Some may regard human-capital management, fairly or not, as a rather soft, amorphous, ill-defined discipline, compared to such razor-edged financial and business pursuits as capital acquisition and allocation, mergers and acquisitions, and product development.
But here is a statement that could not be more clear or true: Around the world, developing leadership capabilities is viewed as the most crucial need among what are commonly considered human-capital functions.
Deloitte Consulting surveyed 2,572 human-resources and non-HR leaders in 94 countries. Among the participants, about two-thirds of which were on the HR side, 38 percent cited leadership as an “urgent” human-capital priority. The next-most urgent issue was retention and engagement, at 26 percent.
Adding the respondents who said those issues were either urgent or “important,” leadership beat retention and engagement, 86 percent to 79 percent.
Then came “reskilling the HR function” (77 percent), talent acquisition and access (75), workforce capability (75), global HR and talent management (72 percent), talent and HR analytics (71), learning and development (70 percent), performance management (68), HR technology (68), “the overwhelmed employee” (65) and diversity/inclusion (59).
Leadership development is a $25 billion industry, according to Deloitte, including everything from basic books on how to be a good supervisor to $25,000-a-week classes for top executives at leading business schools. Still, many companies under-spend in this area, says Josh Bersin, principal and founder of Bersin by Deloitte, an arm of Deloitte Consulting focused on human-capital management.
A select group of “high-impact” companies, representing less than 10 percent of the survey respondents and chosen based on various financial and business-alignment metrics, spent an average of $3,500 per person per year to develop mid-level leaders. “All of our data, from this report and other research on leadership, shows that leadership development almost always comes up as the No. 1 issue and that companies that spend more on it tend to outperform those that spend less,” Bersin says.
But it’s not a matter of simply throwing money at a problem, hoping everything will work out fine. What is the key to spending wisely?
“The main key is to have a framework for leadership and management that clearly defines how leaders behave,” says Bersin, and simply having that may be more important than what the framework looks like.
He points to three very large, well-known companies that are considered among the best-managed in the world. “Each of them is pushing leaders in different directions,” he says. One is pushing for innovation, rigorous attention to detail and a focus on quality. Another most values business analysis, business-case development, return on investment and financial acumen. The third has a pervasive sales culture, where leaders are rewarded for spending time with customers.
“If you don’t have a model, and you just say ‘Oh, here’s a book on leadership, go read it,’ you’ll end up with inconsistent behavior among all your managers. They won’t treat employees equally,” Bersin says. “Worse, you can’t move people around. You can’t move a high-performing, high-potential performer from one group to another because you don’t really know what’s going to happen” when that a person is placed under a leader with different priorities.
Another key to spending wisely on leadership development is creating processes that identify where all the training dollars are going.
“There may be a training department or a corporate university but it may account for only 50 or 60 percent of the company’s total training spending,” says Bersin. “The manufacturing plants or the sales offices, or whatever, are just buying courses. There is a lot of waste — two different courses teaching the same subject in different ways, two people buying the same thing. CFOs should spend a little time forcing the organization to rationalize where this money is going.”
Companies may spend as much as 3 percent of revenue on training, according to Bersin.
There’s a fairly new dynamic that may ultimately allow companies to save big bucks on leadership development. That is, top schools are being disruptive, with professors putting their courses online. “Harvard, Stanford, MIT, Berkeley — courses you pay to take at those universities, you can now take online for free,” says Bersin. “You might not like the online learning experience, but you can get the content.”
Some corporate training departments are looking at this, he notes, although “it hasn’t shaken out yet.”