Firms struggling to fill leadership pipelines

Many companies are having trouble filling their senior leadership positions and planning their workforce needs for the future, according to a new global report by The Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA).

The report, titled Creating People Advantage 2010: How Companies Can Adapt Their HR Practices for Volatile Times, released recently.

Some 56 percent of the corporate executives surveyed by BCG cited a critical talent gap for senior managers’ successors. Yet while it is generally easier and more effective for homegrown talent to step into leadership roles, companies fill more than half of their executive positions from outside, the survey found.

“Talent management needs are particularly critical at the leadership levels of the organisation,” according to Ernesto Espinosa, president of the WFPMA and a coauthor of the report.

“Succession planning needs to be integrated with leadership development programs, and this practice has to be standardised. The challenge for HR is to bring talent management practices of executives to the next level in order to support business growth.”

In addition, companies find it difficult to get a clear and accurate picture of the composition, age structure, and capabilities of their people in order to undertake strategic workforce planning. Only 9 percent of companies surveyed deploy a sophisticated workforce supply-and-demand model.

“Strategic-workforce-planning capabilities such as advanced analytics and scenario simulations have a long way to go,” said Rainer Strack, a coauthor of the report and a senior partner in BCG’s Düsseldorf office.

The report is part of BCG’s broader online survey of 5,561 human resources and business-unit executives from 109 countries and numerous industries. These views were collated from December 2009 through March 2010 and were supplemented by detailed, face-to-face interviews with more than 150 senior executives, mostly from multinational companies.

Four human resources topics stand out as critical

BCG surveyed executives on 21 HR topics, of which respondents deemed four to be critical:

• Managing talent—identifying, attracting, and retaining the right people—continues to be perceived as the most important topic for companies’ futures. But corporate capabilities in this area have improved only slightly since BCG’s 2008 global survey on HR topics.

• Improving leadership development has risen in perceived importance over the past two years. As noted, 56 percent of survey respondents cited a critical talent gap for senior managers’ successors. In volatile times, leaders who can convey the company’s vision and motivate employees are invaluable. It is generally easier and more effective for homegrown talent to step into leadership roles. Yet companies fill more than half of their executive positions from outside, suggesting that internal leadership-development programs, such as corporate “universities,” need to be improved.

• Strategically planning the workforce has moved higher on the agenda as companies return to growth after the economic crisis and recession. Companies need a clear and accurate picture of the composition, age structure, and capabilities of their people. But executives rated current capabilities low in this regard. Business volatility and uncertainty increase the need to rely on advanced analytics, scenario simulations, and other sophisticated workforce-planning levers.

• Employee engagement suffered during the past two years, as many companies resorted to layoffs and other cutbacks. The survey found that flexibility measures such as job mobility and flexible work arrangements can help improve engagement. Strengthening the corps of middle managers, who supervise the majority of employees, is another means of bringing engagement back.

 “Companies have to learn from the crisis and be better prepared next time,” said Jean-Michel Caye, a coauthor of the report and a partner in BCG’s Paris office. “Measures such as job mobility and flexible work arrangements can help companies stay lean and are more effective than cutbacks over the long term.”

Practices of high-performing companies

In terms of perceived HR performance, respondents who were asked which company has the best HR practices overwhelmingly chose Google, followed by Procter & Gamble and Microsoft.

Perceptions aside, BCG sorted the responding companies by revenue and profitability over the past three years and then adjusted for industry-specific differences. Comparing the ranking of HR capabilities by high- and low-performing companies yielded several insights.

First, improving employee performance management and rewards was ranked the second-highest capability by high-performing companies, but only ninth by low performers.

Second, in general, HR departments are conducting too many initiatives, with mediocre outcomes. High-performing companies focus their efforts on fewer, more carefully chosen HR-related projects in areas such as recruiting and leadership development.

 “Even when they have a strong capability in an important HR area, these organisations keep refining and experimenting to grow even stronger,” said report coauthor Pieter Haen, president of the European Association for People Management (EAPM) and executive board member of the WFPMA.