Against the backdrop of the pandemic, the shift to remote work, the Great Resignation, increased demands for sustainability, digitization, and more, organizations across industries are facing historic pressure to achieve their strategic objectives. To remain competitive, many are putting greater emphasis on the development of existing and emerging leaders. If your organization doesn’t yet have a strategy in place for developing leaders, keep reading to learn what an integrated leadership development program entails and what the benefits of leadership development might be for your business.
What is Leadership Development?
Leadership development is not simply about training programs. Well-managed companies take an integrated, customized approach to develop current and emerging leaders so they can meet current and future goals and challenges. Effective leadership development strategies typically involve several of the following components.
Formal Training Programs
Training programs can be designed in partnership with external organizations such as universities, business schools, and other learning organizations. These programs often include in-house classes and quarterly leadership off-site meetings.
Leadership training programs often include sessions by senior leaders on the challenges facing the organization and its long-term direction. There are many areas of potential focus, and topics might include financial management, innovation, creativity, managing a global and diverse workforce, leading teams, change management, driving results through influence, public speaking, negotiating, and problem-solving.
Personality Assessments and 360-Degree Assessment Feedback
Most leadership development programs begin with formal assessments which are used to create individual development plans for leaders. Hogan’s Leadership Forecast Series is one personality assessment solution often used for this purpose. Designed to help leaders develop strategic self-awareness, the Leadership Forecast Series provides an in-depth look at a leader’s performance capabilities, challenges, and core drivers.
Additionally, 360-degree feedback tools provide comprehensive feedback from a leader’s manager, peers, and direct reports. A 360 report, coupled with insights from other assessment tools, can provide insight into good and counterproductive habits and behaviors to help identify specific areas for development for a leader.
Some organizations also use assessment centers to provide objective ways to identify or validate their leaders. These centers provide a broad review of a leader’s capabilities using exercises and simulations of leadership scenarios. Leaders might participate in roleplay, behavioral interviews, and leaderless group discussions.
Strategic Action Projects and Action Learning Teams
Another effective element of leadership development programs focuses on solving strategic problems. Individuals or teams of people work on projects that address major issues facing the company. A key benefit of these projects is that they provide developmental experiences for emerging leaders that require looking beyond functional silos to solve major strategic problems.
Individual and group coaching is used to add value throughout leadership development programs. Coaches can support leaders as they move to new roles, help leaders work on strengths and areas for development that have been identified in the assessment process, and work with teams and individuals in action learning teams and group projects.
Some organizations provide leaders with mentors, who are usually experienced leaders who are well versed in navigating business, social, and political dynamics. Mentors typically work in different functions and locations from their mentees. They can provide independent advice and act as sounding boards and trusted advisors.
Strategic Job Placements and On-the-Job Development
There is no better learning experience than on-the-job development. Many organizations create programs that involve job experiences in different parts of the company. Programs are often intentionally designed to help the leader build new skills. For instance, leaders can move to new regions or take on new roles. Alternatively, leaders might be given opportunities to turn around troubled business units. These opportunities enable emerging leaders to broaden their thinking and development, making them better prepared for enterprise-wide roles.
Benefits of Leadership Development
Integrated leadership development programs have a significant and positive impact on organizations. The benefits of leadership development programs include competitive succession planning, talent attraction, talent retention, opportunities for networking, impact on financial values, and preparation for initial public offerings, or IPOs.
Competitive Succession Planning
The emphasis of many leadership development programs is creating a robust pipeline of talent at all levels of leadership. Having a bench of talent available to step into many roles and locations or focus on new business initiatives provides organizations with a competitive advantage.
A recent study by McKinsey showed that companies need to reallocate capital and talent to high-value initiatives if they are to remain competitive.1 According to the study’s authors, “Managing for the long term requires executives to monitor their standing in the market and to enter or exit businesses as the competitive landscape shifts — even if it involves shrinking a company.”
