How to make an immediate impact on leadership supply...mission-critical roles are filled by average...

Kick-start your talent machine

By Alan Bird, Paul DiPaola and Lori Flees

How to make an immediateimpact on leadership supply

Copyright © 2009 Bain & Company, Inc. All rights reserved.Content: Editorial teamLayout: Global Design

Alan Bird is a partner in Bain & Company’s London office and Bain’sglobal expert on leadership supply. Paul DiPaola is a Bain partner inNew York. Lori Flees is a partner in Bain’s Los Angeles office. All threeare senior members of Bain’s global organization practice.

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How to make animmediate impacton leadership supply

The “war for talent” is a perennial item onevery chief executive’s agenda. Many CEOsrecognize the need to take personal responsi-bility for finding, developing and deployingthe people they need in key jobs throughouttheir organizations.

The sharp downturn in the world economy putsthat talent challenge in a new perspective.Fewer companies will be growing aggressively.Immediate shortages are likely to be less acute.But leadership becomes more urgent than everin a downturn, and ensuring an adequatesupply of leaders in the roles where they canmake the most difference remains a vital priority.Downturns also put great leadership talent inplay. That creates opportunities for companiesto close their talent gaps and upgrade the qualityof their leadership.

Building a talent-rich organization is by naturea multiyear challenge. But three specific stepswill not only have an immediate impact on acompany’s talent supply, they will also lay thefoundation for longer-term moves.

• The first is to quantify the leadership gap.Downturn or no, many companies don’thave a detailed picture of the talent chal-lenge they’re facing. A rigorous analyticpicture of the gap makes the challengevisible. Suddenly the talent issue can nolonger be shuffled off to the humanresources department; it is now on every-one’s agenda, including that of the board.

• The second step is to deploy existing talentmore effectively. Too many companiesdon’t know who their top performers are.Nor have they placed those individuals inthe jobs where they can have the mostimpact. Mismatches like these can cripplea company in a slowing economy.

• A third step—often overlooked—is toreduce the demand for talent. Organizationsthat simplify their processes and spell outaccountabilities more clearly can simulta-neously keep costs under control andmake the most of the talent they have.

Taken together, these steps help leadersaddress their talent challenges quickly and

build longer-term commitment throughoutthe organization, which is what’s required tosustain the flow of investment in leadershipsupply. Let’s take a closer look at each one.

Quantify the leadership gap

A leadership gap is by definition a disparitybetween the supply of talent and the demandfor talent, both now and in the future.Understanding leadership supply and demandis best accomplished through meticulousanalysis of the current situation and carefulprojections of the likely changes in monthsand years ahead. (See figure 1.)

On the supply side, the place to begin is bylooking at the basics. How many leaders doyou have? What are your recruitment and pro-motion rates? What is the level of attrition—wanted and unwanted—and retirement? Whatfactors will affect recruitment, promotion,and attrition rates in the foreseeable future?(For example, early retirement may seem lessappealing if the downturn drags on.) You cando this analysis by region, by business andfunctional unit, and by key capability areas.The results provide a rich set of data allowingyou to build or validate a talent-supply fore-cast. Just as important, analyzing the leader-ship gap this way helps to identify choke pointsthat may require immediate attention.

The demand side begins with a similarly fun-damental analysis. What will the businesslook like in a year, in three years, in five years?How many leaders will you need in each unit,geography, or functional area and what kinds

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of skills will those people need to have?Matching the supply forecast to the demandforecast shows in broad terms where the tal-ent needs are likely to be most acute. It alsohelps pinpoint the effects of the downturn.Some business units and regions are likely tocontinue growing over the next couple ofyears. But others will be flat, and indeed maybe net exporters of talent to talent-starvedparts of the business. A detailed demandanalysis will show both sides of this talentledger, and will help avoid the trap of makingacross-the-board assumptions about impact ofthe slowing economy on a company’s needsand sources for talent.

Any supply-versus-demand analysis of leader-ship talent needs to be grounded in a clearunderstanding of the company’s strategy.Trying to assess your talent needs without awell-defined strategy—and an organizationaligned with that strategy—is like putting aband together without first figuring out whatmusic you want to play. Strategies, of course,

don’t stand still, and companies in rapidlyevolving markets often find they need to hireindividuals with skills the organization cur-rently lacks. Wireless telecom companies, forexample, are seeing their business shift rapid-ly from voice communications to video anddata, and so are beginning to scoop up peoplewith media experience. Telecom infrastructurecompanies are more dependent than ever onproprietary software, and so need more andmore software engineers with experience indeveloping intellectual property. A downturnis an ideal time to hire skilled, experiencedpeople to implement an evolving strategy.

