Noah Rabinowitz on August 23, 2017.
A critical decision when looking to transform your business is “who should lead the transformation?” Who are the leaders in my organization that are going to create exponential value? Who are the game changers? In a perfect world, this is an easy question to answer because you have a well-developed bench of ready, willing, and capable talent. In reality, however, this is actually much harder because organizations around the world face a shortage—not a surplus— of these unique transformational leaders. As a result, organizations often face a critical question—to build or to buy transformative talent?
In our first post in this series, we explored how to better assess whether you have the right leaders to lead transformational efforts by evaluating the leaders you have today against the leaders you need in the future. Nothing terribly new here—a classic gap analysis of what you have vs. what you need. Most, if not all, organizations that go through this exercise (in an honest way) uncover a gap.
If you determined the gap is large, you aren’t alone. In fact, 89 percent of executives in this year’s Global Human Capital Trends report rated the need to improve or strengthen leadership as an important organizational priority. In simple terms, 89 percent said they don’t have the talent they need. That’s a problem for performance, transformation, and competitiveness.
In the face of this persistent leadership gap, we have to ask, What’s next? With the onset of digital transformation and digital organizations, companies in all industries are logically scrambling for “digital talent.” And as many never saw this coming, too many are caught back on their heels, reacting to gaps that have only become obvious in the last few years. For a quick and gratifying fix to this acute problem, they often opt for the (relatively) easy solution of buying the skill set from the outside—often paying a hefty premium for the in-demand capability that is trending at that moment.
But going outside for transformational (digital) leaders isn’t always the right answer. Leaders from the outside typically take longer to get up to speed in their new role, sometimes struggle to adapt to the culture, often nostalgically look backward to the way it was in their previous life, and frequently derail before they ever have the chance to make a material impact. (Research shows that 40 percent of newly hired or promoted executives fail in their new job within their first 18 months.1) That said, it’s still not surprising that organizations consistently go outside, given that only 44 percent of incumbent leaders are building talent for competitive advantage.2 Bottom line: not enough leaders are building talent, benches are weak, and organizations aren’t grooming enough transformational leaders from inside.
And if this isn’t enough, the problem is compounded by the 22 percent of leaders who state that developing talent is either exclusively HR’s responsibility or that they don’t know whose responsibility it is3 (frightening). These kinds of data points persist and are an ongoing concern. Despite years of talking about the advantages of “growing your own” and buying all kinds of “predictive” talent and leadership tools and solutions, companies are still failing to build talent from within and create a bench of leaders ready to confidently step into the complexities of an uncertain future.
Here at Deloitte’s Leadership practice, we believe that growing talent from within is typically the better choice for a variety of reasons, including financial. In a study conducted at the University of Pennsylvania, Matthew Bidwell found that external hires get paid approximately 18 percent more than internally promoted workers, yet perform worse (based on significantly lower performance reviews).4 Considering those costs along with the approximately 70 percent failure rate of transformation efforts,5 we can see that while it may seem easier to hire from the outside, the odds of it paying off are less than 50-50. In many cases, organizations are getting less effective talent for higher price—not really an attractive value proposition.
As you evaluate the build-or-buy decision and weigh internal vs. external candidates, the following considerations can help you gain greater confidence in your final choice.
Understand the breadth and depth of the gap
Having a deeper understanding of the leaders currently on your roster and what you are looking for in a transformational leader can help whether you decide to build or buy. Get clear on what you are evaluating, looking at both capability (what someone can do today) and potential (what someone may be able to do tomorrow, with the right development). As we discussed in our previous post, successful leaders share some common characteristics, such as stress tolerance, the ability to recognize and react to patterns, and the willingness to trust others quickly. These core characteristics help leaders bounce back from setbacks, anticipate outcomes, and collaborate readily.
