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Can You Measure
Leadership?
FALL 2008 VOL.50 NO.1
REPRINT NUMBER 50116
Robert Gandossy and Robin Guarnieri
Please note that gray areas reflect artwork that has been
intentionally removed.The substantive content of the ar-
ticle appears as originally published.
FALL 2008 MIT SLOAN MANAGEMENT REVIEW 65
C
ompanies today live under the relentless glare of metrics. Quarterly
earnings releases, sales projections, quality and compliance audits,
even employee surveys are used to gauge the enterprise’s health.
Nevertheless, few such measures directly answer a key question that is
frequently on the minds of the senior team: Do we have enough leaders, and
the right leaders, to run our business both today and in the future?
Many CEOs cite the lack of qualified leadership talent as the most significant
constraint on growth. This is happening as the pool of potential leaders shrinks
before our eyes; the number of 35- to 44-year-olds in the work force, the
so-called “key leader age,” will drop by 15% over the next decade, according to
the U.S. Bureau of Labor Statistics. Thus the pressure on company decision
makers to rethink their leadership development strategies is greater than ever.
Human resources executives and corporate leaders across the globe find that
it’s simply not enough to put a leadership-training program in place or hold an
annual talent review. Instead, companies must be rigorous and focused in their
assessment of leadership talent, aided by tools tailored to help achieve that end.
They must hold leaders accountable for cultivating others, diagnosing gaps in
execution and capability, and redirecting resources as business needs change. HR
and business leaders also need insights into where they have succeeded in building
leadership and critical talent pipelines and where there are potential risks. In
short, companies need to bring a “measurement mind-set” to the often inexact
process of developing the next generation of leaders.
Because such a process, though vital, is not easy, companies often overrate their
ability to measure the right things for the right reasons.For example,many generate
piles of reports on senior management attrition instead of considering the actual
flightrisksof theircriticaltalent;ortheymeasureeasy-to-trackmetrics,suchastime
tofilljobsornumberof traininghours,withoutregardtothequalityof thoseplaced
into jobs or whether a development workshop produced any meaningful change.
Others, at the opposite extreme, get bogged down in a search for the holy grail of
leadership metrics — fruitlessly searching for some “perfect answer” and conse-
quently making little progress.Finally,it’s possible to lose sight of the ways in which
the company’s different stakeholders — HR professionals, business leaders, people
managers and key talent — need to access, interpret and act on leadership data.
Can You Measure
Leadership?
Robert Gandossy is a principal and leads the leadership consulting practice at Hewitt
Associates Inc., a human resources consulting and outsourcing company based in
Lincolnshire, Illinois. Robin Guarnieri is a research consultant at Hewitt Associates.
Both authors are based at the company’s office in Norwalk, Connecticut. Comment on
this article or contact the authors through smrfeedback@mit.edu.
At top companies,
where the inspired
use of metrics helps
to identify potential
leaders and develop
their skills, the
answer is yes.
Robert Gandossy
and Robin Guarnieri
L E A D E R S H I P
SLOANREVIEW.MIT.EDU
66 MIT SLOAN MANAGEMENT REVIEW FALL 2008 SLOANREVIEW.MIT.EDU
Even at companies that already have comprehensive leader-
ship strategies, expanding the use of data and fine-tuning metrics
should be a high priority. Considering that the very essence of a
measurement mind-set is to constantly question, challenge and
use data to guide processes and drive decision making, one
should expect nothing less of a company committed to identify-
ing and growing effective leaders. Around the world, we have
found that when metrics are “baked into” the leadership strategy,
the resulting benefits include a more rigorous talent search and
development process, a higher quality of thought brought to the
table by participants, and, ultimately, the strengthening of the
company’s leadership team.
Top Companies for Leaders — Focusing on Today and
the Future
In 2007, Hewitt Associates partnered with The RBL Group and
Fortune to conduct a global study called Top Companies for
Leaders, which identified companies with an exceptional
commitment to and passion for developing leadership talent.1
In these top companies, we observed:
■ Leaders leading the way. Leadership development is at the top
of the CEO’s and senior team’s agenda; it is an area in which they
invest substantial amounts of time and energy.
■ Afocusontalent. The top companies do more to identify,develop
and reward top talent; differentiation of top talent is a given.
■ Practical and aligned programs and practices. Leadership
development, performance management, succession planning
and recruiting all work together to help people in the business
achieve their goals.
■Leadership as a discipline that reaches a critical “tipping
point.” When a company has a true commitment to leader-
ship, it becomes integrated with business planning and woven
into the culture of the organization.
In short, the top companies make leadership a way of life.
They make deliberate efforts to reinforce leadership expectations
through top-down communications, promotion decisions and
variable pay. In big and small ways, top companies let it be known
what they expect of their leaders and are relentless in creating an
environment that fosters the development of leadership talent.