A second important step is to analyze leader-ship requirements and pipelines according tothe specifics of a company’s situation. ASouth Africa–based mining company, forinstance, was under pressure to improve bothits operating performance and its safety record,and it badly needed mine managers, engineers,and technical experts to help with that turn-around. It was also committed to hiring at least

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Current 2005talent pool

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�25

Figure 1: Quantifying the gap helps frame talent. It’s a business-line, not just an HR, issue.(MiningCo found they faced a 25% leadership gap in trying to deliver future growth plans)

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40 percent of its managers in South Africafrom the ranks of historically disadvantagedSouth Africans. To do all this effectively, thecompany first defined its leadership roles tounderstand the skills each role required. Itthen assessed the pool of potential leaders,and used a model showing the likely advance-ment of those leaders through the ranks of thecompany. The result was a clear picture ofboth leadership capabilities and bench depthfor every critical role.

A third important area of focus is the qualityof a company’s talent-related processes. Anydetailed analysis of the leadership gap requiresa company to gather significant amounts of data.Managers need to assess the number of posi-tions filled by external recruitment, the reten-tion of external hires, promotion rates by posi-tion and level, performance ratings by depart-ment and position, defection rates by leveland position, and so on. Analyzing this datareveals a great deal about the strengths andweaknesses of the company’s leadership-sup-ply processes. Managers frequently find them-selves asking questions like: Are our recruit-ing efforts producing people with average orabove-average promotion rates? Which areashave the highest number of underperform-ers? Why haven’t we promoted more level sev-ens? The best analyses highlight a variety ofspecific gaps—by function, level, and year—including skills gaps; performance gaps (thenumber of A, B, and C players); open-positiongaps (positions waiting to be filled), recruit-ment gaps (e.g., are we recruiting enough sen-ior and mid-level managers?), among others.

In our experience, quantifying the gap withthis degree of detail has the power of a man-agement revelation for line managers. Theynow see the magnitude of the challenge. Theybegin to understand that they can’t deliver ontheir own commitments unless they improvethe business’s supply of leaders—starting right

away. Suddenly the processes to help themdeliver on that objective—recruitment, per-formance management, and so on—take onnew importance. For example, a gap in entry-level-manager recruitment typically leads to animmediate uptick in campus recruiting effortsand renewed focus and improvements inmanagement training programs. Other gapsmay underscore the importance of retaining thefirm’s existing top talent. At Motorola, detailedanalysis revealed likely future shortfalls insome mid-level and senior positions. Not onlydid that kick-start recruiting efforts, it also ledto increased focus on development and reten-tion for executives already in the business.

Make the most of available talent

We often ask CEOs to tell us how many oftheir mission-critical positions are occupiedby executives they regard as top talent. It’s sur-prising how many have difficulty answeringthe question. Those who can answer it oftenreveal an alarming mismatch: most of theirmission-critical roles are filled by average per-formers and some by poor performers, whilemany top performers are deployed in hum-drum positions. (See figure 2.)

At one global tech company a few years ago,more than 40 percent of identified high per-formers were in positions deemed non-critical,and fewer than 40 percent of the company’smission-critical roles were occupied by topperformers. That kind of disparity is notunusual. In our 2008 survey of 760 companiesacross six geographies, less than 25 percent ofrespondents strongly agreed that “our best peopleare in the jobs where they add most value.”

Matching top performers with key roles typicallyinvolves three steps. The first step is to identi-fy the positions themselves. What jobs makethe biggest difference to business perform-ance depending on the caliber of the personoccupying them? In which roles will a top per-

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former have more impact compared with anaverage performer? These roles are often onthe front line, and they might be anywhere inthe organization—finance, sales, operations,wherever—depending on a company’s strate-gic priorities. When the shipping companyMaersk was ramping up its business in China,a critical market, the firm used four broad cri-teria to identify mission-critical roles: theposition’s financial impact, its degree of com-plexity, its influence on key customer relation-ships, and its effect on the development offuture talent. The company also looked atwhere it planned to expand in detail and theskills that would be required to execute thatstrategy. For example, several critical roles relatedto the emerging Chinese market in internallogistics—transporting goods from growingeconomic centers in central and westernChina to seaports in the south and east. Someof these roles involved running river terminals;others involved building partnerships withChinese transport companies.

Of course, the nature of an organization’s crit-ical roles can shift when the economy changesor new competitive threats emerge. In 2007,most companies’ key positions still revolvedaround implementing growth strategies. Bylate 2008, a strong focus on sustaining thecore business became the priority, and the mostimportant roles at many companies were thosewith responsibility for managing costs, reducingcomplexity, and adapting the business to a tur-bulent environment. In some cases, the sameexecutives are responsible for both sets ofactivities; in others, the skills and capabilitiesrequired for growing the business and managingthrough a downturn may not be duplicated,requiring companies to recognize and moveits talented leaders into the roles where theycan make the biggest difference, and quickly.

