Leading from the front

by 04 Mar 2008

Although most organisations now recognise the urgent need to develop new leaders to fill their talent pipelines, many dont know where to start. Teresa Russell speaks with GE and Toyota about the process and how they go about developing their leaders

Hay Group’s annual survey of almost 800 companies worldwide has named General Electric (GE) the best company for leaders for the second consecutive year. In the study, 86.1 per cent of respondents felt a greater urgency to develop new leaders when compared to a few years ago. The urgency has increased because of the need to replace the generation of baby boomer leaders exiting the workforce.

The survey identifies seven best practices that are most effective for leadership development (see box), but notes that the top three practices – availability of leadership development opportunities; creating work climates that motivate employees to do their best; and training whole leadership teams – drive the other four best practices.

Three key elements for sustainable leadership are firmly established in the listed organisations. They are that leadership development of all kinds is occurring at all levels of the organisation; managers are held accountable for their leadership behaviour and the work climates they create; and that the development of teams is just as critical as the development of individuals. The authors of the survey conclude that without these three practices firmly established, organisations waste time, effort and dollars with one-off events that cannot be sustained.

Long-term commitment

Under the stewardship of Jack Welch from 1981–2001, GE’s leadership development model became the subject of many a case study, thesis and book in the world of business. He believed passionately in management education, people and leadership and drove the company’s growth, becoming the largest in the world. Jim Nolan, vice-president of human resources for GE Australia and New Zealand, says that GE opened a corporate university training unit way back in 1956 in an effort to embed the GE leadership model throughout the organisation. Today the company spends around US$1 billion ($1.1 billion) annually on learning and development for its 325,000 employees. The company reported US$22.5 billion ($24.4 billion) in annual profit in 2007.

Jeff Immelt, GE’s current CEO, has changed the direction of the organisation since 2001, by challenging its managers to achieve 13 per cent growth each year – of which 8 per cent should be organic growth. “We needed a cultural shift to take us to the next level of customer-centricity and deliver that organic growth,”says Nolan. The challenge has been met with 2007 being the first year in which more than 50 per cent of staff and 50 per cent of revenue comes from outside the USA, making GE a truly global organisation.

Heather Box, corporate manager organisational development at Toyota Motor Corporation Australia, says that rapid international organisational growth since 2001 has driven the development of leadership programs across the global organisation. “Toyota has always had a strong culture of on-the-job development in a role, using project work for stretch opportunities. But with the huge global growth we have experienced, we needed to ensure external hires got knowledge transferred to them quickly,” she says.

In 2001, the organisation documented its core values and beliefs, known as The Toyota Way. Each area (such as manufacturing, sales and HR) next defined how those values translated into competencies and practical behaviour for each area. Peter Lawry, manager capability development, stresses that these values and competencies remain culturally sensitive, citing the example that the practical meaning of “respect” can differ between cultures and countries.

In 2005, Toyota Business Practice defined the logical problem solving process and behaviours that enable employees to uncover and understand problems, then address them to ensure continuous improvement.

Target the whole organisation

Both Toyota and GE run leadership development programs across their global organisations, including whole teams of people. “You can train the leaders, but then nobody else gets it. If the team is trained together, they learn about each other and it results in a much bigger impact,” says Nolan.

“As a company that produces high-quality vehicles, teamwork is seen as a vital value at Toyota. We emphasise teamwork throughout the whole organisation. An example is the use of quality circles where teams identify and solve problems at the shop floor. Teamwork is also emphasised in our process analysis and performance appraisal,” says Lawry.

“It’s not about developing one or two stand-out leaders. Good leaders across the organisation then develop leaders underneath them,” adds Box.

Using different names for their specific programs, both companies have leadership development courses for senior leaders, middle management and supervisors/junior managers. These are designed at a corporate level and rolled out across each organisation using trainers accredited at corporate training headquarters.

Nolan says that many companies have tried to mimic GE’s Session C process. This formalised process involves a review of people, successors, development plans, business strategies and skills gaps with the CEO and HRD ensures each business unit leader understands what talent is like all the way up the organisation. “The HR strategic review at GE is just as important as the financial review,” explains Nolan.

Return on investment (ROI)

Toyota and GE spend enormous amounts of money on their leadership development programs, but neither company uses ROI to justify the existence of their programs. “The view at GE is to not spend time measuring ROI for training. We know it works. The biggest measure for us is, ‘Do people want to work for that leader? Do we see a skill gap close? Are they going to be in the succession plan?’ The best measure of ROI is growth – personal, organisational and profit growth,” says Nolan.

“We have lots of different KPIs and targets. We don’t measure ROI. We expect better behaviour and have to see continuous improvement to know that our leadership programs are working,” says Box.

Organisational alignment

“HR can let itself down by working on stuff that is detached from the business agenda. You must not detach leadership development from your organisation’s requirements. The HR agenda should be the business agenda, which means it will get senior leadership support and you won’t have people asking you for an ROI analysis,” says Nolan.

Nolan says that GE’s leadership discussions are “operationalised”. “Don’t have ad hoc discussions about leadership or try to get a few hours at a senior leadership meeting. It deserves forethought. You’ll get a good gap analysis and better solutions if your senior team discusses leadership on a regular basis,”he says.

Box says it is important to understand the industry and environment you are working in. “Training must be aligned to business needs. You can’t just tick a box. There has to be a purpose behind the development. You therefore can’t take someone else’s leadership development program and roll it out in your own business,” she concludes.

Best leadership practices

1. Leadership development opportunities are made available to managers

2. Managers are held accountable for creating a work climate that motivates employees to do their best

3. Training and other activities intended to help leadership teams work together more effectively (eg team coaching, training programs for intact teams) are provided

4. Talent management led by an in-depth analysis of the roles that need to be filled in the future

5. Leadership training and development opportunities intended to help leaders transition into a new roles

6. Working abroad/international experiences

7. External hires participating in formal orientation programs to prepare them for leadership positions

Source: Hay Group