Percentage of               ...
Identifying HiPo’s at GE:Session C Process1 • Selects a different set of 20-25 leaders every year with C-   level/top func...
Talent Assessment Best Practices                             Team of Industrial Psychologists has developed a series of   ...
So What’s the Best              Assessment Tool?                                                                          ...
Report Card on Assessment Tools         Tool           Admin   Validity   Legal     Feedback        User                  ...
Strengths & Drawbacks of Assessments      •      Assessment Centers/performance data               –     Offer strong insi...
Rigor in Developing the Next           Generation of Leaders                                              100%            ...
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Succession Planning - Jeffrey Kudisch - University Of Maryland Robert H. Smith School Of Business

  1. 1. Succession Planning: Trends & Opportunities for HR Professionals Dr. Jeff Kudisch Managing Director, Office of Career ServicesPresentation to the IMPACT Learning & Development Conference February 6, 2012 - Hunt Valley, MD
  2. 2. Session Goals• Review the strategic importance of succession planning (SP) amidst the war for talent• Highlight opportunities where HR professionals can positively impact SP practices – Emphasize the importance of top management commitment, horizontally-aligned HRM practices, and organization culture as key ingredients of building an effective and robust talent pipeline/acceleration pool – Recognize the importance of engaging HiPo’s and rigorously diagnosing readiness using objective assessment strategies – Explore ways to take your 9-Blocks to the next level – Recognize the importance of metrics and strategies for enhancing “accountability” – Become familiar with some corporate best practices – Identify opportunities to enhance your company’s SP practices
  3. 3. “The thing that wakes me up in the middle of the night is not what might happen to the economy or what our competitors might do next; it is worrying about whether we have the leadership capacity and talent to implement the new and more complex global strategies.” David Whitwam Retired Chairman of the Board &CEO, Whirlpool Corporation See Byham, Smith, & Paese (2002). Grow your own leaders. Upper Saddle River, NJ: Prentice-Hall, p. 3.
  4. 4. “Your competition cancopy every advantageyou’ve got – except one.That’s why the world’sbest companies arerealizing that no matterwhat business they’re in,their real business isbuilding leaders.” Geoff Colvin Fortune Magazine Source: Fortune (2007, October).
  5. 5. Succession Planning: A Working Definition• “…a process that identifies important company players and pinpoints organizational gaps in work experience and skills... information that is critical for determining training needs and identifying future leaders... the sum and substance of Human Resource Planning.”1• An ongoing process … that ensures a continuity of leadership for all critical positions.• A system that ensures the right people with the right skills in the right place at the right time. 1 Cascio, W. F. (1998). Applied psychology in human resource management (5th Edition). Upper Saddle River, NJ: Prentice-Hall, Inc.
  6. 6. Food for Thought• How concerned are you about the competition for talent?• Is your SP process strengthening and growing your leadership pipeline effectively?• Who owns SP in your company? Is your senior executive team leading your talent strategy? To what extent are they dedicated to developing others?• How is your organization accelerating the development of talent to strengthen your pipeline and retain top talent?• How often has your organization had to fill key leadership positions from the outside?• Has your organization had to compromise on leadership quality to fill certain positions?• On average, how many people are “ready” to fill key positions in your company? What is the ratio of employees with potential to reach a certain level to incumbents at that level? (e.g., 1:1? 3:1?)
  7. 7. Fast Facts• A recent survey of 425 senior executives in North America, Europe, and Asia showed that attracting and keeping skilled talent and developing employees into capable leaders were among the top ten business issues cited.1• A 2005 survey of 750 CEOs indicated that 79% believed the ability to develop leaders was the most important or one of the top 5 factors in achieving a competitive advantage.2• A recent Center for Creative Leadership (CCL) survey of 2,200 leaders from companies in the United States, India and Singapore identified that the four future key skills ranked most important for future success by respondents were found to be among the weakest for today’s leaders: leading people, strategic planning, inspiring commitment, and managing change.3• A recent survey of over 1300 HR professionals indicated that 61% anticipated an increased focus on leadership, talent development and succession planning in 2010 or 2011.41 Accenture consulting study as cited in McGee (2005, August 16th). Why promote from the outside when the talent is inside? Information Week – www.informationweek.com.; 2 see Center for Creative Leadership.; 3 see Taylor, S. (2010, February). Bridging the leadership gap. Chief Learning Officer - www.clomedia.com/business-intelligence/2010/February/2857/index.php; 4 see 2011 Talent Survey Report, Aon Hewitt.
