FOR companies around the world, a shortage of leaders is one of the biggest impediments to growth. This challenge is particularly acute today as the global recovery strengthens, companies seek to rapidly grow their businesses in new markets, and older leaders begin to retire at accelerating rates.

Leadership needs today are far broader and deeper than merely developing the next CEO or even building the C-suite pipeline. Companies face leadership gaps at every level of the organization. These gaps can only be filled through a sustained and systemic commitment to leadership development that identifies potential leaders earlier, brings young leaders online faster, develops senior leaders later in their careers and keeps them on the job longer, and builds new leadership pipelines at every level of the company.

The executives in our 2014 global survey viewed leadership as the highest-priority issue of all the issues we asked them about, with 86 percent rating it “urgent” or “important.” Yet, despite the acknowledged importance of leadership, most companies feel they are not meeting the challenge (figure 1):

• Only 13 percent of companies in our survey rate themselves “excellent” in providing leadership programs at all levels—new leaders, next-generation leaders, and senior leaders
• 66 percent believe they are “weak” in their ability to develop Millennial leaders, while only 5 percent rate themselves as “excellent”
• Over half (51 percent) have little confidence in their ability to maintain clear, consistent succession programs
• Only 8 percent believe they have “excellent” programs to build global skills and experiences

Developing 21st-century leadership skills

Not only are companies not developing enough leaders, but they are also not equipping the leaders they are building with the critical capabilities and skills they need to succeed.

Today’s market environment places a premium on speed, flexibility, and the ability to lead in uncertain situations. At the same time, the flattening of organizations has created an explosion in demand for leadership skills at every level.

Our research shows that foundational and new leadership skills are in high demand, including:

• Business acumen: Understanding the core business well
• Collaboration: Having the ability to build cross-functional teams
• Global cultural agility: Managing diversity and inclusion
• Creativity: Driving innovation and entrepreneurship
• Customer-centricity: Enhancing effective customer relationships
• Influence and inspiration: Setting direction and driving employees to achieve business goals
• Building teams and talent: Developing people and creating effective teams

A highly successful global technology company, for example, discovered that it needed four leadership archetypes: entrepreneurs who can start a business; scale leaders who can build up a business; efficiency leaders who reduce costs and improve operations; and fix-it leaders who turn businesses around.

The core capabilities for leadership are well understood. Yet Deloitte’s experience over the last decade suggests that the quality of leaders is declining. This would mean that companies need to reexamine and redesign their leadership development programs.

Our survey suggests this has become a highly urgent challenge for corporate leaders worldwide, especially in Brazil, Mexico, and the Netherlands. Executives in few countries appeared to be prepared to meet this challenge (figure 2).

Building the pipeline takes investment, time, and expertise

Building a leadership pipeline requires a high level of sustained investment. The entire industry of leadership development represents a $14 billion marketplace.¹ High-impact² companies in the United States spend more than $3,500 per person each year to develop mid-level leaders and over $10,000 to develop senior leaders.³

Strong leadership programs target leaders at all levels. At the early stages in the leadership pipeline, potential leaders need to acquire core skills in supervision and management, with frequent assignments to round out their skills. Later in their careers, rising leaders must understand all the business functions and how to run a P&L. As executives, leaders must learn business and product strategy and gain experience driving change among large teams.

It is also critical to understand that, despite the proliferation of leadership fads, there are no shortcuts to building a leadership team that is broad and deep. A new leader typically needs 18 months before feeling fully comfortable in a new role; for a mid-level leader, the time period stretches from 24 to 36 months.⁴

Creating new leadership paths

While most companies develop somewhat rigid leadership tracks, they may be better served by developing paths to leadership that are more flexible.⁵ Some leaders will move into a top role quickly due to situational needs or local talent gaps. Others will develop over the course of many years.

High-performing companies now develop leaders locally, tapping into local cultural experiences of potential leaders in each country.

In a recent study of top leadership progression at a major energy company, we found that the paths for successful leaders in China were dramatically different than those for leaders in the United States.⁶ US-based leaders took a more traditional path through a pre-defined set of business assignments; successful leaders in China were promoted much more rapidly. This discovery led top management to rethink the company’s traditional model and enable local teams to be more flexible in the leaders they develop.

The importance of leadership strategy

Building leaders requires more than a portfolio of training programs. Senior executives should create a culture that broadens the opportunity for leaders to develop in new ways. This means putting potential leaders in positions that stretch them beyond their current skill sets, and continuously coaching and supporting leaders so they can build their capabilities as rapidly as possible. While this is increasingly well known, in our experience it is simply not widely adopted and practiced.

This process is relevant to all levels of the organization and to all generations of employees. High-potential Millennial leaders are looking to be identified early and placed on accelerated development timetables. Mid-career leaders are looking for challenging roles that allow them to make capability leaps—deepening and broadening their leadership skills to prepare them for more senior roles and new business challenges.

