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No Gaps and No Caps in the Leadership Pipeline

Companies excelling in development across all leader levels are (much) more financially successful

By Evan Sinar, Ph.D.

Evan Sinar, Ph.D.Current and projected future leadership quality has largely remained consistent—and by most measures, consistently weak—since 2011. In our Global Leadership Forecast 2014|2015, only one in four HR professionals view their organization’s leaders as high-quality, the same as three years ago, while only 15 percent rate their future bench as strong. As organizations respond to deficiencies in ready-now talent, they aggressively implement programs to give leaders at all levels the skills to both advance in their own careers and to drive progress toward strategic objectives. For many companies, their aspirational goal is a “pipeline” approach that aligns key program components (e.g., competencies required for success, transition management) across leader levels, creating a smooth flow of individual contributors into first-time leader roles, and of existing leaders into more advanced levels of responsibility.

Though the logic for a full pipeline model is clear, we’ve found that fewer than 20 percent of organizations actualize it, either because they don’t see the value to justify the greater levels of planning required or they are trying, but struggling with the logistics of execution. Also, until now, research linking a pipeline model to financial outcomes was lacking, due to cross-organizational sample requirements, which allow comparisons of companies with varying levels of success.

We recently completed a study to gauge these effects, using a composite of metrics—profitability, earnings per share, five-year rate of return to investors, and stockholder equity—gathered from financial databases on 150 publicly traded companies. Additionally, through our Global Leadership Forecast, HR leaders (at these same organizations) independently evaluated the effectiveness of their development programs at each of three levels of leadership: frontline, mid-level, and senior.

We next split companies into four groups as shown below: those without highly effective leadership development programs for any of the three levels (all red across the leadership pyramid), those with high effectiveness for only one of the three levels (one green), those excelling at two of the three levels (two greens), and those with highly-effective leadership development for all three levels (all green). We compared these groups based on how they fared, on average, on the external financial composite. We expected a steady and even progression of financial success with each additional level of high-quality leadership development in place. What we found, however, was different than anticipated:

Leadership Pipeline

While there was an upward trend across all four groups, the incremental increase was far from even. Companies performed most poorly in comparison with their peers when they failed to excel in their leadership development programs for any of the three levels. Organizations with effective development programs for one and only one of the leader levels performed only slightly better—44 percent. When two of three programs were highly effective, this performance percentile increased again, albeit slightly, to 46 percent.

Only when organizations were successfully extending their leadership development programs across all three levels did they financially outperform their peers, and decidedly so. Compared with the jumps of two percentage points from zero to one and from one to two highly effective programs, the difference between two to all three such programs surged to 17 percent. On average, organizations mastering leadership development across the full pipeline were in the 63rd percentile compared to others.

Another view of this trend can be seen from the opposite direction—starting from the fully-aligned pipeline and gauging the consequences of a shift away from it. This shows a striking drop-off when organizations fall short with any section of the pipeline—either through a gap resulting from an inability to design and implement a highly effective leadership development program at the mid-level (while focusing solely on the frontline or senior leaders) or through capping the pipeline before it can extend all the way through the leadership ranks. Financially-healthy organizations rarely allow breakdowns at any point of the leadership development pipeline: those that slip up have a hard time even achieving “average” performance.

Evan Sinar, Ph.D., is the chief scientist and director of DDI’s Center for Analytics and Behavioral Research (CABER).

Get more information about the Global Leadership Forecast 2014|2015 research, including 18 highly actionable findings about the current state of leadership, an evidence-based roadmap for leadership development, a scoreboard of 20 common talent management practices, and global benchmarks for 11 metrics about leadership talent.

Want to learn more about optimizing your leadership pipeline? Download our free guidebook to learn the five key ingredients for a gap-free pipeline and six tips to create a pipeline approach in your organization.

Posted: 05 Mar, 2015,
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