  8. 8. Strategic Importance of Succession Planning Provides a source of in-house replacements for key leadership positions. Retains key talent by providing challenging, growth-oriented and rewarding career opportunities. Prepares individuals for future challenges (e.g., growth or implementing new strategy). Aligns executive resources to new organizational directions. Accelerates the development of engaged rising stars and key executives. Ensures a continuity of management culture. Enhances corporate diversity. Increases an organization’s human capital. Makes the organization more attractive to bright, young talent. Controls costs. Increases an organization’s chances of survival and long-term health. Can increase stock value. Adapted from Byham, Smith, & Paese (2002); Conger & Fulmer (2003, December). Developing your leadership pipeline. Harvard Business Review, 76-84.
  9. 9. New CEO in 6 HoursApril 2004:• CEO Jim Cantatlupo died of a heart attack; less than 6 hours later the Board of Directors named Charlie Bell to the jobNovember 2004:• Charlie Bell steps down due to cancer; Board announces that Jim Skinner will be the new CEO  Few are prepared to handle such a situation… could your organization respond so quickly?
  10. 10. 2011 25 Top Companies for Leaders 1. IBM (1) 14. Deere & Company (8) 2. General Mills (3) 15. 3M Company (10) 3. Procter & Gamble (2) 16. Eli Lilly (13) 4. Aditya Birla 17. McKinsey & Company (4) 5. Colgate-Palmolive (7) 18. L’Oréal 6. Hindustan Unilever 19. Unilever 7. ICICI Bank 20. Siemens 8. McDonald’s (5) 21. Intel Corporation (17) 9. Whirlpool Corp. (9) 22. China Vanke 10. PepsiCo International (14) 23. Wipro 11. General Electric (6) 24. Bharti Airtel 12. Grupo BBVA 25. Novartis 13. Natura Cosméticos1 See (2011, November). 25 top companies for leaders. Fortune. Based on research by Aon Hewitt Consulting and partners Fortune and the RBL Group. Numbers in parentheses denote 2009 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2012).
  11. 11. U.S. Companies Committed to Growing Tomorrow’s Leaders1 1. IBM (1) 13. McKinsey & Company (4) 2. General Mills (3) 14. Intel Corporation (17) 3. Procter & Gamble (2) 15. Capital One Financial (23) 4. Colgate-Palmolive (7) 16. Sonoco Products (20) 5. McDonald’s (5) 17. VF Corporation (22) 6. Whirlpool Corp. (9) 18. Raytheon Company (25) 7. PepsiCo (14) 19. Fluor Corporation 8. General Electric (6) 20. United Health Care Group 9. Deere & Company (8) 21. Honeywell International 10. Target Corporation (12) 22. AT&T 11. 3M Company (10) 23. Accenture LLP 12. Eli Lilly & Company (13) 24. American Express (15) 25. Kiewit Corporation1 See (2011, November). 25 top companies for leaders. Fortune. Based on research by Aon Hewitt Consulting and partners Fortune and the RBL Group. Numbers in parentheses denote 2009 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2012).
  12. 12. Most Organizations Aren’t PreparedGlobal evidence that:• Many processes are broken – pipelines are “bone dry”• Most firms are not happy with their systems – Too many compromises, poor decisions, being reactive vs. acting strategically (e.g., replacement planning vs. pools) – Gaps between competencies needed for success in a rapidly changing, complex global market and current leadership capacity• Alarming numbers of “high potentials” report feeling disengaged from their companies a a see Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61.
  13. 13. Disenchantment of Rising Stars…• 1 in 3 admits to not putting all his/her effort into his/her job• 1 in 4 intends to jump ship for another employer within a year• 1 in 5 believes his/her personal aspirations are quite different from what the organization has planned for him/her• 4 out of 10 have little confidence in their coworkers and even less in their senior team. See Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61. Findings based on data from over 20,000 employees recognized as “emerging stars” in more than 100 organizations worldwide over the past 6 years. Also see Grossman (2011, August). The care and feeding of high-potential employees. HR Magazine, pp. 34-39.