Identify desired traits—the building blocks of transformation leaders
To identify these traits, you have a number of options. When you look at capability, you’re often looking at someone’s ability to perform the role and cope with the demands it would present today. In contrast, potential is more about core personality characteristics that determine how fast someone develops capability, and can predict someone’s future likelihood to succeed in different roles. This is assessed through a variety of in-depth leadership assessments that focus on measuring capability and potential in an objective, unbiased manner by a trained professional (things like things like deeper-dive interviews, personality measures, and cognitive assessments) and putting together patterns of behavior that come together over the course of a lifetime vs. how someone performed in a specific role.
Certainly past performance is not always the best predictor of future performance and certainly not of transformational impact. But past performance can give you an indication of the way people tend to make decisions and react to situations. Most people display specific patterns over time, tending to be more or less risk-averse, interested in experimenting with new things, or likely to rely on tried and tested approaches to fixing problems. Those are the kinds of personality characteristics and patterns to look for, rather than defaulting to thinking, “They were successful in this role, so we think they’ll be successful in the next level up.”
Find the hidden gems
Who has the makings and innate characteristics of a transformational leader? Who has the building blocks that, if cultivated and harnessed early, can be shaped into the leader you need to drive transformational change? Often the default leaders use when evaluating someone’s potential for the future is to ask, “How much does this person resemble me? If I was successful to get where I am today, I need to find candidates who look like me so they’ll also be able to step up and into this role successfully.”
Looking for a specific set of core characteristics and having a dedicated way of measuring those characteristics counters this type of “similar to me” bias. These characteristics will likely be found in people from many different backgrounds and with many types of experience. Looking at core potential characteristics acknowledges that many paths that can lead to good outcomes and you don’t necessarily have to follow the same path. So even though two individuals may be willing to take risks in different ways or may experiment and look for innovations in different ways, they are both very high in their willingness to do these things. (In the context of Business Chemistry®, they interact with others in the Pioneer style.) As a result, both could be successful in leading a cutting-edge transformation because they feel more comfortable experimenting and playing around with new topics and new technology.
In a similar vein, individuals perceived as troublemakers or renegades could actually have great potential to be change makers. Managers quick to look for potential in people similar to themselves can easily discount people who are outspoken, challenge decisions or actions, stand firm in their views, or appear disengaged (when they may actually be bored). In reality, much like the “problem child” in the classroom who is actually gifted, these individuals could have the very personality traits, the building blocks, to become an excellent transformational leader with the right development.
If you worry about investing in developing Millennial talent because you fear they may just jump ship, consider how the generation’s penchant for change and lifetime of experience with near-constant technological innovation could be an asset in driving transformation. By dismissing the voice and the input of a generation that is helping to define the marketplace, you may be missing out on a significant opportunity.
Recognize that part of the tendency to frequently change employers is based on looking for something that feels like the right fit and provides new opportunities. It’s a difference in goals and expectations, rather than a desire to job hop. So if you can spot high-potential individuals and nurture and develop them in an environment that engages them and gets them excited about the work, that’s one way to have transformational leaders going forward.
A need that’s both immediate and long-term
Clearly, building leaders is a multiyear investment, making it imperative to start sooner rather than later. You may have no choice but to buy external talent at the same time you are developing it from within. We’ll dive deeper into strategies to build a bench of transformational leaders in our next post, “Leader-proof your transformation efforts: Becoming agile.”
1Anne Fisher, “New Job? Get a head start now,” Fortune.com, February 17, 2012.
2Andrea Derler, High-Impact Leadership: The New Leadership Maturity Model, Bersin by Deloitte, September 20, 2016.
3Andrea Derler, High-Impact Leadership: The New Leadership Maturity Model, Bersin by Deloitte, September 20, 2016.
4Matthew Bidwell, Paying More to Get Less: The Effects of External Hiring Versus Internal Mobility, University of Pennsylvania, December 27, 2011.
5Michael Bucy, Stephen Hall, and Doug Yakota, “Transformation with a capital T,” McKinsey Quarterly, November 2016.