THE GLOBAL LEADERSHIP IMPERATIVE

1. THE GLOBAL LEADERSHIPIMPERATIVE capturing competitive advantage Presentation To Human Resources Planning Society March 8, 2006

2. Objectives • To determine major business challenges companies are facing today • To examine the degree to which companies believe they have adequate leadership talent to meet these challenges • To understand what leadership attributes and skills are needed to meet these challenges; and • To explore how companies are developing leaders with the necessary skills

3. The Study A global survey of 223 senior executives from large corporations across 17 industrial sectors in 44 countries was conducted in the Fall of 2005. Survey data was supplemented with a number of in-depth executive interviews (EADS, PepsiCo, Mattel, IBM, Bombadier). RESPONSES BY POSITION RESPONSES BY REGION RESPONSES BY ANNUAL REVENUE

4. For Discussion . . . What are the most significant business challenges your company is facing? To what degree are your leaders up to the task?

5. Key Business Challenges

6. Emerging Business Challenges Four business challenges are rated by a majority as critical or important over the next two years: • Increased competitive pressures in an environment where the actions of domestic and foreign competitors are increasingly unpredictable (83%) • The inability to respond quickly flexibly to rapidly changing marketconditions (67%) • Failing to innovate and to exploit emerging technologies (60%) • Satisfying increasing customers demands for quality, value and service (52%)

7. Leadership to Meet Challenges

8. Key Findings The results show that a majority of business executives believe their companies face leadership shortages to meet the future global business risks that are threatening their corporate performance.

9. Shortage in Leadership Capability • More than 75% say these challenges uncover weaknesses in their organization’s leadership pipeline. • Competitive pressures alone reveal deficiencies in more than 90%. Responding to change 85%, innovation 80% with customer satisfaction at 75%. • 72% say their companies are planning to take action to close these leadership gaps, yet only half of the companies have made sufficient investments to do so.

10. Key Attributes and Skills

11. For Discussion . . . If your budget for leadership development was $100, how would you allocate your investment across these categories . . , • Providing Strategy, Direction and Purpose • Understanding, Working With and Developing Others • Doing the Right Thing Based on Clear Values

12. What Capabilities Need to Be Developed? • Senior executives identify the profile of today’s successful business leaders as multidimensional. • They note their greatest challenge as “partial” leaders who show some strengths, but not all that are needed. • Mercer Delta Executive Learning Center categorizes the competencies ranked by the companies into three core competency areas: Head: Providing Strategy, Direction, and Purpose Heart: Understanding, Working with, and Developing Others Guts: Doing the Right Thing Based on Clear Values

13. “Whole” Leadership • Companies appear to have the greatest supply of leaders who are strategic, analytical, and purposeful (head). • They have the shortest supply of leaders who have emotional intelligence and can develop talent (heart) and have clear values and the courage to do the right thing (guts). • While one-dimensional leadership may have worked in simpler times, partial leaders struggle during an era of paradox, ambiguity, and unpredictability. Today’s world demands leaders who demonstrate a more “complete” set of qualities consistently.

14. Leadership Development Priorities • Within the three core areas of leadership competency, a number of specific leadership competencies were ranked for each business challenge. • Overall, thinking like a customer was the most highly ranked competency, and building a climate for innovation was chosen frequently as a priority. Generally, broader competency categories such as these were selected when the level of perceived risk of a particular business challenge was not taken into account. • As the level of risk associated with each of the four business challenges increases, respondents identify a set of more diverse and specific attributes and skills that emerge as more important.

15. Head: Leadership Development Priorities

16. Heart: Leadership Development Priorities

17. Guts: Leadership Development Priorities

18. For Discussion . . . How similar or different are these attributes from the leadership development priorities in your companies? Where are the gaps?

19. How Companies are Developing Leaders

20. For Discussion In developing leaders in your company, what’s the mix (%) of training, coaching and providing developmental leadership experiences? Why?

21. Leadership Development Based on the Leadership Pipeline: there are skill, time, and value development needs at each “leadership turn.” Source: The Leadership Pipeline, by Ram Charan, Stephen Drotter, and James Noel

22. Developing “Whole” Leaders Companies most often use: Training for Head • Self-directed learning (69% of companies) • Custom-designed programs (65%) • Open-enrollment programs (47%) Coaching for Heart • 360º feedback (65%) • Executive coaching (51%) • Formal mentoring (41%) Experiences for Guts • Action learning (62%) • Job rotation (55%) • Business scenario simulation (22%) Regional differences reveal that North Americans (64%) are more likely than their counterparts in Western Europe (46%) and Asia-Pacific (56%) to have identified the next generation of leaders and targeted them for development.

23. Approaching the Leadership Pipeline Strategically Action Learning Action Coaching StrategicLeadershipprograms Build and Maintain Leadership Pipeline Transform theBusiness Prepare the Future • Critical skills • Pool assessment • Accelerated development • Change-agent development • Leaders teaching leaders • Business-issue focus Develop theTargeted Few Educate and Train the Many Equip for Today • On-boarding • Special assignments • Executive coaching • Build the culture • Execute strategy • Advance key initiatives Few Many

24. For Discussion . . . What best practices have you observed in your own organization or others?

25. Key Findings • The study reveals that organizations that have effective processes for aligning leadership development with business challenges typically realize stronger financial performance than those that do not have such processes. • Companies with effective processes for assessing individual leadership-development needs were significantly more likely to have recorded an increase in sales and net incomebetween 2003 and 2004. • Approximately 30% acknowledge they do not have a good understanding of the leadership capabilities required to meet their strategic business challenges, and have not developed leadership methods to ensure their executives can meet their most pressing business issues.

26. Some Thoughts in Closing . . . • Complex times call for complete leaders: head, heart and guts • Companies that approach leadership development strategically will have an advantage over those that select and implement programs and techniques ad hoc. • A leadership development program will not succeed unless it is a business imperative that is led and supported by the CEO and his or her executive team.

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