Hewitt first began its top-companies studies in 2001. Since then,
we’ve observed more companies investing in leadership programs
and a growing awareness of the need to ground leadership develop-
ment in the fundamental processes of the business. But for many,
the right metrics still remain elusive. All too many companies are
flying blind, with little or no insight about what really matters —
and what doesn’t — in identifying and developing leaders.Although
companies frequently have access to volumes of data on top talent,
employment trends, company climate, business results and
individual performance, most don’t use it. Top companies do.
The Importance of a Holistic Framework
Remember shopping for your first house and walking through it
with the building inspector? You received a detailed analysis of
the quality of the roof, the age of the pipes and the potential for
water damage in the basement. All of this information was im-
portant, but not enough to tell you if you should buy the house.
When the HR department is in charge of leadership metrics, it
sometimes approaches the task as a building inspector would; its
“house report,” though usually accurate, reflects a limited view.
Thus, while we often see companies doing a decent job of measur-
ing training-session attendance, participating in performance
cycles, distributing variable pay and tracking promotion rates,
most stop short of creating a holistic set of metrics that speak to all
four groups of stakeholders in the company’s leadership develop-
ment process — people managers, key talent, business leaders and
HR professionals. (See “The Holistic View.”)
Below, we describe how some of the top companies are creating a
measurement mind-set for each of these four key stakeholder groups.
People Managers A measurement mind-set is essential to making
people management decisions that are fair and meaningful. Because
metrics create a level playing field, they help managers answer ques-
tions such as “Who are my top performers?” and “Are we making
smart decisions about developing them to meet current and future
business needs?” To avoid the Lake Wobegon effect (whereby every-
oneissaidtobeaboveaverage),2 manyorganizationsuseanine-block
L E A D E R S H I P
At top companies, a measurement mind-set guides the
leadership actions of four key groups — people managers,
key talent, business leaders and HR professionals.
The Holistic View
What is the leadership
capability of my team?
Key Talent
People
Managers
HR
Professionals
Business
Leaders
How am I
performing
as a leader?
Do we have the leaders
we need to achieve our
short- and long-term
business goals?
How does our
talent search
and development
process add value
to the business?
FALL 2008 MIT SLOAN MANAGEMENT REVIEW 67SLOANREVIEW.MIT.EDU
assessment framework (see “Sample Nine-Block Framework”), in
which a manager rates his or her team on both performance and
potential.3 Each person is categorized as low, medium or high; a
general guideline is that no more than 10% to 20% of the people on
the team can be rated as high on both dimensions.
Cummins Inc., the Indiana manufacturer of engines and power
generation systems,brings additional rigor to its nine-block people
assessment framework by breaking it down into component parts
and focusing on leader behavior. For example, a people manager
might assess the performance and potential of his or her team on
a number of specific attributes, such as development/coaching, six
sigma capability, success in managing global teams and intensity of
self-development. When sitting down with a direct report, the
people manager will link the assessment back to the business’s
goals. Jill E. Cook, vice president of HR at Cummins, says, “This
isn’t a check-the-box exercise.It serves as a discussion guide to help
us understand who the high potentials are.”
Besides differentiating their high potentials, people managers
should also be able to discern these individuals’ unique needs.
Some top companies use focused surveys to take the pulse of key
staff in order to proactively address their specific development
requirements.Although such feedback should always be included
in planning efforts, most companies are unaware of and discon-
nected from the actual viewpoints, experiences and expectations
of their leaders and high potentials.
One HR vice president told us his greatest concern is that
people managers will fall back on their “stories and histories with
people” instead of pushing the organization to make bold deci-
sions about developing talent. Bringing a strong measurement
mind-set to the leader development process is a powerful anti-
dote to the bias of prior experience.
Key Talent Top companies tend to make key leadership talent
accountable both for their own development and for strengthening
the company’s leadership culture. Toward that end, Caterpillar Inc.,
the Illinois manufacturer of heavy equipment and engines,measures
senior leaders on their performance in the following areas:
■ Culture of execution. How well they deliver results through
others and establish a “can-do” attitude that inspires their teams
to meet goals despite challenges.
■ Core values. How they go about achieving results, and whether
they exemplify integrity, excellence, teamwork and commitment.
■ Employee engagement. Feedback from the leaders’ teams on
their competency, style and commitment to the company and the
team. If work climate issues surface, leaders are expected to
address them with action plans, log their progress throughout the
year and utilize best practices for building commitment.
Sonoco Products Co., a South Carolina packaging manufac-
turer, also uses a scorecard to reinforce leadership expectations.
General managers are rated on a scale from 1 to 5 on such factors
as their personal leadership attributes, the size and quality of their
successor pools, and their ability to build an organization to sup-
port the company’s business strategy. The ratings are made public,
which sends a strong message to the entire staff about the impor-
tance of leadership and the accountability of the general managers.
As HR Senior Vice President Cynthia Hartley points out, “Few
GMs who get poor ratings year after year are here for very long.”
Because talent management is not a discrete event but rather
something that happens every day, some organizations are find-
ing ways to give managers regular feedback on their effectiveness
as leaders. McKinsey & Co. performs a “team barometer” survey
every two weeks to gather input from project teams. While this
survey addresses a range of issues, one important aspect is its
ongoing assessment of project directors’ leadership capability.