  14. 14. What do you see as the barriers to effective succession planning?• Organizational politics re: who owns the talent – Not looking beyond own department needs; fear of losing employees to other areas• Lack of candor/confidentiality among managers• Conflict over long- vs. short-term objectives/static focus• $$$• Difficulties in selecting the right people to develop; questionable data; risk averse• Insufficient attention to and integration with leadership development – Limited time available for career planning and development• Managers/supervisors lacks skills in developing other people• Lack of integration with other HRM practices – Limited information flow and utilization (i.e., skills banks) – Managers not accountable/rewarded for identifying & developing successors• Process so confidential that all key players are not in the loop/lack of transparency• Negative impact on employee motivation and attitudes• Lack of top management commitment – Fear of identifying one’s potential replacement
  15. 15. “Vitality” Starts at the Top 100% 100% Percentage of 80% companies where 65% 65%the CEO and Board 60% of Directors areactively involved in 40% 31% developing leadership talent 20% 0% CEO Board Top 20 Companies Involvement Involvement All Other Companies See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report. Also see Ready & Conger (2007, June). Make your company a talent factory. Harvard Business Review, pp. 68-77.
  16. 16. “Acceleration Pool” Process1 Phase 2: Diagnosing Development Opportunities Phase 3: Phase 1: Prescribe Solutions to Identifying Development High Potentials Opportunities Phase 5: Phase 4: Review Progress & Ensure that Development Provide New Takes Place/Document Assignment Development1 Byham, Smith, & Paese (2002). Grow your own leaders. Upper Saddle River, NJ: Prentice-Hall, p. 3.
  17. 17. Phase 1: IdentifyingHigh Potential Individuals • Size of acceleration pool: Usually 1-2% of entire org • Target job levels, not specific positions • e.g., 2 pools: Early Acceleration Pool & Strategic Acceleration Pool • Caveat: Also be important to consider “linchpin/ ‘A’ positions”; “Key Positions” • Criteria for nomination: Uniform set of criteria (e.g., PA ratings, training, international experience, mobility, developmental orientation, motivation to be a strategic leader/GM, track record, support of company values) • Consider tools for assessing “Employee Potential” (CLC’s HIPO-ID)* • Nominators: Senior executives & major business heads; HR • Executive Resource Board: includes CEO and/or COO • Seek out hidden talent & recognize “talent hunters” • Invitations: Make the process transparent (CCL research; 40%) • Length of time in pool: 1-15 years (dependent on needs)* See Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61.
  18. 18. HIPO-ID: A Tool for Measuring Employee Potential Note: Per the Martin & Schmidt (2010) article, this abbreviated version can be found at www.executiveboard.com/humancapital/CLC-highpotential.html
  19. 19. Phase 2: Diagnosing DevelopmentOpportunities On-the-Job Past examples of Performance Job-Relevant BehaviorSources of assessment Leadership Potential information Underlying Personal Behavior in Future Characteristics Job Situations 360 / Multi-rater Behaviorally-Based Surveys Interviews Assessment tools Leadership Potential Personality, Interest & Ability Assessments Simulations Byham, Smith, & Paese (2002). Grow Your Own Leaders. Upper Saddle River, NJ: Prentice Hall
  20. 20. Rigor in Assessing Talent 100% 88% 84% Percent of 80% Succession 64%Planning Efforts 60% 56% that Include… 40% 20% 0% Unique identification of a 360-degree Global Top 25 Companies leader’s current feedback All Other Companies performance vs. his/her future potential See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report. For more regarding the importance of assessment tools see Grossman (2011, August). The care and feeding of high- potential employees. HR Magazine, pp. 34-39. The author notes that a survey of 120 HR professionals who manage high-potential programs indicated that 48% of managers are ineffective at identifying Hi-Pos due to inconsistent selection/assessment approaches or a lack of rigor.
  21. 21. Personality Inventories Some Recommended– Assess unique blend of personal Personality Inventories characteristics that define for Selection: individuals’ pattern of interactions with the environment.  NEO-PI-R™  Hogan Personality Inventory (HPI)– Big Five personality dimensions  Hogan Development Survey (HDS) • Openness to experience  California Psychological Inventory (CPI) • Conscientiousness  DiSC • Extraversion  16 PF • Agreeableness  Occupational Personality Questionnaire • Neuroticism (Emotional Stability) Recommended primarily for– Buyer beware! Development & Team Bldg: Myers-Briggs Type Indicator (MBTI) Strength Deployment Inventory (SDI) Also see Clifford, S. (2006, August). The new science of hiring. Inc. Magazine.
