How winning companies develop leaders mit sloan - fall 2000

Developing Leaders: How Winning CompaniesKeep On Winning

Robert M. Fulmer,Philip A. Gibbs &Marshall Goldsmith

Reprint 4214

MassachusettsInstitute of Technology

Fall 2000

Volume 42Number 1

MIT

How do General

Electric, Hewlett-

Packard and

Johnson & Johnson

keep a steady

stream of leaders

moving up? By

focusing on the

five essentials of

leadership

development.

Sloan Management ReviewFall 2000

Fulmer • Gibbs • Goldsmith

49

Developing Leaders: How WinningCompanies Keep On Winning

Robert M. Fulmer � Philip A. Gibbs � Marshall Goldsmith

Robert M. Fulmer is professorof management at theGraziadio School of Business,Pepperdine University. PhilipA. Gibbs is a visiting profes-sor at the College of Williamand Mary, where he teachesstrategic management andmergers and acquisitions.Marshall Goldsmith is co-founder of Keilty, Goldsmith &Co. Contact the authors at:[email protected], [email protected] and [email protected].

Last June, as the business world watchedexpectantly, General Electric (GE) promot-ed three key executives (David Calhoun,Joseph Hogan and John Rice). Each wouldreport to one of the three potential candi-dates to succeed CEO Jack Welch (JamesMcNerney, Jeffrey Immelt and RobertNardelli). Thus, if one of the latter movesinto Welch’s office, another seasoned GEprofessional will be ready to assume hisrole. Where do GE leaders come from?They do not spring up out of the earthovernight. For many years the companyhas worked hard to develop ongoingsources of leadership talent — not only toprepare for Welch’s retirement next year,but also to enrich every level of the orga-

nization with strong leaders. When RonaldReagan was spokesperson for GE, theirslogan was, “Progress is our most impor-tant product.” Today the mantra could be,“Leaders are our most important product.”

Leaders who keep learning may be theultimate source of sustainable competitiveadvantage. With that understanding, manycompanies are investing in leadershipdevelopment (programs that help keyexecutives learn leadership skills). Asearly as 1993, Business Week estimatedthat $17 billion was being spent annuallyon helping managers develop the thoughtprocesses and company-specific skills thatcould enable them to move up and lead

their business areas. Training magazine estimates thatin 1998 U.S. companies spent $60.7 billion on train-ing.1 But spending isn’t the only commitment. World-class executives are investing significant amounts oftheir time personally guiding and mentoring futureleaders.2 To them, leadership development is not aluxury but a strategic necessity.

What processes transform managers into strong leaders ready for strategic action? How do the bestleadership-development organizations design, manageand deliver world-class programs?

In January 1998, the nonprofit research groupAmerican Productivity and Quality Center, based inHouston, the American Society for Training andDevelopment, based in Alexandria, Virginia andauthor Robert Fulmer set out to find the answers. Thegroup developed a study to investigate best practicesin leadership development; in 1999, they expandedthe study to explore the challenge of developingleaders at all levels of an organization.3

Thirty-five organizations participated as sponsors. (See“Benchmarking Methodology.”) They sent representa-tives to a planning session, completed data-gatheringsurveys and attended or hosted on-site interviews.(See “Study Sponsors.”) The consortium identified six companies as having a strong or innovative leadership-development process. Those six agreed toparticipate in the study as best-practice partners. (See“And the Winners Are…Best-Practice PartnerOrganizations.”) They were chosen because theyexhibited commitment to developing leaders — but withmarked diversity of approach, emphasis and culture.

The Strategic PerspectiveMost significant: Best-practice partners reported thatthey tied leadership development closely to businessstrategy and that they invested financial resources init. CEOs did not support the programs out of a respectfor education but from a conviction that such pro-grams can assist in aligning functional areas with cor-porate strategy. Johnson & Johnson, for one, revisedsuccession planning and performance-managementsystems to reflect the qualities anticipated by a leader-of-the-future exercise in a leadership-developmentconference.

Increasingly, programs that focus on developing futureleaders are seen as a source of competitive advantage.