Lessons from the front lines

BUILDING A “PATHWAY” TO LEADERSHIP

ANZ, a leading Australian bank and financial services provider, set out to transform itself into a “super-regional bank,” focusing on achieving aggressive growth outside its home markets of Australia and New Zealand. To meet these goals, ANZ had to ensure that its leaders had the distinctive set of capabilities necessary for the transition.

The first phase of the program built the foundation for organizational leadership in the region through the development of a unique ANZ leadership model with the full commitment of senior executives. The model identifed leaders at all levels and critical leadership transition points.

The competencies necessary for success were aligned to the new super-regional strategy and leadership model, and the company designed a “leadership pathway program,” including a set of bespoke learning programs for each leadership level, to support the development of super-regional leaders through enhanced leadership and business skills.

In the second phase, the pathway program was deepened through the adoption of an informal online learning tool implemented widely across the bank. A generalist bankers program brought the new strategy to one organizational level; an executive leader program was required for senior executives; and recommended learning was introduced for first-time managers. A speaker series brought the strategy to life for all staff.

Currently, in the third phase, the program has adopted a model of leaders teaching leaders, with a renewed focus on identifying and targeting high-potential leaders for the executive leader program. Thus far, over 5,400 people have completed programs in the pathway, logging close to 110,000 hours of learning. Business results for the bank have continued to improve throughout the strategy’s implementation. The bank is increasing its rate of internal leader promotions as well.

Thanks to a high level of commitment to the strategy throughout the company, measures of employee engagement have risen significantly, and senior executives are actively building and demonstrating the culture change necessary to achieve the strategy’s goals.

LEADERSHIP DEVELOPMENT AT ALL LEVELS ENABLES MISSION SUCCESS

Few organizations face more pressing demands for leadership than the United States Department of Defense.⁷

With more than 1.4 million men and women on active duty, 1.1 million serving in National Guard and Reserve forces, and 718,000 civilian personnel, the Department of Defense requires leaders at all levels capable of understanding complex security threats around the world, making split-second life-or-death decisions, and achieving mission success—all in highly volatile, ambiguous, and constantly changing environments.

To accomplish this goal, the department invests heavily in developing well-rounded leaders at all levels. Leadership training is embedded into every stage of a military member’s career. Completion of this training is typically required for promotion and advancement, so leadership is effectively built into the department’s performance and rewards system.

Prospective officers—the high-potential leaders of the military—undergo four years of progressively more challenging leadership training, either at a service academy or in an ROTC (Reserve Officers Training Corps) program, before they receive their commissions or first assignments. Officer candidates are pushed into leadership roles early and often, allowing them to continually build their leadership skills over time.

Upon graduation, officers typically receive leadership training at every stage of their careers. Those officers that reach the highest levels of command typically attend at least three formal schools, with specific leadership training that ranges from several weeks to up to nine months. During this time, officers focus solely on improving their leadership skills and are free from day-to-day assignments that distract them from their training.

At every stage in their career, officers are pushed to expand their leadership skills through training and hands-on field experience. Critical skills such as teamwork, clear communication, contingency planning, adaptability, time management, and aligning priorities and strategy are continually reinforced. The result is a leadership training program that embodies best practices and builds leaders at every level of the organization.

Where companies can start

Building a global leadership pipeline takes time, investment, and executive focus.

Potential starting points include:

• Engage top executives to develop leadership strategy and actively govern leadership development: Focus on gaining executive commitment to the process. Two trends are gaining traction. First, companies are involving their executive teams, and increasingly boards of directors, in the leadership process by providing them visibility to and soliciting their input on the leadership pipeline, gaps, and programs. Second, business leaders are recognizing that their direct involvement in leadership pipelines and gaps is critical for anticipating challenges in developing and implementing future strategies.
• Align and refresh leadership strategies and development to evolving business goals: Different business goals—growth, innovation, quality, new markets, acquisitions—require different combinations of leadership experiences and capabilities. As businesses, technology, and competitive and regulatory environments rapidly change, companies are challenged to create new types of leaders with more varied and deeper leadership experiences.

• Focus on three aspects of developing leaders:

1. Develop leaders at all levels. Companies are run by first-line supervisors and middle management. Invest in these levels as well as in top leadership roles.
2. Develop global leaders locally. The days of expatriate leaders are over; high-performing companies build local leaders from the ground up.⁸
3. Develop a succession mindset. It takes years to build great leaders; the pipeline should be growing continuously.

• Implement an effective leadership program: Each company needs a unique leadership program. Successful organizations often ensure that their programs feature current leaders teaching future leaders—an idea that has been around for some time, but just not practiced widely enough. Assign a top business and HR executive to take responsibility and be prepared to spend significant time and money. In developed markets this can be in the range of $2,000 and $10,000 per leader every year. Focus on how to develop leaders more quickly by simplifying competency models, using action learning, and assessing leaders with analytics.⁹

Deloitte Human Capital Consulting