  22. 22. Cognitive Ability Tests• Some Recommended Business-Related Tests • Watson-Glaser Critical Thinking Appraisal; Employee Aptitude Survey (EAS); Wonderlic Personnel Test (used by the NFL)• Logic Puzzles • Question whose aim is to test the deductive reasoning skills of the Beware of person answering it. Adverse • Some questions do not have specific right answers, instead the focus Impact is understanding the logic people use to solve problems. • Ex. How long would it take to move Mt. Fuji?16 • Other questions have correct answers; here the focus is on process and outcome (c.f., Google recruiting strategy). • Ex. How many times a day do a clock’s hands overlap?1 1 Poundstone, W. (2003). How Would You Move Mount Fuji?. Boston, New York, London: Little, Brown and Co.
  23. 23. Assessment Centers• Individuals participate in a series of Popular Simulations: situations that simulate the real world • Written:• Behaviorally-oriented process used for a • In-basket exercise variety of organizational/human resources • Case analysis purposes • Interpersonal: • Oral Presentation• Candidates evaluated on multiple • Group Discussion exercise competencies across multiple techniques • Interview Simulation• Use of multiple assessors (raters) and integration session to reduce rater bias and thus increase rating accuracy• Effective tools for predicting future overall job performance, management potential, performance in training, and career advancement; valid across cultures.• Entry-level to executive applications; used increasingly around the world. Stress Interview (OSS, WWII)
  24. 24. Sample Organizations Using/Have Used Assessment Center (AC) Methodology Organization Purpose(s) of AC Capital One Financial Corp. Exec Development/Succession Planning a Nissan Exec Development/Succession Planning Lockheed Martin Exec Development/Succession Planning Home Depot Selection/Succession Planning/Develop British Petroleum (BP) Succession Planning/Development McCormick & Company Executive Development c Microsoft Executive Selection/MBA Hires b Pfizer Selection (Nationwide sales force) Johnson & Johnson Selection/Promotion United Nations Selection (Country Directors) Black & Decker Development (Financial Associates) ca Denotes Capital One runs Executive Development Centers (top-tier) and Leadership Development Centers (next tier) – see Delahoussaye, M. (2002, March). When tomorrow comes. Training; b denotes Microsoft is using ACs as part of their selection process for Country Managers (GMs); b denotes these companies have used ACs in the past, but did not sustain use.
  25. 25. Importance of Using Multiple Tools “Would Do” vs. “Can Do” Assessments Signs Samples (Indicators of Behavior) (Actual Behaviors) • What a personality inventory described: • What we observed in the Assessment Center: EXECUTIVE displayed rather weak interpersonal EXECUTIVE is insightful concerning sensitivity…On the positive side, he occasionally how others feel and think. He is quick complimented others…On a less positive note… he to respond to social nuances, and is frequently interrupted others; at times he disagreed with likely viewed by others as reasonably others’ ideas and redirected the conversation without regard perceptive and observant. He is for their opinions…he usually disagreed in an abrupt, brash pleasant to be with and usually easy manner… using a harsh, rather arrogant tone…Taken to have around. together the data suggest that while he can be personable, his assertive, competitive, task-oriented demeanor may prevent such behavior from consistently showing (e.g., he may come across as impatient toward others)…The data further suggest that EXECUTIVE may lack “emotional intelligence” (e.g., he demonstrated limited empathy toward others’ feelings/needs and appeared to lack self-monitoring skills when interacting with others).*Note: 360-feedback measures current performance as assessed by novice raters. In contrast, Assessment centers assess leadership potential for higher organization levels using expert raters.
  26. 26. Importance of Diagnosing “Potential” via Multiple Assessment Tools General Manager Function HeadOverall Probability of Success 23% 23% in General Manager & Function Head Positions 46% 62% Note: N=25; Does not take intoconsideration technical skills, only 27% 12% leadership competencies = Very Good to High (READY NOW) Key = Slightly Below Average to Above Average = Low to Below Average (NOT READY)
  27. 27. Creating a Performance vs PotentialGrid (i.e., 9-block): Food for Thought• Provides leaders with a visual depiction of an organization’s bench strength – a “snapshot of talent” 7 8 9 Professional – Springboard for individual development Subject Expert Agile High Star Performer discussions 4 5 6• Potential Pitfalls Solid Performer Core Employee Rising Star Performance – Misunderstanding high-potentials: All top talent 1 2 3 vs. potential to become leaders Termination Inconsistent Potential Gem Risk Performer – Being too subjective when classifying talent Potential/Promotability – Reflecting quotas vs. reality – Failing to differentiate between employees when it comes to development opportunities; where to show “the love” See Tyler, K. (2011, August). On the grid. HR Magazine, pp. 67-69.