The second step is a rigorous and realistic sys-tem for evaluating employees. How well has

each individual performed? What is his or herpotential? Companies need people with lead-ership skills, managerial skills (the ability tomanage a P&L, for example), and technicalskills. It is the rare individual who possessesoutstanding abilities in all three areas. But thecompany needs to know who has what. Then,too, it needs to know whether individuals areperforming in ways that are consistent with thecompany’s values and culture. Jack Welch, inhis later years at General Electric, famouslydeclared that it wasn’t enough for the company’smanagers to make their numbers; they had tolive GE’s values as well.

The key to answering all these questionsabout individuals, of course, is an effectiveperformance-management process. Most com-panies have the elements of performancemanagement in place, and some parts of theprocess may be top notch. But no perform-ance-management system works well unlessit carries real consequences. If differences inevaluation actually lead to differences in out-comes—career opportunities, mentoring andcoaching, compensation, retention efforts, andthe like—then line managers (and everyoneelse) will take the evaluations seriously.Managers will be far more likely to conductperformance reviews face to face, on time, andaccording to high standards. They will be morelikely to comply with requirements for usingthe whole rating scale, giving average performersa three out of five, not a four or a five. It’s a vir-tuous cycle: consequences lead to high-qualityresults, and high-quality results reinforce theperception that the consequences are fair. Ifthere are no consequences attached to evalua-tions, by contrast, line managers will dismissany performance-management process asmere paperwork.

The South Africa–based mining company hadto revamp its performance-management prac-tices along these lines. Initially, fully 80 percent

Figure 2:Deployment matchestop talent to mission-critical roles

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of individuals were rated above average, eventhough the company had been underperform-ing. Senior managers didn’t know who thestrongest people were or what skills and capa-bilities they possessed. Even with that gradeinflation, only 20 percent of mission-criticalpositions were filled with people considered tobe top performers. So, managers began tomake the consequences of strong and weakperformance reviews more explicit. Withoutadopting a forced curve, senior executives madeit clear that grade inflation would not be toler-ated. High performers received not only bigincreases in pay but also better career develop-ment and training opportunities and betterretention packages. Those with lower ratingsreceived coaching and eventual outplacementif necessary. With a strong commitment fromthe CEO, the company’s managers had thebacking to implement the new system quickly.In just the kind of virtuous cycle described above,the system carried consequences, people com-plied with it, and it felt both fair and robust.

Step three, after identifying critical positions

and realistically assessing employees, is

deployment: placing the right people in the

right jobs. The thorniest issues include how

companies can release people from their cur-

rent roles where they may be performing like

stars, how to match opportunities with a tal-

ented manager’s desired location, and how to

harmonize compensation for home-based and

expatriate leaders. Plenty of management

practice and thought has focused on these issues,

and we won’t dwell on them here except to

note that some companies that excel at leader-

ship supply have come up with particularly

imaginative ways of addressing the issues.

Consider, for instance, the issue of who

“owns” the supply of talent and thus makes

deployment decisions. Many companies say

that their top talent must be a global resource:

the corporate center has the responsibility and

authority for managing these individuals’ careers.

SAB Miller, the brewer, takes a different

approach. At SAB Miller, the business units

own the company’s talent. In keeping with the

company’s business model, these units are

typically organized by country, and a country’s

managing director has the final say over

whether an individual can be released to a

new role. As a counterbalance, the corporate

center evaluates these managing directors

carefully on the basis of what it calls the

People Balance Sheet. Do the country manag-

ing directors nurture talent and feed strong

performers into roles that support corporate

goals, or are they net consumers of talent?

The method gives control of leadership supply

to each country’s operations, but leaves no doubt

that the managing directors need to manage

talent in ways consistent with the company’s

global business objectives.

A second issue is how talented leaders canbalance their own interests with those of theorganization. The oilfield services companySchlumberger has developed a unique approachto this potentially divisive question, in anindustry where talent is scarce. Schlumbergermaintains a custom-built database of detailed“career networking profiles” that allows it tomatch the interests and skills of rising leaderswith the company’s needs. It encourages engi-neers and strong performers from other disci-plines to rotate through the human-resourcesdepartment to get a feel for the importance oftalent and how the company addresses it. (Astint in HR is “seen as a gold star on aSchlumberger résumé,” according to onereport.) Schlumberger engineers and man-agers know when they sign on that they willbe spending time in remote and sometimesdisagreeable locations. But the companyallows its people to plan their careers in advance.One person might say, for instance, that shedoesn’t want a remote assignment for thethree or four years while her children are young.

