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2015 Outlook: 7 Leadership Practices Linked Directly to Corporate Financial Success

New Global Research from DDI and The Conference Board

PITTSBURGH—In the volatile, uncertain, complex and ambiguous (VUCA) business landscape expected to continue for 2015, leaders face many challenges, requiring aggressive, sustained talent management strategies to prepare them for success. New research from DDI and The Conference Board, titled The Global Leadership Forecast (GLF) 2014 | 2015, Ready-Now Leaders: Meeting Tomorrow’s Business Challenges, examines the relationship between leadership practices and financial performance in this environment and identifies the seven specific leadership best practices most unique to organizations in the top 20 percent of financial performance.

The report—the seventh since DDI began this research in 1999—consists of responses from an unparalleled participant pool of 13,124 global leaders and 1,528 human resource executives within 2,031 participating organizations. Forty-eight countries and 32 major industries are represented, as well as multinationals and local corporations. Eighteen significant findings are detailed in the report.

According to the research, 25 percent of organizations report their leaders are not capable across any of the VUCA challenges. “This report is a breakthrough because it examines specific talent practices that drive financial performance to help organizations prepare their leaders to manage in this new business environment,” stated Rebecca Ray, Ph.D., The Conference Board, Executive Vice President, Knowledge Organization and Human Capital Practice Lead and study co-author.

Participating organizations that are publicly traded on global financial markets were divided into groups that included those in the top 20 percent of financial performers and those in the bottom 20 percent, based on a composite index of financial performance and external metrics on profitability, earnings per share, five-year rate of return to investors and stockholder equity. The following seven leadership best practices identify what organizations in the top 20 percent of financially performing companies are doing differently from the bottom performers and how much more likely they are to be successful compared to organizations that are not using the identified best practice.

  1. Three times more likely to have VUCA-capable leaders. The report identified the top four skills that have the greatest impact on leader preparedness and confidence in addressing VUCA challenges: introducing and managing change; building consensus and commitment; inspiring others toward a challenging future vision and leading across generations. More than 33 percent of HR professionals surveyed view their organization’s leaders as not capable of meeting each of these challenges. Only 18 percent identified their leaders as “very capable.”
  2. More than three-and-a-half times more likely to have effective high-potential programs in place. Having a quality, highly supported program can mean the difference between retaining or losing a high-potential leader—participants are 50 percent less likely to leave than those in weakly supported programs. Targeting the right-size pool is equally critical. Organizations with a larger pool of high potentials (35+ percent) risk lower levels of engagement and retention (33 percent) than those with a smaller pool (15-30 percent) since resources are spread too thin. Organizations with too few high-potential leaders (5-10 percent) have an even greater risk.
  3. Two times more likely to place value on interacting over managing skills. The research also indicates organizations that value interacting are two times more likely to have highly engaged leaders, 3.5 times more likely to have strong current leaders and have 20 percent more of their leaders ready to fill critical roles. Leaders in companies prioritizing interaction skills are more effective at coaching and developing others; communicating and interacting; developing strong networks and partnerships; fostering employee creativity and innovation; and identifying and developing future talent. Conversely, organizations that focus heavily on managerial responsibilities report less job satisfaction, higher turnover and lower engagement among leaders.
  4. Three times more likely to incorporate an integrated learning journey versus a course-list approach when developing their leaders. The research revealed learning experiences are often considered in isolation only instead of as learning journeys that incorporate planned sequences, integrating on-the-job and formal learning opportunities. By viewing on-the-job learning more like formal learning and vice versa, organizations can benefit from the strengths of both forms and generate strong development outcomes for leaders and greater business value.
  5. Six times more likely to use analytics to predict future leadership talent needs. The research focused on several forms of leadership analytics that ranged from basic to advanced to better understand the gap between HR analytics practices and recognized value to the business. The study found that 47 percent of organizations do not do any kind of leadership analytics well. Worse yet, only one in 20 did all forms well. An even larger issue: What organizations are doing rarely produces value for the business. Thirty percent of organizations are using low-value analytics such as gathering efficiency and reactions metrics about leadership programs while only 21 percent are effectively using analytics that reap greater financial gains such as gathering business impact metrics about leadership programs and targeting the gap between current leader readiness and long-term business objectives.
  6. Four times more likely to have built a strong pipeline of ready-now leaders to fill available critical roles. Across the entire sample, on average, only 46 percent of available positions could be filled immediately by internal candidates. Organizations that don’t link leader performance expectations to organizational strategy have the greatest decrease in the percentage of ready-now leaders (11 percent). The greatest increases occur when organizations incorporate high-quality, effective development plans (nine percent).
  7. Twelve times more likely to have gender balance in their leadership ranks, with women in at least 30 percent of leadership roles. Those in the bottom 20 percent counted only 19 percent of their leaders as women. This trend held for female high-potential leaders as well. For organizations in the top 20 percent, 28 percent of leaders were high-potential women.

“In highly competitive fields and in the midst of ongoing economic uncertainties, organizations need to leverage innovative and creative ways to develop their leaders’ required skills,” said Rich Wellins, Ph.D., DDI Senior Vice President and study co-author. “Armed with the information in this report, organizations can make better decisions about their leadership practices and development that directly link to positive business outcomes in the current and projected VUCA business environment.”

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