  28. 28. Phase 3: Prescribing Solutions toDevelopment • Job Rotations • Special Assignments (i.e., position on a task force; event organizer) • Action-learning projects (i.e., talent showcases) • Training/Education (i.e., Six Sigma black belts) • Mentoring • Professional executive coaching Keys to Success: 1. Leverage a broad variety of experiences/techniques 2. Pair classroom training with real-life exposure to a variety of jobs and increased access to senior leadership! 3. Remember ASSESSMENT, CHALLENGE & SUPPORT1 1 Van Velsor, McCauley, & Moxley (1998). Our view of leadership development. In McCauley et al., Handbook of Leadership Development. San Francisco: Jossey-Bass. Also see Lombardo, M. M., & Eichinger, R. W. (1989). Eighty-eight assignments for development in place. Greensboro, NC: Center for Creative Leadership.
  29. 29. How are Top U.S. Companies Developing High Potentials? 100% 90% 89%What practices are 80%regularly used to 58% 58% develop high 60% 51%potential leaders? 43% 37% 40% 24% 22% 20% 18% 0% Internal Developmental Mentoring Coaching – Rotational Leadership Assignments Program Internal Assignments Top 20 Companies Training Provider All Other Companies See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.
  30. 30. Phases 4 & 5:Reviewing Progress & Act Accordingly • Review and measure progress regularly • Executive Resource Board; at least every six months • Frequent checks reveal potential problems (e.g., restlessness) • Remember - don’t assume that High Potentials are engaged • Identify appropriate opportunities • New assignments or maintain current one • Special training events • 1-on-1 Executive coaching • Monitor and maintain accountability • Colgate-Palmolive: all senior managers have to retain 90% of their h igh potentials or bonuses reduced. Also, CEO, COO & President are al erted within 24 hours of a HiPo’s resignation • P&G: all managers & executives are evaluated & compensated on their contributions to building organizational competence as part of their job performance
  31. 31. Accountability for Success or Failure of Leadership Programs 100% Who is held 85% 80%accountable, through 80% 75% performance 60% 51%management, for the success or failure of 39% 40% 35%leadership programs? 20% 0% Human Leadership/ Senior Top 20 Companies Resources Organizational Management All Other Companies Development See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.
  32. 32. Accountability for Personal Development 96%Percentage of companies 100% that both measure on 80%leadership competencies and monitor progress 60% 58% against those competencies (i.e., link 40% compensation to aleader’s performance and 20% potential to advance) 0% Top 25 North America Companies All Other Companies See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.
  33. 33. Accountability for Others’ Development 100% 84%Percentage of companies that hold leaders 80% accountable, through 60% compensation, for developing their direct 40% 31% reports 20% 0% Top 25 North America Companies All Other Companies See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.
  34. 34. Linking Accountability for Others’ Development to Pay 100% What percentage of average annual 80% incentive is tied to 60%leaders’ development 49% of others? 40% 35% 24% 24% 24% 20% 18% 19% 8% 0% 0 – 5% 6 – 10% 11 – 20% Over 20% Top 20 Companies All Other Companies See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.
  35. 35. HR Dashboards for Tracking Performance11 See Ready & Conger (2007, June). Make your company a talent factory. Harvard Business Review, pp. 68-77.