GE’s CEO, Jack Welch, described the company’sLeadership Development Institute in Crotonville, NewYork, as a “staging ground for corporate revolutions.”In fact, innovative ideas such as the Six Sigma quality-improvement program and GE’s expansion intoemerging economies have come from presentationsmade at leadership-development events. Tremendousgrowth, reductions in the number of GE employeesworldwide and significant delayering of the organiza-tion in the 1980s and 1990s caused an enormous cul-tural shift. With fewer layers of management, individ-uals received fewer vertical promotions and hencefewer opportunities to practice being leaders. A newapproach was called for. Today in the human-resource department’s “Session C” meetings, seniorexecutives assess key GE personnel. After an initialmeeting in March, there are two or three additionalmeetings and a wrap-up session in June or July to



50

Benchmarking Methodology

Benchmarking, the study’s primary research methodology, involvesidentifying outstanding practices and processes from any organiza-tion anywhere in the world, learning from them and adapting themto a specific company’s needs. Modeled on the human learningprocess, which also relies heavily on observation, benchmarking isthe process by which organizations learn. The underlying rationaleis that learning from best-practice cases is the most effectivemeans of understanding the principles and the specifics of effec-tive practices.

In phase one, the group conducting the study reviewed the litera-ture to identify leading companies in executive development; theytalked with opinion leaders in management education, consultingand business; and they administered a survey to various people toidentify their organizations’ leadership-development support, spe-cific innovative approaches and willingness to be best-practicepartners. At the end of phase one, the study team had compiled alist of candidates for potential best-practice partners and a screen-ing report. Sponsors met to review the initial report, select thefinal best-practice partners and discuss their objectives for thestudy.

In phase two, representatives from the study sponsors visitedbest-practice partners for a day, seeking answers to detailed ques-tions about the evolution, design, execution and successes of theirleadership programs. The study sought to identify innovative prac-tices and applicable quantitative data, such as budgets, programdetails and assessment criteria. The deliverables at the end ofphase two were site-visit summaries, a two-day knowledge-trans-fer session (in which all the study sponsors and best-practice part-ners participated) and a final report.

select employees who will attend the executive-development courses at Crotonville. At the end of theyear, corporate leadership development, like all cor-porate functions, is measured by whether it was ableto support GE initiatives. Steve Kerr, GE’s chief learn-ing officer, says jokingly, “Crotonville is GE’s onlyunbudgeted and unmeasured cost center.” Then headds seriously, “Everyone would know if we weren’tdelivering strategic value.”

Ralph Larsen, chairman and CEO of Johnson &Johnson, champions J&J’s Executive Conference.Faithful to the company’s decentralization tenets, heleaves the program’s details to subordinates around theworld but takes the time to suggest program themes.

At Arthur Andersen, the mission of the PartnerDevelopment Program (PDP) is “to help partnersworldwide acquire and build the knowledge, skills and

behaviors required to be valued and trusted businessadvisors in an ever-changing marketplace.” To meet theneeds of a business that continues to diversify andglobalize, managers aim to keep the program closelylinked with Arthur Andersen’s evolving business strategy.

Hewlett-Packard, under the leadership of CEO CarlyFiorina, is rushing to reclaim its status as a top high-tech innovator. Fiorina must convince the public andHP employees that HP is the hottest new company ofthe Internet era — without losing the old-time com-mitment to quality and integrity. Past HP glory ledmany excellent engineers to focus on what used tobe important, instead of on the future. Once HP start-ed to improve leadership development, the companycould make better business decisions.

Today HP’s senior executives actively participate inleadership development. Fiorina uses managementmeetings and leadership-development programs toarticulate her vision of making the company “representthe next decade rather than the past one.” Her prede-cessor, Lewis E. Platt, showed his support for leader-ship development by making personal appearances atall HP Accelerated Development Programs, openingand closing them with an opportunity for participantsto have a dialogue with him. And Bob Wayman, HP’sCFO, was the internal champion for a worldwidebroadcast on closed-circuit television. During thebroadcast, Wayman played an active role as facilitatorof the panel discussion “Challenging the GrowthBarrier.” Senior HP executives have served as facultyin part of every core program. Fiorina’s early commit-ment to communication with her management teamhas led to an expectation within the company thatshe will continue using leadership development as a“bully pulpit” for strategic change.

Cor Herkstroter, the former chairman of the RoyalDutch/Shell Group (which has dual headquarters inthe Netherlands and the United Kingdom), onceasked his top 50 to 60 leaders to suggest improve-ments in the company’s financial performance. Shell’scommittee of managing directors decided that a newleadership-development process could be a catalystfor organizational change, and Shell’s Leadership andPerformance (LEAP) program was created. After theprogram showed measurable returns in the UnitedStates and elsewhere, Shell made it corporatewide.