Clearly, another way to hold key talent accountable for developing
others and demonstrating leadership behavior is to link effectiveness
in these areas to pay. In fact, half of the top companies do so,
compared with about one-third of other companies. For example, at
American Express Co., 25% of the incentive pool is based on the
EmployeeScorecard.“Ourgoalistokeepthescorecardsimpleenough
so that leaders can see how they impact the overall employee mea-
sure,” says Tom Leitko, vice president for organizational capabilities
and performance.“It is quite motivational,”he adds.“Our people, in-
cluding senior management, pay a lot of attention to the scorecard.”
Business Leaders Business leaders must be able to look across their
organizations, evaluate the strength of the leadership cadre as a
whole, and quickly home in on any gaps. At Capital One Financial
Managers in many of the top companies use this assessment
tool to help distinguish between top, highly valued and
bottom performances/potentials of their team members.
Sample Nine-Block Framework
Top
20%
Bottom
10%
HighLimited
Ability to Promote
Highly
Valued
70%
Medium
Overall Rating
Performance, Values,
Extraordinary Skills
10%–20%
60%–80%
10%–20%
68 MIT SLOAN MANAGEMENT REVIEW FALL 2008 SLOANREVIEW.MIT.EDU
L E A D E R S H I P
Corp., the talent assessment process is thorough and data-driven.
As part of the process, senior leaders work with HR to conduct a
rigorous assessment of the top talent at the company twice a year;
the assessment includes a review of quantitative measures such as
time in role and performance ratings,as well as qualitative measures
such as potential and promotability ratings. Talent data is rolled up
to the C-suite level for discussion and comparison — part of what
Capital One refers to as the“cross calibration”process. The result of
these calibration sessions and talent discussions is a comprehensive
review of talent and development potential — focused on future
movement for senior talent. The company also maintains a bench-
strength and promotion-potential scorecard for each business unit
that captures the number of people who are“ready now”and“ready
one year from now” for a new role or assignment.
General Mills Inc. tracks the number of ready-now candidates
for each position at or above the vice president level. With an ulti-
mate goal of 10 candidates for each executive job, the company’s
target is more ambitious than most, but it serves to keep leadership
on the CEO’s radar screen by pushing business leaders to think
broadly about succession candidates. General Mills also measures
movement in the talent pool, reporting the percentage who have
been promoted, the percentage who have participated in signifi-
cant development activities and their retention rates. Within this
measurement framework, the company has the flexibility to focus
on skills that are of particular interest — for example, it can iden-
tify leaders with a global mind-set by tracking global assignments.
Over the past several years, the ability to bring complex
modeling tools into work force planning has enhanced the ability
to integrate business forecasting with leadership development.
One area where we see this concept taking hold is in planning
for rapid growth in emerging markets. For example, one high-
tech manufacturer estimates that its demand for leaders in Asia
is 10 times greater than its current talent pool there. As a result,
the company’s HR department is working with its business lead-
ers to find ways to accelerate development of the local work force
and expand the number of global managers in Asia.
Another area where predictive modeling is affecting leader
development strategies is the analysis of work force demographics.
In a recent study, 43% of companies reported that they expected
changing work force demographics to have significant impacts on
their businesses over the next three to five years.4 The first step that
business leaders are taking to help plan for demographic shifts is
to become aware of the trends facing their own organization at
present. Once that baseline is in place, it can be used to forecast
company needs over multiple time frames (say, 5-, 10- and 15-year
intervals) in accordance with a variety of plausible scenarios.
HR Professionals While HR professionals have hundreds of
metrics at their disposal for evaluating leadership development
programs, the simple measures — such as the frequency of talent
review meetings, implementation of planned moves or perfor-
mance evaluations of leaders who are promoted — are the best
indicators that managers are having performance discussions and
then using them to drive actions. The challenge, however, is
choosing the small subset of measures that provide the best
window into what works and what doesn’t; this depends in large
part on company priorities. (See “Building a Measurement
Framework: Myths and Realities.”)
For example, McDonald’s Corp., the food industry leader with
more than 1.6 million employees worldwide, is particularly con-
cernedwithretentionof leadershiptalent—aboveall, itshomegrown
managers, who tend to be the company’s most effective leaders. As
a result, the HR team has developed a set of measures to track stock
options, long-term incentives and other retention vehicles.
At many businesses, such as American Express, a core compo-
nent of leadership metrics is training program evaluation. “We’re
interested in the things that leaders do differently as a result of
participating in the program,” says Julie Staudenmier, vice presi-
dent for talent acquisition and development. In that spirit, three
months after training she and her team reach out to the training
participants — as well as to their direct reports — to ask them
about any subsequent changes in behaviors and to assess the
impacts on the business, such as customer satisfaction, employee
productivity and cost savings. Another important impact is
employee satisfaction: The company has found that when a leader
makes a “significant change” in his or her behavior after the learn-
ing experience, 98% of direct reports say they are “more engaged,”
and 91% say that they plan to remain at American Express.