The study used Amazon and Microsoft as examples. Both made significant moves of capital and talent over the last 15 years, preparing internal leaders to move their cloud computing businesses. Compared to competitors that made less investment in cloud computing, Amazon and Microsoft generated substantial revenue in 2020 — around $45 billion and $59 billion, respectively.1
The McKinsey research found that companies willing to move resources and talent rapidly are 2.2 times more likely to outperform competitors, compared to those that reallocate resources and talent more slowly.
High-performing and high-potential leaders are in great demand for roles in other organizations. Recruiters or former colleagues frequently approach them to invite them to change organizations. High-performing leaders need to learn and grow constantly, and companies with robust leadership development programs attract stronger talent. In turn, great leaders are also able to attract, hire, and inspire other talented employees. They are often referred to as talent magnets!
Many leaders have felt undervalued during recent years and particularly during the pandemic, thinking their work and talents have not been recognized. If they decide to join other companies, they often take team members with them, which can cause even greater problems for the organization that doesn’t manage to retain them. A supportive leadership development program can help leaders feel valued by signaling that they have a strong part to play in the current and future growth of the organization. A study by the Center for Creative Leadership showed that companies with a strong focus on leadership development see talent retention that is 20 times better.2
An often-overlooked outcome and value of leadership development programs is that leaders form strong connections with fellow participants who come from other parts of the organization. These connections can lead to greater cross-boundary collaboration. Leaders across departments can share tips and experiences and discuss challenges they face. Also, it is easier to onboard a leader who has moved to a new function or location when they already have a connection with other leaders in that area.
Impact on Financial Valuations
A research study by Deloitte showed the importance of leadership effectiveness and its impact on financial markets and shareholders.3 Using interviews with and surveys of leading market analysts in many parts of the world, the researchers examined the impact that leadership can have on share price.
The analysts in the study cited senior leadership effectiveness as a significant a contributor to financial results and earnings forecasts when judging the future success of the company. Of the analysts who participated, 60% said that they use current financial results to evaluate organizational success, and 45% identified senior leadership team effectiveness as a key criterion. More than half (52%) said that they consider the strength of senior leadership in company valuations.
Since many companies use stock grants and options as part of their compensation package for leaders and high-performing talent, positive stock valuations with potential for additional growth in value can have the added benefit of helping to attract and retain key talent.
Preparation for Initial Public Offerings (IPOs)
Many companies held by private investors seek to raise additional capital by means of IPOs. An initial public offering or stock launch occurs when shares of a company are sold to institutional investors and retail investors.
Having a clear leadership development strategy has become a key component of the IPO process to assure potential investors of the depth of leadership and its likely impact on a robust return on investment. This became a higher priority for senior executives and boards in August 2020, when the U.S. Securities and Exchange Commission introduced new disclosure requirements around “human capital.” The requirements are intended to give stakeholders a clear idea of how many leaders and people the company employs, as well as highlight what the business does to attract, develop, engage, and retain its leaders and high-performing talent.
The design and implementation of leadership development programs takes a great deal of time, effort, and resources on the part of senior leadership and human resources. However, the benefits of leadership development are extensive, and taking an integrated and customized approach is critical to both achieving current goals and to the success of the organization over the long term.
This blog post was authored by Margaret Butteriss, a member of the Hogan Coaching Network.
This blog was originally posted on May 10, 2022 by Hogan Assessment Systems' blog.
- Babcock, A., Williamson S. K., & Koller, T. (2021, July 22). How Executives Can Sustain Value Creation for the Long Term. McKinsey & Co. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-executives-can-help-sustain-value-creation-for-the-long-term
- Leading Effectively staff members. (2020, May 10). Driving Performance: How Leadership Development Powers Success [white paper]. Center for Creative Leadership. https://www.ccl.org/articles/white-papers/driving-performance-development-success/
- Canwell, A., & Isles, E. (2012). The Leadership Premium: How Companies Win the Confidence of Investors. Deloitte. https://www2.deloitte.com/ly/en/pages/human-capital/articles/leadership-premium.html