When James Wolfensohn joined the World Bank aspresident in 1995, he created a mission statement that



51

Study Sponsors

AARPAerojetAllstate InsuranceAmerican GeneralAmeritechAmocoBuckman LaboratoriesCanadian Imperial Bank of

CommerceCelaneseChevronCompaq ComputerDeere & Co.Eastman ChemicalHonda of America

ManufacturingJohns Hopkins University

Applied Physics LabJohnson & Johnson

Lucent TechnologiesLutheran BrotherhoodMedradNortelNorth American CoalPDVSA-CIEDPharmacia & UpjohnShell InternationalSmith & NephewSprintThomas Cook GroupThe Timken Co.U.S. Dept. of TreasuryU.S. Postal ServiceUSA GroupUSDA Graduate SchoolWachovia CorporationWarner-LambertZiff-Davis

Arthur AndersenGeneral Electric Co.Hewlett-Packard Co.

Johnson & JohnsonShell InternationalThe World Bank

And the Winners Are…Best-Practice Partner Organizations



52

continued the bank’s longstanding commitment todispersing knowledge and financial resources butplaced a stronger emphasis on the goal of reducingpoverty worldwide. The new focus required change.Recognition of that need led to the ExecutiveDevelopment Program (EDP) for managers — a uniquecollaboration among Harvard Business School, theKennedy School of Government, Stanford University,INSEAD and IESE (the graduate business school of

the University of Navarra, Spain) — which offers fiveweeks of classroom training and a project to help thebank become more of a world leader.4

The Five Critical StepsPronouncing a strategic vision is not enough to bringabout change or to tie leadership development to thecompany’s goals. Our data suggest that there are fivecritical steps to achieving those ends. (See “MakingLeadership Development Strategic.”) Examples ofeach step can be found in the corporate leadershipprograms of benchmark companies.

AwarenessThe need for a process to build leadership skills hasbest-practice organizations looking both inside andoutside their organizations for approaches that work.The foundation of such companies’ leadership devel-opment is awareness — awareness of external chal-lenges, emerging business opportunities and strategies,internal developmental needs and the ways otherleading organizations handle development.

Arthur Andersen uses both internal and external datato determine the learning and development needs ofthe partners in the firm. Internal data come fromclient-satisfaction and employee-satisfaction surveys,upward communication and analysis of what the firmcalls 450-degree feedback (360-degree feedback plusclient evaluations).5 Arthur Andersen wants to knowhow its partners are perceived in terms of their techni-cal competence and their responsiveness to customers.

External data about new financial and managerialtools or about challenges in the business environmentcome from market research, business trends andleading-edge thinkers. The partner-development pro-gram also exploits the research Arthur Andersen doeswhile serving clients — and the conversations onemerging trends partners routinely have with leadingthinkers in management education and business prac-tice. The PDP also makes use of the literature onnew concepts in leadership development.

To ensure that its leadership-and-performance pro-gram does not simply react to the immediate needsof the business, Shell’s LEAP team has an ongoingconversation with the committee of managing directors(representing all of Shell’s geographic and functionalareas) about corporate transformation. LEAP staffmembers negotiate an agreement with the executive

• Arthur Andersen: Seeks quantifiable measures.

• Shell: Looks for 25:1 ROI in its action-learning projects.

• World Bank: Uses internal and externalevaluation.

• Johnson & Johnson: Ties 360-degreefeedback to J&J’s Standards ofLeadership and succession plans.

• General Electric: Uses a nine-block system (similar to competency ratings)and “Session C” meetings (where seniormanagers assess candidates for development).

• Hewlett-Packard: Considers strategicneeds for diversity and new leadershipmodels.

• General Electric: Uses programs calledWork-Out and Change AccelerationProcess.

• Johnson & Johnson: Uses real-time business issues in its action learning forexecutive and midlevel managers.

• Shell: Uses forward-looking, hypotheticalscenarios.

• Johnson & Johnson: Uses a programcalled Creating Our Future.

• Arthur Andersen: Is data-driven, uses feedback and surveys.

• Shell: Uses committee of managing directors and Global Research Consortium(a group of transnational companies thatsponsor research).

Making Leadership Development Strategic

Five-Step Process Best-Practice Programs

Assessment

Alignment

Action

Anticipation

Awareness



53

of the business unit and the critical players who willgo through the program. Together they create budgetsfor the team project and set time expectations and goals.

To gather external perspectives, Shell has joined theGlobal Research Consortium, a group of transnationalcompanies that sponsors research. The consortiumgives its members the opportunity to hear and discussthe latest on leadership and learning. Like other best-practice companies, Shell also works with consultantsand professors to stay abreast of the latest in leader-ship research.