From Staudenmier’s perspective, there are two reasons why HR
should rigorously evaluate leadership programs: to steadily improve
the training effort and to drive home the message that leadership
matters a great deal to the company. HR has calculated that when a
sales specialist attends leadership training, there is on average a 7%
increase in revenue and a 400% return on investment.These types of
metrics and analyses, combined with American Express’s Employee
Scorecard, help keep leadership at the top of the agenda for the
senior team. “When they see that direct leadership matters,” says
Staudenmier,“they make it a priority.”
The Time to Start Is Now
Putting the right leadership metrics in place doesn’t have to be a
Herculean task. The first step is defining the questions, from the per-
spectives of different stakeholders,which the business needs to answer
in building its leadership strategy and programs. For example:
People Managers
■ Where are the biggest leadership gaps on my team? What are
the actions needed to fill them?
■ Who are my high potentials and what are their development
needs?
FALL 2008 MIT SLOAN MANAGEMENT REVIEW 69SLOANREVIEW.MIT.EDU
■When will key talents on my team be
ready to move on to new roles?
■To what extent have we fulfilled our leader-
ship development agenda?
Key Talent
■ Do leaders take responsibility for their own
development and that of their people?
■ Do leaders contribute to the development
of talent as a corporate resource?
■ Do leaders help maintain an environment
that is engaging and inclusive?
■Do leaders “walk the walk” on effective
leadership behaviors?
Business Leaders
■ What business trends most influence our
leadership strategies?
■ What are our current and future leadership
gaps? What are their potential risks to
our business?
■Do our leadership programs deliver a
steady supply of qualified candidates?
■Are we hiring the right people for our future?
■ Are we retaining our critical leaders?
■ Are we developing talent fast enough and in the right areas?
HR Professionals
■Are our leadership programs aligned with the business’s needs?
■ Do they help us strengthen our connections with employees?
■Do employees participate in our leadership processes? Do
these processes contribute to the quality of our decision making
about talent?
■ Are we developing people at the right rate? What can we do to
accelerate career growth?
Once a company team has identified the questions most
suited to the organization’s needs, it can proceed to determine
different ways — including those most amenable to direct
measurement — of reporting the results.
Some business leaders feel overwhelmed by the prospect
of instituting metrics in the leadership arena. Or they may be
uneasy about putting a number to something as personal as
“leadership capability” or assigning a metric to seemingly vague
qualities like “readiness.” And while some HR departments do a
fair amount of leadership-development program evaluation, the
metrics used often fall short of answering the big questions about
the organization’s ability to meet its future leadership challenges.
But as one can see from the table, there are better reasons for
getting started today than there are to delay. (See “Building a
Measurement Framework: Myths and Realities.”)
Most companies wouldn’t go forward with a multimillion-
dollar business venture without first identifying the investment
goals. Nor would they jump into a deal without defining before-
hand the critical action steps and expected results.Why should an
investment in leadership talent be treated any differently? Engag-
ing staff in the consideration of leadership metrics deepens the
quality of company processes for specifying goals, building
strengths and seizing opportunities. Senior HR and business
leaders need to equip their people with measurement mind-sets
that give them the discipline and insights for developing the next
generation of leaders.
REFERENCES
1. Hewitt initiated the Top Companies for Leaders research in 2001 to
identify those factors that account for organizations’ ability to consistently
produce great leaders. Subsequent undertakings in 2003 and 2005
further expanded our examination of successful leaders and their impacts
on the organization and provided the foundation for our 2007 global study.
2. In the fictional town of Lake Wobegon, Minnesota, created by Garri-
son Keillor, “all the women are strong, all the men are good looking, and
all the children are above average.”
3. This is the version of the nine-block framework used by many of the
Top Companies for Leaders.
4. “Closing the Generational Divide,” IBM Institute for Business Value
in association with the American Society for Training & Development,
September 2006.
Reprint 50116.
Copyright © Massachusetts Institute of Technology, 2008. All rights reserved.
Building a Measurement Framework: Myths and Realities
Myth Reality
We need to measure each aspect
of our leadership program, and
that will be a huge effort.
It’s better to focus on several
leadership priorities that are
critical to the business than to
try to be comprehensive.
People won’t be honest about a
leader’s strengths and weaknesses if
they know we’re measuring them.
An absolutely critical factor is
that leadership can set the tone
for how measures will be used.
We already gather feedback on
our leadership-training programs.
Isn’t that enough?
The lion’s share of leadership
development happens outside the
classroom. Analysts are not getting
the full picture if their measurements
stop at the classroom door.
This isn’t a good time to start.
We’re making changes to our
performance-management
process or going through an
acquisition or restructuring.
Metrics can help the leadership
team think more strategically
about leadership needs both short
and long term. The data it has
today may not be perfect, but this
may be all that’s needed to begin
discussing leadership needs.
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Can You Measure Leadership.doc

  • 1. Can You Measure Leadership? FALL 2008 VOL.50 NO.1 REPRINT NUMBER 50116 Robert Gandossy and Robin Guarnieri Please note that gray areas reflect artwork that has been intentionally removed.The substantive content of the ar- ticle appears as originally published.
