Should firms build or buy top-level talent?

A global consultancy expert explains the best way to tackle the leadership shortage

Should firms build or buy top-level talent?
According to the latest Global Human Capital Trends report from global professional services firm Deloitte, 89% of executives rated the need to improve leadership as an organisational priority, claiming they didn’t have the talent they needed moving forward.

Ideally, they would have a deep bench of candidates to choose from. But with only 56% of incumbent leaders actively developing talent within their ranks, that pool is likely shallower than one would hope. With the global top-level talent shortage, many tend to look outside their firms instead.

At this point, however, organisations are faced with yet another problem. Research shows that 40% of newly hired executives fail their new jobs within their first 18 months – often citing a struggle to adapt to the new culture and difficulty getting up to speed in their new role.

This leads to the central question: Should firms build, or buy, their leaders?

According to Noah Rabinowitz, managing director at Deloitte’s Leadership practice, growing talent from within is often the smarter decision for many reasons, not least of which is financial.

He cited a study from the University of Pennsylvania that found that external hires get paid approximately 18% more than internally promoted workers, yet perform worse based on peer reviews. “In many cases, organizations are getting less effective talent for higher price—not really an attractive value proposition,” he said.

The bottom line, he said, is this: “Not enough leaders are building talent, benches are weak, and organizations aren’t grooming enough transformational leaders from inside.”

In weighing options between building and buying transformational leaders, Rabinowitz suggests that firms consider the following:

1. Capability vs. Potential
Rabinowitz advised that firms should look at both a candidate’s capability (what someone can do today) and potential (what someone may be able to do tomorrow, with the right development).

“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,” he said. “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.”

2. Overcome the “similar to me” bias
By default, most leaders evaluate potential by asking, “How much does this person resemble me?” This bias for assessing future success on the basis of one’s own past success often runs counterintuitive to the goal of finding new transformational leaders.

“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,” Rabinowitz said.

3. Stop discounting millennials
Finally, Rabinowitz suggested that firms look past the common stereotypes surrounding millennials. “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,” he said.

The group’s seeming penchant to job hop exhibits a difference in goals and expectations, not fickle-mindedness. “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,” Rabinowitz said.

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