Human capital is the #1 CEO challenge globally for the third year in a row 2015 Conference Board CEO Challenge. CEO’s know that without the right talent, they can’t maximize the growth and success of their organizations. Developing talent, especially developing leadership talent, comes at a cost. For large companies, spending on leadership development averages over $12,000 per participant on senior-level leaders and over $19,000 per participant on executives. Mature companies with stronger pipelines invest even more, sometimes as much as 2-3 times more Leadership Development Factbook 2014. Companies are making big investments in leadership development, and the stakes are high. These are some of CEO’s top strategies for addressing the human capital challenge:
- Adopting a grow-your-own strategy for filling key roles rather than looking outside the organization (culture fit is a concern)
- Retaining top talent
- Improving leadership effectiveness
Let’s take a deeper dive on each of these strategies and consider the stakes.
This is a wise strategy, not only to achieve the goal of maximizing cultural fit but also in terms of the impact it can have on the bottom line.
- When organizations promote from within, they can expect a 70-80% success rate.
- That success rate drops to 50-55% for an external leadership hire.
Let’s turn those success rates upside down and think about failure rates.
- External hire fail rate = 50%
- Internal hire fail rate = 25%
Investing in leadership development and promoting from within reduces your odds of making a very expensive human capital mistake by 50%.
How expensive is a hiring mistake at the leadership level? A fair estimate on cost of turnover for senior leadership is 10x salary. Add a zero to the end of the salary for one of your key leadership roles. That’s what it costs you to make a hiring mistake for that role. And that’s why cutting the risk of a mistake in half by growing your own goes directly to the bottom line.
Retain Top Talent
Organizations should invest in developing employees working at all levels of the organization because it improves the odds that they will stay. The best leaders want to work for organizations that invest in their growth and have a clear plan for their future. If you won't invest in them, they'll find an organization that will. In light of that, consider these data:
Source: Global Human Capital Trends 2015
Millennials aren’t the workforce of the future. They’re the workforce of the present! An organization’s leadership development efforts should certainly not be focused exclusively on Millennials, but we do have a lot of data on what this generation wants and how ready organizations are to deliver on it. Overwhelmingly, Millennials want opportunities for growth and professional development. And “underwhelming” is an understatement of organizations’ readiness to provide them with leadership development.
Improving Leadership Effectiveness
It makes sense that improving leadership effectiveness across the board is a top human capital strategy for CEO’s. An organization’s leaders are responsible for its growth and sustainable success.
The Good News:
- 67% of organizations have programs in place for identifying and developing high-potential leaders.
- In 85% of those organizations senior management is responsible for identifying and developing those individuals.
The Bad News:
- Only 27% of leaders feel “very prepared” to create an optimal workplace in which people can deliver their very best.
- Only 37% of leaders rate the quality of their organization’s development programs as high or very high.
Why Invest in Leadership Development?
- CEO’s remain focused on human capital as their top challenge. Developing talented leaders is at the heart of growing their businesses, and doing it well is becoming more and more difficult. From 2011-2014, the percentage of organization’s rating their bench strength as “strong” actually went down from 18% to 15% (Global Leadership Forecast 2014|2015). Despite sustained focus, the challenge is growing.
- Grow-Your-Own strategies drive more successful leadership hiring decisions. If you grow your own, you can cut your odds of making an expensive hiring mistake by as much as 50%.
- Developing leaders positively impacts retention. If you won’t invest in people’s growth, they’ll find an employer who will.
- Even if your organization falls into the 67% of those who have programs in place for leadership development, reassessing your approach might be in order because:
- A much smaller percentage of leaders (37%) rate the quality of their organizations’ programs highly.
- An even smaller percentage (27%) report that they personally feel “very prepared” to create environments in which people can deliver their very best.
- CEO’s have defined human capital and leadership development as the top challenge their organizations face, and they are actively strategizing to meet the challenge. Organizations that opt out of investing…and those that invest poorly…will be unable to compete for the leadership talent that will drive the future success and growth of their businesses.
This is the first post in a series about Leadership Development. Watch for more in the coming weeks. I look forward to continuing the conversation with you. Please share your comments and questions!
If you’re looking for an opportunity to invest in Leadership Development, consider the following:
- Leadership Toolbox: a one-day seminar intended to give you tools to implement today
- Leadership Plus: a year-long cohort intended to take a deep dive into the study of talent and leadership
Kim Turnage, Ph.D. works as a Senior Leadership Consultant for Talent Plus, helping leaders select the best people, make the right investments in talent development, and create talent-based succession plans that will ensure the future of their organizations.
Kim writes regular posts on leadership and everything that goes along with it. Find them all here.
Senior Leadership Consultant