  • 2. FALL 2008 MIT SLOAN MANAGEMENT REVIEW 65 C ompanies today live under the relentless glare of metrics. Quarterly earnings releases, sales projections, quality and compliance audits, even employee surveys are used to gauge the enterprise’s health. Nevertheless, few such measures directly answer a key question that is frequently on the minds of the senior team: Do we have enough leaders, and the right leaders, to run our business both today and in the future? Many CEOs cite the lack of qualified leadership talent as the most significant constraint on growth. This is happening as the pool of potential leaders shrinks before our eyes; the number of 35- to 44-year-olds in the work force, the so-called “key leader age,” will drop by 15% over the next decade, according to the U.S. Bureau of Labor Statistics. Thus the pressure on company decision makers to rethink their leadership development strategies is greater than ever. Human resources executives and corporate leaders across the globe find that it’s simply not enough to put a leadership-training program in place or hold an annual talent review. Instead, companies must be rigorous and focused in their assessment of leadership talent, aided by tools tailored to help achieve that end. They must hold leaders accountable for cultivating others, diagnosing gaps in execution and capability, and redirecting resources as business needs change. HR and business leaders also need insights into where they have succeeded in building leadership and critical talent pipelines and where there are potential risks. In short, companies need to bring a “measurement mind-set” to the often inexact process of developing the next generation of leaders. Because such a process, though vital, is not easy, companies often overrate their ability to measure the right things for the right reasons.For example,many generate piles of reports on senior management attrition instead of considering the actual flightrisksof theircriticaltalent;ortheymeasureeasy-to-trackmetrics,suchastime tofilljobsornumberof traininghours,withoutregardtothequalityof thoseplaced into jobs or whether a development workshop produced any meaningful change. Others, at the opposite extreme, get bogged down in a search for the holy grail of leadership metrics — fruitlessly searching for some “perfect answer” and conse- quently making little progress.Finally,it’s possible to lose sight of the ways in which the company’s different stakeholders — HR professionals, business leaders, people managers and key talent — need to access, interpret and act on leadership data. Can You Measure Leadership? Robert Gandossy is a principal and leads the leadership consulting practice at Hewitt Associates Inc., a human resources consulting and outsourcing company based in Lincolnshire, Illinois. Robin Guarnieri is a research consultant at Hewitt Associates. Both authors are based at the company’s office in Norwalk, Connecticut. Comment on this article or contact the authors through smrfeedback@mit.edu. At top companies, where the inspired use of metrics helps to identify potential leaders and develop their skills, the answer is yes. Robert Gandossy and Robin Guarnieri L E A D E R S H I P SLOANREVIEW.MIT.EDU
  • 3. 66 MIT SLOAN MANAGEMENT REVIEW FALL 2008 SLOANREVIEW.MIT.EDU Even at companies that already have comprehensive leader- ship strategies, expanding the use of data and fine-tuning metrics should be a high priority. Considering that the very essence of a measurement mind-set is to constantly question, challenge and use data to guide processes and drive decision making, one should expect nothing less of a company committed to identify- ing and growing effective leaders. Around the world, we have found that when metrics are “baked into” the leadership strategy, the resulting benefits include a more rigorous talent search and development process, a higher quality of thought brought to the table by participants, and, ultimately, the strengthening of the company’s leadership team. Top Companies for Leaders — Focusing on Today and the Future In 2007, Hewitt Associates partnered with The RBL Group and Fortune to conduct a global study called Top Companies for Leaders, which identified companies with an exceptional commitment to and passion for developing leadership talent.1 In these top companies, we observed: ■ Leaders leading the way. Leadership development is at the top of the CEO’s and senior team’s agenda; it is an area in which they invest substantial amounts of time and energy. ■ Afocusontalent. The top companies do more to identify,develop and reward top talent; differentiation of top talent is a given. ■ Practical and aligned programs and practices. Leadership development, performance management, succession planning and recruiting all work together to help people in the business achieve their goals. ■Leadership as a discipline that reaches a critical “tipping point.” When a company has a true commitment to leader- ship, it becomes integrated with business planning and woven into the culture of the organization. In short, the top companies make leadership a way of life. They make deliberate efforts to reinforce leadership expectations through top-down communications, promotion decisions and variable pay. In big and small ways, top companies let it be known what they expect of their leaders and are relentless in creating an environment that fosters the development of leadership talent. Hewitt first began its top-companies studies in 2001. Since then, we’ve observed more companies investing in leadership programs and a growing awareness of the need to ground leadership develop- ment in the fundamental processes of the business. But for many, the right metrics still remain elusive. All too many companies are flying blind, with little or no insight about what really matters — and what doesn’t — in identifying and developing leaders.Although companies frequently have access to volumes of data on top talent, employment trends, company climate, business results and individual performance, most don’t use it. Top companies do. The Importance of a Holistic Framework Remember shopping for your first house and walking through it with the building inspector? You received a detailed analysis of the quality of the roof, the age of the pipes and the potential for water damage in the basement. All of this information was im- portant, but not enough to tell you if you should buy the house. When the HR department is in charge of leadership metrics, it sometimes approaches the task as a building inspector would; its “house report,” though usually accurate, reflects a limited view. Thus, while we often see companies doing a decent job of measur- ing training-session attendance, participating in performance cycles, distributing variable pay and tracking promotion rates, most stop short of creating a holistic set of metrics that speak to all four groups of stakeholders in the company’s leadership develop- ment process — people managers, key talent, business leaders and HR professionals. (See “The Holistic View.”) Below, we describe how some of the top companies are creating a measurement mind-set for each of these four key stakeholder groups. People Managers A measurement mind-set is essential to making people management decisions that are fair and meaningful. Because metrics create a level playing field, they help managers answer ques- tions such as “Who are my top performers?” and “Are we making smart decisions about developing them to meet current and future business needs?” To avoid the Lake Wobegon effect (whereby every- oneissaidtobeaboveaverage),2 manyorganizationsuseanine-block L E A D E R S H I P At top companies, a measurement mind-set guides the leadership actions of four key groups — people managers, key talent, business leaders and HR professionals. The Holistic View What is the leadership capability of my team? Key Talent People Managers HR Professionals Business Leaders How am I performing as a leader? Do we have the leaders we need to achieve our short- and long-term business goals? How does our talent search and development process add value to the business?
