New global research from global talent management consultancy DDI and The Conference Board reveals the financial impact of HR, strong leadership development and talent management practices; organisations with high leader quality were six times more likely to be among the top 20 financial performers of all organisations.
Organisations with both high levels of leadership quality and leader engagement and retention are nine times more likely to outperform their peers financially. The Global Leadership Forecast (GLF) 2014 | 2015, Ready-Now Leaders: Meeting Tomorrow’s Business Challenges surveyed global leaders and their counterparts in HR. It also examined the financial performance of participating organisations where available, in terms of profitability, earnings per share, five-year rate of return to investors and stockholder equity, and compared the top and bottom financial performers to identify profitable behaviours.
The study examined historical data from organisations that participated in the 2011 version of the research, and uncovered strong links between talent management and leadership practices and financial performance. The detailed examination of leadership development and talent practices also finds that 60 per cent of HR functions around the world see themselves as a partner – openly exchanging information with the business about current issues and collaboratively working towards open goals. In comparison, 22 per cent see themselves as reactors, ensuring compliance with policies and practices, and responding to the need of the business. Only 18 per cent see themselves as performing in the most effective behaviour for HR; as anticipators. This group uses data to predict talent gaps in advance and provide insight about how talent relates to business goals.
The value the HR function can bring to the business is further highlighted by the research. Anticipators are far more likely to be part of their organisations strategic planning process (43 per cent compared to 26 per cent for partners and just 5 per cent of reactors). That involvement pays dividends for their business, which is over six times more likely to have exhibited strong financial performance compared to organisations in which HR’s involvement in the planning process is late or non-existent. Dr Bruce Watt, Managing Director at DDI Europe, comments on the report: “These findings demonstrate the power and impact the HR function can have when it is aligned to the business strategy and involved in its development. But to do this, it has to behave in a different way. This means going beyond being just a partner to the business, and being able to anticipate and predict problems, issues and talent gaps well in advance. In an increasingly uncertain and volatile world, HR needs to be thinking well ahead of the game.”
The research also reveals the misalignment between what HR teams are focused on and business priorities. ‘Fostering employee creativity and innovation’ and ‘ leading across countries’ are seen to be the most critical skills required in today’s businesses, yet HR is not focusing on these: only one in three organisations is currently focused on developing their leaders’ ability to foster innovation, and only one in five in emphasising development in global leadership. Only one third of leaders reported being effective in leading across countries and cultures; the lowest single skill effectiveness rating in the survey. Only 56 per cent of leaders are currently effective at fostering innovation. Yet the research found that organisations that have been focusing on these skills, and whose leaders are subsequently strong at them, are three times more likely to rank in the top 20 per cent for financial performance. Dr Watt continues: “That the HR value can add value to an organisation is unquestionable. Any organisation is nothing without its people. But the skills and knowledge that got HR to where it is today are unlikely to remain relevant in the future. The function needs to be in a constant mode of learning to avoid obsolescence. We predict that the role of human capital management will change more in the next five years than it has in the past thirty.”
Other findings in the full report include:Leadership development around the world remains stalled: only 40 per cent of leaders rated the current quality of their organisation’s leadership as high, a small increase since the last survey in 2011. Only one in four HR professionals rate the quality of their leaders as high. Only 15 per cent of organisations rate their future leadership bench strength as strong and just 37 per cent of leaders rated the quality of their organisations development programmes as high or very high. The picture is similarly gloomy for succession: across the sample, on average only 46 per cent of critical positions could be filled by internal candidates.
Leadership ability is also out of sync with the changing business landscape. While volatility, uncertainty, complexity and ambiguity increase in the business environment, less than two-thirds of leaders said they were very or highly confident in their ability to meet these four challenges. This view is echoed by their counterparts in HR, only 18 per cent of whom identified their leaders as ‘very capable’. Yet the top 20 per cent of organisations performing well financially are three times more likely to have leaders who are highly capable in these areas compared to the bottom 20 per cent.
Organisations with a higher percentages of women in leadership roles perform better financially. The top 20 per cent of financial performers in the survey had 37 per cent of their leaders as women; organisations in the bottom 20 per cent count only 19 per cent of their leaders as women. The research also connects an organisations pace of growth and financial success with the percentage of “millennials” in leadership roles: simply put, the higher the percentage of growth, the higher percentage of millennials. However this cohort is also significantly less engaged with their organisation and more likely to leave in the following 12 months.