There is greater awareness today that best-practiceorganizations’ corporate leadership-developmentfunction is specifically for strategic issues; more-tacticalmanagement skills and business-specific challengesare usually left to business units. That seems to workwell — corporate leadership efforts in best-practiceorganizations complement learning experiences with-in the business units and don’t compete with them.Business operations are better equipped to handletheir own management-skill training; corporate lead-ership programs concentrate on helping decisionmakers become more effective at using those skills.

All the best-practice leadership programs tap leaderswith extensive line experience. At Arthur Andersen,Johnson & Johnson and Shell, the heads of the leadership-development process have senior-levelbusiness experience. The use of business leaders isbased on a belief that participation from executiveswill help ensure buy-in from the businesses and willkeep the programs practical.

GE and Shell International bring in high-potentialindividuals on two-year rotational assignments to over-see leadership development. HP recruits key peoplefrom line positions for the same purpose. In additionto drawing on the business units, best-practice orga-nizations access the experience of individuals in corporate education, human resources and academia.The director of GE’s Crotonville center came from auniversity setting, and the head of World Bank’s EDPhas a background in corporate education.

AnticipationAlthough business cases traditionally focus on the pastand best-practice reviews focus on the present, thebest leadership-development programs emphasize thefuture. Top leadership-development companies useanticipatory learning tools: focus groups that explore

potential challenges or the impact of emerging tech-nologies; decentralized strategic planning (planningthat builds on many organizational levels’ imaginingof the future); analysis of future scenarios; and theDelphi method (successive rounds of composite pre-dictions used to build awareness and consensus).6

Strategy guru Gary Hamel recommends decentralizedplanning because revolutions are beneficial and they“seldom start with the monarchy.”7 The participativeand future-centered Merlin Process is an example ofdecentralized planning.8 Managers imagine the orga-nization a decade from the present and describe whatit would look like if totally successful. In contrast tomore conventional, top-down strategic planning, theMerlin Process has groups throughout the organiza-tion describe their ideal. The resulting presentationsprovide insight and input for senior executives andlead to more-formal planning sessions.

From 1993 to 1996, J&J followed that pattern. Duringits second set of Executive Conferences, executivesfrom around the world worked together for a weekwith outside consultants to create a vision for a decadelater. Participants challenged conventional wisdomabout the evolution of the health-care industry andfocused on actions their divisions could take to createtheir future. J&J 2002, an extended scenario developedfrom future-focused interviews with more than 100executives in six countries — and from publishedpredictions about the future of health care — projectedmultiple trends and discontinuities. Using a modifiedDelphi approach, participants assessed the probabilityand impact of 14 hypothetical developments. An inte-grative exercise called the Merlin Exercise was usedto tie the various aspects of the program together. (AMerlin Process asks people to create a future visionof the company; the Merlin Exercise has participantsapply course concepts to that vision.) Participantgroups made formal presentations of the desiredfuture to the CEO or the vice chairman.

The Merlin Exercise gets results. Upon being congrat-ulated about a significant promotion to head a newJ&J venture, one program graduate responded, “Well,it took almost a year, but I finally got our Merlin.”The first step in the envisioned future had become areality because of his commitment to the potential.

For some organizations, anticipation involves devel-oping a list of the competencies that the companywill need. (See “About Competencies.”)

ActionAction, not knowledge, is the goal of best-practiceleadership-development processes. Best-practicegroups bring the world into the classroom, applyingreal-time business issues to skill development.9 Theanswers to tough questions are not in the instructor’shead; learners must discover them on the spot. Andwith program participants implementing their ownrecommendations, the learning experience benefitsboth the organization and the learner. Such actionlearning can be complicated and costly, however. Thatis why Arthur Andersen, for example, uses a modifiedapproach that still includes prework and postwork.Before the course begins, the firm gives participantscriteria for selecting a client with a business problemand a protocol for interviewing that client. Learnerswork in a team to develop client recommendations.After the course, the team must make a presentationto the actual client or the program sponsor.

At GE, Welch himself has been the one to choose theaction-learning topics for each of the three annualbusiness-management courses and for the annualexecutive-development course. Participants in bothcourses are highly motivated to carry out projects,important as they are to the company’s direction.

Recommendations made by the participant teams areusually implemented. Students in one managementcourse went to Russia and developed proposals forGE’s operations there. A quality report from an indi-vidual in another course led to corporatewide adoptionof the Six Sigma initiative, a quality-assurance programdesigned to eliminate defects from all products.

GE also supports what it calls the Change AccelerationProcess (CAP), a systematic attempt to turn managersinto professional change agents by disseminatingGE’s accumulated knowledge about how to initiate,accelerate and secure change. If CAP is successful,says Welch, “people who are comfortable as coaches



54Best-practice partners were more likely

to have developed their competencies

internally or with limited use of outside

consultants rather than pursuing

extensive, formal competency studies.