  • 4. FALL 2008 MIT SLOAN MANAGEMENT REVIEW 67SLOANREVIEW.MIT.EDU assessment framework (see “Sample Nine-Block Framework”), in which a manager rates his or her team on both performance and potential.3 Each person is categorized as low, medium or high; a general guideline is that no more than 10% to 20% of the people on the team can be rated as high on both dimensions. Cummins Inc., the Indiana manufacturer of engines and power generation systems,brings additional rigor to its nine-block people assessment framework by breaking it down into component parts and focusing on leader behavior. For example, a people manager might assess the performance and potential of his or her team on a number of specific attributes, such as development/coaching, six sigma capability, success in managing global teams and intensity of self-development. When sitting down with a direct report, the people manager will link the assessment back to the business’s goals. Jill E. Cook, vice president of HR at Cummins, says, “This isn’t a check-the-box exercise.It serves as a discussion guide to help us understand who the high potentials are.” Besides differentiating their high potentials, people managers should also be able to discern these individuals’ unique needs. Some top companies use focused surveys to take the pulse of key staff in order to proactively address their specific development requirements.Although such feedback should always be included in planning efforts, most companies are unaware of and discon- nected from the actual viewpoints, experiences and expectations of their leaders and high potentials. One HR vice president told us his greatest concern is that people managers will fall back on their “stories and histories with people” instead of pushing the organization to make bold deci- sions about developing talent. Bringing a strong measurement mind-set to the leader development process is a powerful anti- dote to the bias of prior experience. Key Talent Top companies tend to make key leadership talent accountable both for their own development and for strengthening the company’s leadership culture. Toward that end, Caterpillar Inc., the Illinois manufacturer of heavy equipment and engines,measures senior leaders on their performance in the following areas: ■ Culture of execution. How well they deliver results through others and establish a “can-do” attitude that inspires their teams to meet goals despite challenges. ■ Core values. How they go about achieving results, and whether they exemplify integrity, excellence, teamwork and commitment. ■ Employee engagement. Feedback from the leaders’ teams on their competency, style and commitment to the company and the team. If work climate issues surface, leaders are expected to address them with action plans, log their progress throughout the year and utilize best practices for building commitment. Sonoco Products Co., a South Carolina packaging manufac- turer, also uses a scorecard to reinforce leadership expectations. General managers are rated on a scale from 1 to 5 on such factors as their personal leadership attributes, the size and quality of their successor pools, and their ability to build an organization to sup- port the company’s business strategy. The ratings are made public, which sends a strong message to the entire staff about the impor- tance of leadership and the accountability of the general managers. As HR Senior Vice President Cynthia Hartley points out, “Few GMs who get poor ratings year after year are here for very long.” Because talent management is not a discrete event but rather something that happens every day, some organizations are find- ing ways to give managers regular feedback on their effectiveness as leaders. McKinsey & Co. performs a “team barometer” survey every two weeks to gather input from project teams. While this survey addresses a range of issues, one important aspect is its ongoing assessment of project directors’ leadership capability. Clearly, another way to hold key talent accountable for developing others and demonstrating leadership behavior is to link effectiveness in these areas to pay. In fact, half of the top companies do so, compared with about one-third of other companies. For example, at American Express Co., 25% of the incentive pool is based on the EmployeeScorecard.“Ourgoalistokeepthescorecardsimpleenough so that leaders can see how they impact the overall employee mea- sure,” says Tom Leitko, vice president for organizational capabilities and performance.“It is quite motivational,”he adds.“Our people, in- cluding senior management, pay a lot of attention to the scorecard.” Business Leaders Business leaders must be able to look across their organizations, evaluate the strength of the leadership cadre as a whole, and quickly home in on any gaps. At Capital One Financial Managers in many of the top companies use this assessment tool to help distinguish between top, highly valued and bottom performances/potentials of their team members. Sample Nine-Block Framework Top 20% Bottom 10% HighLimited Ability to Promote Highly Valued 70% Medium Overall Rating Performance, Values, Extraordinary Skills 10%–20% 60%–80% 10%–20%
