Save a Million Dollars by Choosing the Right Leaders for Your Teams

Competence and technical expertise are not enough, unique context is key to choosing top-performing leaders for your business.

Maximize Results with Measures of Organizational Context

Today’s digital era promises exciting innovations, but the demand for strategic leadership is crucial for any business to be successful in this environment. Leaders right now are facing more pressures, a faster pace of change, greater responsibilities and increased complexity than ever before. It’s perhaps little wonder that excellent leadership continues to be rare and difficult to find. Leaders are often promoted then find themselves underprepared and/or undersupported during the transition to a broader remit. Despite the high stakes, it’s often left to leaders themselves to figure out how best to adapt and respond. In fact, nearly 50% of leadership transitions fail, resulting in productivity slumps and enormous costs and consequences to companies beyond the financial.

What’s Going Wrong – Why Now?

There is a strong tendency to over-rely on competence (i.e. skills, behaviors) and technical expertise when choosing leaders. Arguably leaders have already proved competence during their ascent, but gone are the days where leaders are expected to be experts. This approach, whilst sufficient in prior years where the economy and work environment were more stable, is an incomplete view of leadership needs in today’s volatile climate.

Executives and organizations are underestimating and underprioritizing the complex challenges leaders are facing now (industry-changing shifts tied to digitalization, increased transparency and public pressure and changes in how work gets done (1) to name a few) in leader selection and placement. Many leaders are struggling to cope with increased complexity, interdependence and change. Meanwhile, their organizations haven’t enhanced their leadership strategies to reflect these realities. A significant 45% of leaders say they don’t know how to apply shifts in leadership approach that cascade from their organizations to their local business context (2).

And leadership research is pointing towards a prevailing lack of confidence in leader capability and increase in role ambiguity.

Furthermore, many leadership initiatives still take a ‘one size fits all’ competency approach – with leaders being selected and developed based on static and broad (universal- or organisation-wide) competency models. No one expects a great rugby player to excel at tennis. Yet the idea persists, that great leadership skills are transportable across organizations; that a great leader will excel across all situations and business challenges.

32% of organizations would change members of their leadership team if given the opportunity.

Source: Gartner, Succession Planning for the Future, 2019

One of the best illustrations of this is research into leaders who have developed their skills at ‘CEO mills’ such as General Electric (GE). In 2006, Harvard researchers Groysberg, McLean, and Nohria (3) analyzed the performance of twenty former executives from GE who became either the Chairman, CEO or CEO designate in other major organizations. They examined the individuals’ experience at GE (e.g. growing a business, cutting costs, etc.) and found those that went into environments where they were able to capitalize upon their experiences yielded 14.1% annualized abnormal returns (i.e. actual returns compared to expected returns). Those who went to organizations that did not fit with their skill-set (i.e. mismatched pairings) saw -39.8% annualized abnormal returns.

So How Can HR Respond?

Today, more than ever, it’s the unique organizational context in which leaders operate that matters most. And when the role requirements for a position are anchored within local context, the precision on fit with role increases. What’s more, leaders gain much clearer, tangible insight into what they specifically need to do and prioritize in their role in order to be successful – and are therefore more likely to thrive and flourish.

Enhancing current approaches with a context-specific lens on leadership will leave organizations better placed to develop and deploy a more varied, dynamic and precise leadership strategy.

Just 10 bad leadership placements can cost an organization well over $1 million a year. That’s an unnecessary cost when statistically validated, field-proven, context centric diagnostics, and assessments are available today.

Key Steps You Can Take to Avoid Losing One Million Dollars

  • Engage with senior stakeholders who have insight and understanding of near-term and long-term external issues to which your leader and organization must respond.
  • Contextualize success profiles for leadership positions within a unique context i.e. leadership challenges and experiences unique to the industry, company, team, and role.
  • Provide resources to set leaders up for success during periods of major transition. Offer professional support to help them plan, prepare and adjust to unique challenges inherent in the new role, through executive coaching and mentoring. “What got them here won’t get them there” – significant career transitions often demand a need for leaders to break old patterns and learn new habits.

Great leadership happens when a leader’s experience, potential, capabilities and style align with the specific business challenges of the role. Relying on competency models is not enough and HR needs to ensure the approach for selecting, placing and supporting leaders is rigorously anchored in the real contexts in which leaders work.

Find out more about SHL’s approach to measuring unique organizational context and learn more about our leader solutions like Leader Edge here.

(1) & (2) – Gartner Reshaping Leadership to Prepare for the Future (2019) P2 & 14
(3) – Groysberg, B., McLean, A.N., Nohria, N. May 2006. Are Leaders Portable? Harvard Business Review P1-11


Author: Caroline Beeston