  36. 36. Other SP Metrics/Scorecards Retention rate of pool members/“A” players (voluntary and involuntary turnover) Percentage of nominated people selected for the pool Overall quantity of in the pool (against the goal) Advancement of pool members (number moved upward each year) Number of plans where there are 2 or more “ready now” candidates Number of “ready now” candidates for company’s top 500 positions Ratio of employees with potential to reach a certain level to incumbents at that level  Consider goal ratios for each level of management (e.g., 3:1 for director level) Number of “diverse” candidates who are identified as ready/“high potential” Percentage of times (against the goal) that senior positions are filled by non-pool members from within the organization Percentage of times (against the goal) that senior positions are filled by non-pool members from outside the organization Average length of time to fill an open “A” position with an “A” player % improvement in satisfaction or engagement ratings by employees who respond to attitude surveys Bench strength-related ratings from 360-degree feedback system (changes over time) % training for “A” players; % of employee development plans completed Long-term performance of those selected from the pool (relative to others)Adapted from Byham, Smith, & Paese (2002); Conger & Fulmer (2003, December). Developing your leadership pipeline. Harvard Business Review, 76-84; Huselid, Becker, & Beatty (2005). The Workforce Scorecard. Boston, MA: Harvard Business School Press.
  37. 37. Closing Thoughts…• The essential ingredients for building and sustaining an effective talent factory include: – Top management commitment and support • Leaders model the behavior they expect of others – Integrated and innovative HRM practices • Aligned with firm strategy • Sound methodologies based on science/research • Clear focus on accountability (e.g., links to PA and pay) – An organizational culture that: • Values and institutionalizes the mindset of growing its own leaders; has an unrelenting focus on talent • Values meritocracy - encourages candor and the willingness to differentiate and unleash high- potential talent
  38. 38. “The question of tomorrow’smanagement is, above all, aconcern for our society. Let meput it bluntly - we have reacheda point where we simply willnot be able to tolerate as acountry, as a society, as agovernment, the danger thatany one of our major companieswill decline or collapse becauseit has not made adequateprovisions for managementsuccession.” Peter Drucker
  39. 39. Questions orComments?Thank You! Feedback and follow-up is most welcome: JKudisch@rhsmith.umd.edu; 301.405.9540.
  40. 40. Supplemental Slides
  41. 41. Quality of LeadershipDevelopment & Total Shareholder Return1 100% Percentage of companies 80% 61% that believe their 60% organizations are more effective in developing 40% 31% leaders 20% Note: TSR was based on 0% industry-adjusted, five- Top-Quartile Performers year averages of TSR Bottom-Quartile Performers 1 See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.
  42. 42. Global Companies Committedto Growing Tomorrow’s Leaders 1. IBM 13. TNT N.V. 2. Procter & Gamble 14. Deere & Company 3. General Mills 15. Whirlpool Corporation 4. McKinsey & Company 16. 3M Company 5. ICIC Bank Ltd. 17. Cargill Incorporated 6. McDonald’s 18. Olam International 7. General Electric 19. Eli Lilly and Company 8. Titan Cement Co. S.A. 20. PepsiCo 9. China Mobile Communications 21. American Express Corporation – Shanghai Ltd. 22. Lockheed Martin 10. Hindustan Unilever 23. Intel Corporation 11. Natura Cosméticos S.A 24. Infosys Technology 12. Colgate Palmolive 25. FedEx See Fortune Magazine (2009, November). Based on research by Hewitt & Associates and partners Fortune and the RBL Group.
  43. 43. U.S. Companies Committed to Growing Tomorrow’s Leaders1 1. IBM (6) 13. Eli Lilly (9) 2. Procter & Gamble (4) 14. PepsiCo 3. General Mills (4) 15. American Express (19) 4. McKinsey & Company (6) 16. Lockheed Martin (13) 5. McDonald’s (11) 17. Intel Corp. 6. General Electric (1) 18. DaVita 7. Colgate-Palmolive (16) 19. FedEx 8. Deere & Company 20. Sonoco Products (20) 9. Whirlpool Corp. (12) 21. Cummins (14) 10. 3M Company (18) 22. VF 11. Cargill 23. Capital One Financial (2) 12. Target 24. Hewlett-Packard 25. Raytheon1 See Kowitt & Thai (2009, November). 25 top companies for leaders. Fortune. Based on research by Hewitt & Associates and partners Fortune and the RBL Group. Numbers in parentheses denote 2007 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2010).
  44. 44. Talent as a Corporate Asset 100% 92% Percentage of 80% companies that 60%leverage and develop 60%talent as a Corporate 40% Asset 20% 0% North American Top 25 Companies All Other North American Companies See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.