  • 5. 68 MIT SLOAN MANAGEMENT REVIEW FALL 2008 SLOANREVIEW.MIT.EDU L E A D E R S H I P Corp., the talent assessment process is thorough and data-driven. As part of the process, senior leaders work with HR to conduct a rigorous assessment of the top talent at the company twice a year; the assessment includes a review of quantitative measures such as time in role and performance ratings,as well as qualitative measures such as potential and promotability ratings. Talent data is rolled up to the C-suite level for discussion and comparison — part of what Capital One refers to as the“cross calibration”process. The result of these calibration sessions and talent discussions is a comprehensive review of talent and development potential — focused on future movement for senior talent. The company also maintains a bench- strength and promotion-potential scorecard for each business unit that captures the number of people who are“ready now”and“ready one year from now” for a new role or assignment. General Mills Inc. tracks the number of ready-now candidates for each position at or above the vice president level. With an ulti- mate goal of 10 candidates for each executive job, the company’s target is more ambitious than most, but it serves to keep leadership on the CEO’s radar screen by pushing business leaders to think broadly about succession candidates. General Mills also measures movement in the talent pool, reporting the percentage who have been promoted, the percentage who have participated in signifi- cant development activities and their retention rates. Within this measurement framework, the company has the flexibility to focus on skills that are of particular interest — for example, it can iden- tify leaders with a global mind-set by tracking global assignments. Over the past several years, the ability to bring complex modeling tools into work force planning has enhanced the ability to integrate business forecasting with leadership development. One area where we see this concept taking hold is in planning for rapid growth in emerging markets. For example, one high- tech manufacturer estimates that its demand for leaders in Asia is 10 times greater than its current talent pool there. As a result, the company’s HR department is working with its business lead- ers to find ways to accelerate development of the local work force and expand the number of global managers in Asia. Another area where predictive modeling is affecting leader development strategies is the analysis of work force demographics. In a recent study, 43% of companies reported that they expected changing work force demographics to have significant impacts on their businesses over the next three to five years.4 The first step that business leaders are taking to help plan for demographic shifts is to become aware of the trends facing their own organization at present. Once that baseline is in place, it can be used to forecast company needs over multiple time frames (say, 5-, 10- and 15-year intervals) in accordance with a variety of plausible scenarios. HR Professionals While HR professionals have hundreds of metrics at their disposal for evaluating leadership development programs, the simple measures — such as the frequency of talent review meetings, implementation of planned moves or perfor- mance evaluations of leaders who are promoted — are the best indicators that managers are having performance discussions and then using them to drive actions. The challenge, however, is choosing the small subset of measures that provide the best window into what works and what doesn’t; this depends in large part on company priorities. (See “Building a Measurement Framework: Myths and Realities.”) For example, McDonald’s Corp., the food industry leader with more than 1.6 million employees worldwide, is particularly con- cernedwithretentionof leadershiptalent—aboveall, itshomegrown managers, who tend to be the company’s most effective leaders. As a result, the HR team has developed a set of measures to track stock options, long-term incentives and other retention vehicles. At many businesses, such as American Express, a core compo- nent of leadership metrics is training program evaluation. “We’re interested in the things that leaders do differently as a result of participating in the program,” says Julie Staudenmier, vice presi- dent for talent acquisition and development. In that spirit, three months after training she and her team reach out to the training participants — as well as to their direct reports — to ask them about any subsequent changes in behaviors and to assess the impacts on the business, such as customer satisfaction, employee productivity and cost savings. Another important impact is employee satisfaction: The company has found that when a leader makes a “significant change” in his or her behavior after the learn- ing experience, 98% of direct reports say they are “more engaged,” and 91% say that they plan to remain at American Express. From Staudenmier’s perspective, there are two reasons why HR should rigorously evaluate leadership programs: to steadily improve the training effort and to drive home the message that leadership matters a great deal to the company. HR has calculated that when a sales specialist attends leadership training, there is on average a 7% increase in revenue and a 400% return on investment.These types of metrics and analyses, combined with American Express’s Employee Scorecard, help keep leadership at the top of the agenda for the senior team. “When they see that direct leadership matters,” says Staudenmier,“they make it a priority.” The Time to Start Is Now Putting the right leadership metrics in place doesn’t have to be a Herculean task. The first step is defining the questions, from the per- spectives of different stakeholders,which the business needs to answer in building its leadership strategy and programs. For example: People Managers ■ Where are the biggest leadership gaps on my team? What are the actions needed to fill them? ■ Who are my high potentials and what are their development needs?
