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Follow the Leaders

The 2011 Top Companies study identifies organizations that do the best job linking leadership-development programs with business strategies. It's crucial that HR plays a key role in making that connection, but senior leaders must be accountable as well -- and directly involve themselves with developing their direct reports.

Monday, November 28, 2011
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Every HR professional knows there's a clear connection between investing in leaders and achieving greater financial results. Building strong leadership development programs that effectively link to business strategies, however, is an area where many CEOs have found their organizations to be lacking.

Perhaps these firms and their HR executives could take a cue from the organizations heading the 2011 list of Top Companies for Leaders, an annual study conducted by Aon Hewitt and the RBL Group.

This year's list -- compiled from more than 900 executive interviews and 1,200 data points -- found companies such as IBM, General Mills, Procter & Gamble, Colgate-Palmolive and McDonald's Corp. among those with the strongest leadership practices and cultures.

Companies were also ranked on business performance, company reputation and alignment of business and leadership strategies.

There may be no magic formula for tying leadership programs to business strategies, but the top-ranking companies in this study share some similarities in how they make that connection, says Dave Ulrich, co-founder and partner of the RBL Group, a Provo, Utah-based consulting firm, as well as a business professor at the University of Michigan.

"Leaders at Top Companies for Leaders realize that having a strategy for future growth is not enough without having the people to make that strategy a reality," says Ulrich. "The study found a statistically significant difference between top companies ... and other companies in whether they include workforce planning ... [and] existing and future leadership needs as part of their strategic business-planning processes."

Shelli Greenslade, a consultant with Aon Hewitt and research manager for Top Companies for Leaders, says top companies don't do leadership development "for development's sake. Rather, it is an intentional linkage to develop and cultivate a pipeline of leaders who can execute and deliver on the strategic agenda."

A key differentiator from other companies is that "their senior-most leaders set and drive the strategy," says Greenslade. "They own it. Top companies do not consider this an HR activity. The business strategy is not set and then the talent discussed and a plan put in place. It happens at the same time. Leadership strategy is inherently connected to the business strategy."

This year's study also found that stakeholders at 92 percent of top companies understand how their leadership creates value, compared to just 78 percent of all other organizations.

It's up to HR executives to carry that message, says Debra J. Cohen, senior vice president of knowledge development at the Alexandria, Va.-based Society for Human Resource Management.

"HR plays a key role in communicating the link between employees and the company's strategies and values," says Cohen. "HR, as a strategic partner within the organization, should have a strong and open line of communication with all employees."

Ulrich says HR leaders first need "to connect external stakeholder expectations to investments in leadership. Our study found that most companies have created competency models, but 100 percent of the top companies incorporate customer and investor expectations into leadership skills, versus 70 percent of the other companies.

"Secondly," he says, "HR needs to remember that the best companies are led by leaders who build leaders," noting that the Aon Hewitt/RBL Group study found top companies are more likely to have leaders -- at all levels -- who spend more than 20 percent of their time directly involved with leadership-related activities.

"As these leaders move up the ranks, they continue to be involved in development programs, and are able to reinforce customer-centric content and communicate the company's strategies and values in their interactions with leaders," he says.

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Greenslade says top companies also use a number of outcome-focused measures to size up their leadership development processes, noting that HR should be the driver of evaluating the organization's programs -- to measure the effectiveness of key leadership programs and assess the organization's ability to maintain a strong leadership pipeline.

For example, many of the study's top companies look at the performance of individuals six, 12 and 24 months after they are placed in their leadership roles, she says.

Such organizations, she says, also look at performance after the inclusion in development programs, and ask questions, such as: Did the person's behavior change? Did his or her team's engagement scores increase? Was performance increased?

In addition, top-performing companies track the amount of time their boards of directors, CEOs and senior management spend reviewing talent, succession planning and creating development plans.

These metrics "can help the leadership team think more strategically about leadership needs, both short- and long-term," says Greenslade. "The data [the team] has today may not be perfect, but this may be all that's needed to begin discussing leadership needs."

By serving as the "collection hub" for these analytics, she says, HR can boost its position as a business partner in the talent-review, succession-planning and development-planning processes to identify key talent, create rigorous and relevant development plans, drive consistent, data-based talent reviews, and conduct workforce planning and projections.

It's not just collecting the metrics, but analyzing which are most important to the organization, Ulrich says, in terms of its leadership practices.

"Top companies measure and incentivize leaders at all levels in the organization to live the organization's leadership brand and to develop direct reports," he says. "HR can ensure that performance-management and succession-planning processes look not just at what a leader gets done, but also at how they get it done, and the strength of the team that an individual leader has built.

"HR metrics matter," he says, "but it is more important to make sure we are measuring what matters most."

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