A majority of the best-practice organizationshave identified leadership competencies or atleast have tried to define characteristics ofsuccessful leaders, but any discussion aboutcompetencies is generally controversial.Some even question whether competenciescan be defined at all.

Although not all the best-practice partnersdefine competencies, each tries to pinpointthe characteristics of successful leaders with-in its particular organization. That is also trueof the study sponsors, but the best-practicepartners were more likely to have developedtheir competencies internally or with limiteduse of outside consultants rather than pursu-ing extensive, formal competency studies.The best-practice companies had more self-confidence about their ability to identify thekey skills for leaders. And they made a pointof keeping their competencies and develop-mental activities updated.

Three-fourths of the organizations surveyedbelieve that once competencies are defined,they should be pursued consistently. Best-practice companies considered position, busi-ness unit and geographic location beforedeciding about which competencies would beconsidered essential. Johnson & Johnsonsent a team around the world to make surethat what made a leader successful in theUnited States would translate to Europe andAsia. Although some of the wording for itscompetencies had to change, the behaviorswere consistent.

Arthur Andersen defines a competency as astatement of the behaviors necessary to per-form a job task. Although Arthur Andersenhas no organizationwide set of competencies,the partner-development program has createdits own list for company partners. It concen-trates on nontechnical competencies thatapply to all the service lines.

The three broad categories of competenciesare business development, personnel devel-opment and personal development. The com-mon theme is leadership. The PartnerDevelopment Program group aims to developan Arthur Andersen partner who• is a change agent• plans strategically• is globally aware• promotes advanced business and

professional knowledge• is a marketer• is a trusted business adviser• provides valued integrated services• leads the team• develops people• builds relationships• is a skilled communicator• develops self

Other companies also have competenciesgeared to their particular business.

About Competencies



55

and facilitators will be the norm at GE. And the otherpeople won’t get promoted.”10

At Johnson & Johnson, the purpose of the third groupof Executive Conferences, which started in 1997, wasto emphasize J&J’s Standards of Leadership (a modeldeveloped by key executives working with McKinseyconsultants) and to tie the standards to specific busi-ness issues through action learning. The principalsession lasted five days, with prework and follow-upextending the experience. Before the core session,each operating unit discussed the business topic itwould focus on.

Different J&J executives in the various businesses“sponsor” each conference session. Those whochoose the topic are asked to pick one that can havesignificant or transformational impact. Past pro-gram topics have included top-line growth, product-development cycles, new-market entries and leader-ship development. Once the topic is defined, theexecutive sponsor chooses 50 to 130 program partici-pants, who do additional preparation, such as gather-ing data and interviewing people in the companywho might have some relevant insight.

Participants go through the program and return laterfor a day to report on implementation results.Typically, the process takes six to nine months. J&J’sExecutive-Conference approach includes work teamsfrom the business area that is experiencing the prob-lem being studied. The company’s action-learningapproach at the middle-management level, however,brings together high-potential individuals from allparts of J&J to tackle a more broad-based issue. TheExecutive-Conference issues aim more at organizationaldevelopment, whereas middle-management programsfocus more on development of individuals’ skills.

AlignmentBecause best-practice organizations recognize theimportance of alignment between leadership develop-ment and other corporate functions, they often tieeducational efforts to formal succession planning. Ata few of our best-practice partners, the leadership-development function and the succession-planningfunction report to the same executive; other enter-prises merely emphasize that a natural link exists.

At J&J, all development functions use 360-degree-feedback evaluations as a part of leadership develop-ment. Facilitators assess a multiple-choice, behavioral

questionnaire, in which participants rate their perfor-mance in many areas and get ratings from supervi-sors, peers and subordinates. Plans may be made forparticipants to be coached later or to engage in activ-ities to strengthen weak areas as part of the program,but the facilitators’ assessments are not typically feddirectly into succession planning.

Although the data were not conclusive, we believethe best companies are beginning to integrate andalign assessment, development, feedback, coachingand succession planning. In the integrated model,leadership development becomes an important partof maintaining a steady flow of information through-out an organization and ensuring that top talent istracked and continues to grow.