  • 6. FALL 2008 MIT SLOAN MANAGEMENT REVIEW 69SLOANREVIEW.MIT.EDU ■When will key talents on my team be ready to move on to new roles? ■To what extent have we fulfilled our leader- ship development agenda? Key Talent ■ Do leaders take responsibility for their own development and that of their people? ■ Do leaders contribute to the development of talent as a corporate resource? ■ Do leaders help maintain an environment that is engaging and inclusive? ■Do leaders “walk the walk” on effective leadership behaviors? Business Leaders ■ What business trends most influence our leadership strategies? ■ What are our current and future leadership gaps? What are their potential risks to our business? ■Do our leadership programs deliver a steady supply of qualified candidates? ■Are we hiring the right people for our future? ■ Are we retaining our critical leaders? ■ Are we developing talent fast enough and in the right areas? HR Professionals ■Are our leadership programs aligned with the business’s needs? ■ Do they help us strengthen our connections with employees? ■Do employees participate in our leadership processes? Do these processes contribute to the quality of our decision making about talent? ■ Are we developing people at the right rate? What can we do to accelerate career growth? Once a company team has identified the questions most suited to the organization’s needs, it can proceed to determine different ways — including those most amenable to direct measurement — of reporting the results. Some business leaders feel overwhelmed by the prospect of instituting metrics in the leadership arena. Or they may be uneasy about putting a number to something as personal as “leadership capability” or assigning a metric to seemingly vague qualities like “readiness.” And while some HR departments do a fair amount of leadership-development program evaluation, the metrics used often fall short of answering the big questions about the organization’s ability to meet its future leadership challenges. But as one can see from the table, there are better reasons for getting started today than there are to delay. (See “Building a Measurement Framework: Myths and Realities.”) Most companies wouldn’t go forward with a multimillion- dollar business venture without first identifying the investment goals. Nor would they jump into a deal without defining before- hand the critical action steps and expected results.Why should an investment in leadership talent be treated any differently? Engag- ing staff in the consideration of leadership metrics deepens the quality of company processes for specifying goals, building strengths and seizing opportunities. Senior HR and business leaders need to equip their people with measurement mind-sets that give them the discipline and insights for developing the next generation of leaders. REFERENCES 1. Hewitt initiated the Top Companies for Leaders research in 2001 to identify those factors that account for organizations’ ability to consistently produce great leaders. Subsequent undertakings in 2003 and 2005 further expanded our examination of successful leaders and their impacts on the organization and provided the foundation for our 2007 global study. 2. In the fictional town of Lake Wobegon, Minnesota, created by Garri- son Keillor, “all the women are strong, all the men are good looking, and all the children are above average.” 3. This is the version of the nine-block framework used by many of the Top Companies for Leaders. 4. “Closing the Generational Divide,” IBM Institute for Business Value in association with the American Society for Training & Development, September 2006. Reprint 50116. Copyright © Massachusetts Institute of Technology, 2008. All rights reserved. Building a Measurement Framework: Myths and Realities Myth Reality We need to measure each aspect of our leadership program, and that will be a huge effort. It’s better to focus on several leadership priorities that are critical to the business than to try to be comprehensive. People won’t be honest about a leader’s strengths and weaknesses if they know we’re measuring them. An absolutely critical factor is that leadership can set the tone for how measures will be used. We already gather feedback on our leadership-training programs. Isn’t that enough? The lion’s share of leadership development happens outside the classroom. Analysts are not getting the full picture if their measurements stop at the classroom door. This isn’t a good time to start. We’re making changes to our performance-management process or going through an acquisition or restructuring. Metrics can help the leadership team think more strategically about leadership needs both short and long term. The data it has today may not be perfect, but this may be all that’s needed to begin discussing leadership needs.
  • 7. PDFs ■ Reprints ■ Permission to Copy ■ Back Issues Articles published in MIT Sloan Management Review are copyrighted by the Massachusetts Institute of Technology unless otherwise specified at the end of an article. Electronic copies of MIT Sloan Management Review articles as well as traditional reprints and back issues can be purchased on our Web site: sloanreview.mit.edu or you may order through our Business Service Center (9 a.m.-5 p.m. ET) at the phone numbers listed below. To reproduce or transmit one or more MIT Sloan Management Review articles by electronic or mechanical means (including photocopying or archiving in any information storage or retrieval system) requires written permission. To request permission, use our Web site (sloanreview.mit.edu), call or e-mail: Toll-free in U.S. and Canada: 877-727-7170 International: 617-253-7170 Fax: 617-258-9739 e-mail: smrpermissions@mit.edu Posting of full-text SMR articles on publicly accessible Internet sites is prohibited. To obtain permission to post articles on secure and/or password-protected intranet sites, e-mail your request to smrpermissions@mit.edu. Hyperlinking to SMR content: SMR posts abstracts of articles and selected free content at www.sloanreview.mit.edu. Hyperlinking to article abstracts or free content does not require written permission. MIT Sloan Management Review 77 Massachusetts Ave., E60-100 Cambridge, MA 02139-4307 e-mail: smrorders@mit.edu