  45. 45. Identifying HiPo’s at GE:Session C Process1 • Selects a different set of 20-25 leaders every year with C- level/top function head potential • Tandem assessment: HiPo spends 3-4 hours with 2 HR heads from other outside his/her business unit • HR traces progress and conducts exhaustive “fact-finding mission”; focus = observed, measurable performance • A 15-20 page document detailing work and development over the long period 1 See Charan (2005, February) and GE’s talent machine: The making of a CEO (HBR 9-304-049)
  46. 46. Talent Assessment Best Practices Team of Industrial Psychologists has developed a series of cognitive (IQ) and noncognitive (EQ) tests, as well as business case scenarios and structured behavioral interviewsa • Stage 1 hiring: Web-based test (“managerial situation analysis”) based on biographical and noncognitive factors • Stage 2: “Power day” at Cap One facility where a team of business leaders (not HR staff) conducts structured interviews and 1-2 business cases analyses Recognized that strong academic qualifications were not necessarily the best predictors of job success; now uses an online battery of tools that assesses attitudes, behavior, personality, and biodataa Leverages a variety of assessment tools: • Job Preference Program – online test battery includes situational judgment, cognitive ability, personality, and biodata measures • Store Leadership program uses structured interviews (fit & leadership), critical thinking tests, and leaderless group discussion (case analysis & presentation) a As cited in Hewitt Associates (2007). Best-in-Class Talent Sourcing and Acquisition.
  47. 47. So What’s the Best Assessment Tool? Performance Job• There is no “one best” technique! Test• Depends on the competencies of interest Scores• Depends on how you define “success”: – Administration: consistency of implementation & scoring, total cost and/or cost per individual – Validity: e.g., correlation between test score and job performance – Legality: potential for discrimination (disparate treatment and/or impact) – Feedback: extent to which results provide meaningful data that can be used to facilitate individuals’ career development – User Reactions: extent that individuals find the tool to be fair and/or job relevant
  48. 48. Report Card on Assessment Tools Tool Admin Validity Legal Feedback User Reactions Traditional C C C F B Interviews Structured, B A A C B+ Behavioral Interviews Cognitive Ability A A B D B- Personality A B A B B/D (Integrity, Big 5) Multisource/ B+ B- ??? A- to B A 360-Degree (can of (depends on Feedback worms?) purpose) Assessment C A- A A A- Centers
  49. 49. Strengths & Drawbacks of Assessments • Assessment Centers/performance data – Offer strong insight into client behavior, though “snapshot” of capabilities – Solid predictor of job performance, leadership potential & career advancement, r = .28 to .451 – If exercises are representative of job demands, performance cannot be “faked” – Costly development tool relative to other assessments • Cognitive Ability tests – Excellent predictors of job performance as rated by supervisors, r = .512 – Provides insight into problem solving, decision making & reasoning skills (limited in scope) – Caveats: cognitive ability tests show evidence of adverse impact on protected groups; users often show mixed reactions & resist negative feedback • Personality and Interest/Values inventories – Self-report nature influences accuracy (e.g., “faking”) & personality is only moderately related to performance, depending on job type (e.g., sales, managers, semi-skilled workers; r = .06 to .24)3 – Provide insight into typical behavior, motivation & likely challenges re: needed competencies • 360/Multi-Source Feedback – Look for patterns of under & over-estimation in self & others’ ratings to assess self-awareness – Look for convergence across raters in identifying strengths & development needs – Mixed evidence regarding how well results predict job performance as rated by managers (r = .08 for self- ratings, .23 for subordinate ratings & .31 for peer ratings)41Meriac et al., (2008). Further evidence for the validity of assessment center dimensions: A meta-analysis of the incremental criterion-related validity dimensions. Journal of Applied Psychology, 93, 1042-1052; also see Hermelin et al., 2007. The validity of assessment centers for the prediction of supervisory performance ratings: A meta-analysis. International Journal of Selection and Assessment, 15, 405-411.2Schmidt & Hunter (1998). The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 85 years of research findings. Psychological Bulletin, 124, 262-274.3Hurtz & Donovan, (2000). Personality and job performance: The Big Five revisited. Journal of Applied Psychology, 85, 869-879.4Atwater et al., (2005). Self-other agreement: Comparing its relationship with performance in the U.S. and Europe. International Journal of Selection and Assessment, 13, 25-40.
  50. 50. Rigor in Developing the Next Generation of Leaders 100% 88%Percentage of companies where high potential 80% 64%talent is likely to receive 60% developmentalassignments matched to 40% specific development needs 20% 0% Global Top 25 Companies All Other Companies See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.

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