GE openly ties leadership development to successionplanning. All employees are rated in a nine-blocksystem for the annual Session C review. The reviewincludes discussion about people’s performance andtheir adherence to the values in GE’s value statement.The system is an approximation of a typical compe-tency model but was created quickly, simply and withGE self-confidence from a comment by Welch andelaboration by his HR team. It features a chart onwhich an employee’s bottom-line performance israted on one axis, with adherence to GE values onthe other axis. Those who don’t make their perfor-mance numbers but do adhere to GE values aregiven a chance to improve those numbers and get ahigher rating. Those who make their numbers butdon’t demonstrate the GE values are rated low in thefour-level model, which gauges promotion suitability.Those who do neither are rated lowest.

Senior managers spend most of their resources devel-oping their best and brightest. They see thatapproach as delivering the most mileage: creatingboth role models and alignment on what is valued.Crotonville’s leadership-development offerings are tar-geted at high-potential individuals, people the organi-zation refers to as its “A Players.” Each year the insti-

The best companies are beginning to

integrate and align assessment,

development, feedback, coaching and

succession planning.

tute trains about 10,000 of GE’s approximately300,000 employees.

It is commonly said that, at GE, the corporate head-quarters owns the top 500 people in the companyand just rents them out to the businesses. To encour-age the sharing of business talent, GE includes anegative variable in its performance appraisals formanagers who hold back talented employees.Outstanding business performance and developmentof leaders go hand in hand.

Hewlett-Packard provides myriad opportunities foremerging leaders to develop and grow. Platt, the for-mer CEO, recognized that many people who grew upwith the founders were retiring and that their imme-diate successors looked a little too much like oneanother. He saw that as the company became moreglobal, it would need more diversity of ethnicity andgender. Having a female CEO now may help changeperceptions about who is leadership material. AndHP’s leadership-development process is clearly sup-portive of diversity goals, providing stretch assign-ments for the most promising people and makingaccelerated programs available for individual contrib-utors and first-level managers.

Best-practice organizations use the goals of their leadership-development program as guides to putting

the right people in the right programs. The goal ofShell’s LEAP program is to create leaders at all levels,so the programs are open to anyone within the orga-nization (although certain programs are targeted forthose with the highest potential). GE and HP aremore selective about entrance because they want tofocus only on those individuals with the potential tomove quickly through the ranks.

AssessmentBest-practice organizations always assess the impactof their leadership-development process. To collectinformation on the perceived value, the best-practicepartners use a number of tools and techniques. TheKirkpatrick Four-Level Model of Evaluation (partici-pant reaction, knowledge acquired, behavioralchange, business results) is typical.11 Participants,human-resource-development staff, consultants and,in some instances, financial staff, do the assessments— the latter weighing program expenditures’ returnon investment. (See “An Executive Primer.”)

Most best-practice partners use an assessment methodcalled the Kirkpatrick levels to quantify the effect ofleadership programs on business results. But both thestudy sponsors and best-practice partners use othermetrics, too — including corporate performance, cus-tomer satisfaction and employee satisfaction. In gen-eral, best-practice partners were more aggressive than



56

Awareness — Make it a point to interviewkey executives about leadership development.Keep a record of your findings to use in succession planning and human-resource-development (HRD) initiatives. Insist that thehead of HRD or your chief learning officerbrief you on at least one conference per yearthat reflects the latest thinking on leadershipdevelopment. Ask other key members of HRDto prepare short summaries of events theyattend at corporate expense.

Anticipation — Start your meetings (withmanagers at all levels) with a request for themost significant trend or prediction that theythink will affect your business. Ask them tosummarize the most forward-thinking article,book or presentation to help you learn and toget colleagues thinking in anticipatory terms.

Be sure that current challenges don’t keepyou from focusing on the future of your com-pany. Define possible scenarios and how youwould respond.

Action — Ask your HRD team memberswhich business results have originated fromyour company’s educational programs. Discussthe strategic initiatives that need their imple-mentation assistance. Explore how you canuse executive learning to make such initia-tives happen more quickly and effectively.

Alignment — Look at your performance-management system (performance apprais-als), your succession-planning profiles, yourmajor education and development agendasand possibly a “competency model.” Observethe consistency and alignment among the

documents. Make sure they reflect a consis-tent set of terms, values and models. If theydon’t, work to align them more closely.

Assessment — Evaluate whether your leadership-development activities have beensuccessful. Ask for evidence that programsreflect standards of success when you autho-rize a budget. (Shell doesn’t consider a pro-gram valuable unless its returns are 25 timesgreater than its cost. Johnson & Johnson hasused 360-degree feedback to assess observ-able performance change in key leaders.)

Overall — Think about how you want HRD, ingeneral, and education, in particular, to supportyour strategic efforts. How must you changeyour human-resource profiles so that yourcompany can become what you want it to be?

An Executive Primer: Five Steps Help Managers Get the Most From Leadership-Development Programs

sponsors about measuring and evaluating programeffectiveness.

Of all the best-practice organizations, Arthur Andersenis probably the most dedicated to assessment — andhas reaped the benefits. The vast amounts of data the firm collects not only demonstrate the partner-development program’s correlation with improvedbusiness results, but also show where the organiza-tion needs to head.

Although measurement is expensive and sometimestricky, its benefits cannot be discounted. ArthurAndersen combines impact research with participants’course evaluations. Program attendees fill out evalua-tion forms before they take the class, immediatelyafter the class is finished and three months later. Theforms contain questions about the knowledge partici-pants believe they have gained.

The impact research consists of comparing, course bycourse, partners who have attended PDP with thosewho have not. The results show that attendanceincreases both client satisfaction and per-hour billings.Impact research is done in a two-year cycle, withinformation gathered on partners a year before theprogram and a year after.

The use of both participant-satisfaction and impact-research measures helps provide a balanced set ofresults. Arthur Andersen found that one of its pro-grams was not getting a high participant-satisfactionrating, but an impact analysis showed that the pro-gram was having a greater effect than any of PDP’sother courses. (But, PDP staff members prefer to seeboth strong satisfaction and strong impact, so if part-ners have a low level of satisfaction the course willnot be recommended.)

Regression analysis shows that course duration is animportant factor in how satisfied participants are. Theperception that a course is too long has a negative effect.(However, a belief that the program length is appropri-ate does not by itself improve overall satisfaction.)

Another key factor in determining satisfaction iswhether program participants have similar levels offamiliarity with the topic. What may be an excitingconcept for one person could be old news to another.Arthur Andersen believes that moving to a problem-based course design will help it address different levels of participant knowledge.

To Shell’s LEAP staff, a program adds value only ifthe team project generates revenues at least 25 timesgreater than the project’s cost (a 25:1 ROI). Duringthe initial contracting process, a LEAP staff memberand the leader of the business unit determine thedesired project outcomes, including financial targets.The business leader expresses his or her objectives insending the candidate to the program; in many casesthat defines the program and problem the team orindividual will address.

You get what you pay for. Best-practice companiesdo consider costs, but their main focus is on the valuethe program can provide. When asked to rank theimportance of various criteria in selecting an outsidevendor, the companies put fees near the bottom ofthe list. Arthur Andersen invests approximately 6 per-cent of total revenues in education (more than $30million). If course offerings achieve their objective toimprove business results, support is likely to continue.

Cost for each participant in the executive-developmentprogram at the World Bank is $22,000, whichincludes travel, lodging and business school fees forthree modules and for the Grass-Roots ImmersionProgram (which gives managers one-week stints in adeveloping-country village or urban neighborhood sothey can acquire a firsthand understanding of poverty).The cost is not charged back to the business groupsbut funded centrally through the bank’s $12 millionannual executive-education budget.

The New Strategic Reality of Leadership DevelopmentGlobalization, deregulation, e-commerce and rapidtechnological change are forcing companies to re-evaluate the way they operate. Approaches that haveworked for years are no longer effective. Developmentof leaders who think strategically is increasingly asource of sustainable competitive advantage. Henceobservations of companies known for excellent leadership-development practices can be invaluable.



57

When asked to rank the importance of

various criteria in selecting an outside

vendor, the companies put fees near the

bottom of the list.



58 Leadership development has become too specializedto relegate to human-resource departments. In best-practice companies, top-level managers get involved.Without their support, leadership-developmentprocesses would founder. Of course, corporate lead-ers are more likely to offer support if programs areproducing business results. By monitoring the effec-tiveness of the leadership-development processes,capitalizing on quick wins and communicating suc-cesses throughout the organization, the best-practicecompanies sustain a virtuous cycle.

Development groups such as Arthur Andersen’s PDPand the one at GE’s Crotonville site emphasize diligentcrafting of programs, careful listening, constant moni-toring and frequent communication. That helps seniorexecutives understand how a leadership-developmentprocess can shape and disseminate an organization’sculture, overcome resistance to change and achievestrategic goals.

At GE, the corporate leadership-development groupendeavors to maintain buy-in. It interviews companyleaders around the world on a regular basis to gaugefuture business needs and the characteristics futureleaders should have. Additionally, the group atCrotonville identifies early adopters of a given devel-opment initiative and leverages their support.

Hewlett-Packard has garnered support for its leader-ship-development process by having both the CEOand senior managers participate in its programs. Theexecutives serve as mentors, faculty and supporters inleadership-development design and programs.

Senior-level support for Johnson & Johnson’s executiveconferences is evidenced by the fact that either thechairman or a member of the company’s executivecommittee participates in each session, articulatingJ&J’s credo and values — and the program’s link tobusiness success.

Although the best-practice firms differ in their empha-sis on making leadership development strategic, thedevelopment program of each includes elements ofthe five critical steps:

• building awareness of external challenges, emerg-ing strategies, organizational needs and what leadingfirms do to meet the needs; • employing anticipatory learning tools to recognizepotential external events, envision the future andfocus on action the organization can take to create itsown future;• taking action by tying leadership-development pro-grams to solving important, challenging business issues;• aligning leadership development with performanceassessment, feedback, coaching and succession plan-ning; and • assessing impact of the leadership-developmentprocess on individual behavioral changes and organi-zational success.

Most people, even if they have heard of the specificleadership-development practices of Johnson &Johnson or GE, have not grasped how to manage anintegrated set of variables in order to achieve excel-lence in developing executives. Increasing the budgetfor education or changing the name of a trainingdepartment to “corporate university” doesn’t guaran-tee improved performance. Our study shows that,despite the diversity of approaches to leadershipdevelopment in the best-practice companies, all sharecommon goals: anticipating, supporting and aligningthe organization’s strategic initiatives with develop-ment, as well as gaining and sustaining competitiveadvantage. And increasingly, those companies choosean action-oriented, ongoing learning process closelylinked to the strategic needs of the business.

Concepts introduced in this article are developed ingreater detail in Robert M. Fulmer and MarshallGoldsmith’s “The Leadership Investment: How TheWorld’s Best Organizations Gain StrategicAdvantage Through Leadership Development,” pub-lished this year by AMACOM. Other usefulresources include a 1999 Linkage, Inc. book edited

by David Giber, Louis Carter and MarshallGoldsmith, called “Leadership DevelopmentHandbook”; Jay A. Conger and Beth Benjamin’s1999 book, “Building Leaders,” published byJossey-Bass; and a 2000 book from the same publisher, “Coaching for Leadership,” whichMarshall Goldsmith, Laurence Lyons and AlyssaFreas edited.

� 1. “Industry Report 1998: Training Budgets,”Training, October 1998, 47. See also:J. Reingold, M. Schneider and K. Capell, “LearningTo Lead,” Business Week, Oct. 18, 1999: 76.� 2. John A. Byrne, “PepsiCo's New Formula,”Business Week, Apr. 10, 2000, 172; andT.A. Stewart, “How to Leave It All Behind,” Fortune,

Leadership development is now too

specialized to relegate to human-resource

departments. In best-practice companies,

top-level managers get involved.

Additional Resources References



59

Dec. 6, 1999, 345-348. � 3. G. Hollenback and W. Vestal, eds.,“Developing Leaders At All Levels” (Houston:American Productivity & Quality Center, 1999); andR.M. Fulmer, J. Camillus and J. McMorrow, eds.,“Leadership Development: Building ExecutiveTalent” (Houston: American Productivity & QualityCenter and American Society for Training &Development, 1999).� 4. A.A. Vicere and R.M. Fulmer, “Leadership byDesign” (Boston: Harvard Business School Press,1998), 218-223.� 5. Arthur Andersen uses the term “450-degreefeedback” to emphasize that feedback from clientsis included in the process. Technically, 360-degreefeedback is feedback from four quadrants of per-

spective: boss, subordinates, peers and customers.Respondents rate themselves.� 6. For example, see:M.A. Hammer, “The Power of Reflection,” Fortune,Nov. 24, 1997, 291-295.� 7. G. Hamel, “Strategy as Revolution,” HarvardBusiness Review 74 (July-August 1996): 69-81; andG. Hamel, “Leading the Revolution” (Boston:Harvard Business School Press, 2000).� 8. R.M. Fulmer and S. Perret, “The MerlinExercise: Future by Forecast or Future byInvention?” Journal of Management Development12 (no. 6, 1993): 44-53.� 9. For example, see:Stratford Sherman, “How Tomorrow’s Leaders AreLearning Their Stuff,” Fortune, Nov. 27, 1995, 90-

98; andThomas A. Stewart, “Telling Tales at BP Amoco,”Fortune, June 7, 1999, 220-223.� 10. “General Electric: The House That JackBuilt,” The Economist, Sept. 18, 1999, 23-27.� 11. D. Kirkpatrick, “Evaluating Training Programs:The Four Levels” (San Francisco: Berrett Koehler,1994).

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