Do the countrymanagingdirectors nurturetalent and feedstrong performersinto roles thatsupport corporategoals, or arethey net con-sumers of talent?

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When those three or four years are up, thecompany knows it can count on that individualto take a new and possibly distant job. Thanksto this policy, the company has substantiallyexpanded its pool of engineers, notably women,and it has a ready pool of available people whenan assignment does come up.

One interesting result of a focus on deploy-ment is that it often encourages the CEO andthe senior management team to take greaterrisks on rising stars through earlier promotionand stretch assignments. Focusing on deploy-ment also tends to provide better mentoringand coaching by more-senior executives.Wherever analysis reveals a dearth of short-termsuccessors, senior leaders can put togetheraccelerated development plans and transferproven “people developers” into key roles toensure that the business doesn’t stall for lackof leaders.

Reduce the demand for talent

The most common response to a leadershipsupply gap is to upgrade recruitment efforts,

creating stronger ties with universities andother sources of talent. A company may alsomount an immediate drive to fill gaps thatcannot be addressed internally, such as a long-standing open position or an underperformingmanager in a critical position with no clearsuccessor. A few highly visible recruitmentefforts signal a major commitment to improv-ing talent supply.

All such measures are essential to closing thegap over the long haul. But expanding thesupply pipeline may take two or three years tohave a noticeable effect. In the meantime,companies do have another lever to pull, oftenoverlooked: taking actions that lower its demandfor talent. By redesigning their organizationand operations in ways that reduce the needfor highly skilled leaders and technical experts,managers can narrow the leadership supplygap, sometimes quickly. (See figure 3.)

The two most effective methods of reducingdemand are to strip out organizational complexityand to redesign jobs so that they use the skills

Simpler skills

Product or processsimplification

Knowledgemanagement

Clearer focus

Support for orremoval of

non�core tasks

Shared servicesor outsourcing

Better retention

Recognize key skills

Reward loyalty

Fewer roles

Spans and layers

Figure 3: Redesign work to reduce the demand for talent and increase fulfillment

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of managers more effectively. Such measuresnot only reduce the demand for talent, theyalso help a company increase its productivity.

Complexity inevitably creeps into every nookand cranny of an organization over time. Inmany cases it’s a natural consequence of successin the marketplace. Products and servicesmultiply. Customers are offered a seeminglyimpossible array of choices. But complexityoften has unintended consequences. Thenumber of managers edges upward, spawn-ing new layers between the CEO and the frontline and reducing each manager’s number ofdirect reports. Decision roles and accountabil-ities grow murky. Paperwork proliferates. Thecompany’s organizational metabolism slowsdown, and people get demoralized.

Companies can reduce complexity on all thesefronts. Organizationally, they can conduct aspans-and-layers analysis, benchmarking againstindustry standards and reducing the numberof managers accordingly. They can streamlinedecision making—for instance, by eliminat-ing regional structures where possible. Theycan redesign and simplify back-office procedures(see “Make Your Back Office an Accelerator,”by Paul Rogers and Hernan Saenz, Harvard

Business Review, March 2007). If a company iswilling to absorb a modest amount of addi-tional risk, it can eliminate complexity andfree up talent simply by raising the thresholdfor rigorous review of investment opportuni-ties. Say a company requires detailed analysisand review of every project costing more than$20 million. Many expensive managers andanalysts must spend a lot of time reviewingthose proposals. If the threshold were raisedto $50 million, the number of proposalswould drop, and the company would need farfewer people doing the reviews. Reducingcomplexity reduces costs and improves pro-ductivity. It also increases retention, becausepeople feel they can get more done.

Companies often redesign and expand jobresponsibilities in part because they believethe people holding those jobs will find themmore challenging and thus more satisfying.But this view is oversimplified; what mattersis whether people feel they are spending timeon things that matter. A few years ago, westudied two consumer-electronics retail chains.In one chain, each store manager was king ofhis or her domain. Managers could determineor influence the choice of merchandise, theselection of infrastructure tools such as IT sys-tems, the use of point-of-sale displays, andmany other elements of the business. In theother chain, managers operated with fartighter guidelines. The company said, in effect,here is your business model, here is your storelayout, here are your tools and products—now go out and deliver the best possible customerservice and the highest possible profits.

Surprisingly, store managers in the latterchain were more satisfied and felt moreempowered than in the chain where the managerwas king. They were able to focus on what wasmost important—their customers and employees.Managers in the first chain were pulled in adozen different directions and found them-selves frustrated. From a company’s point ofview, of course, reducing the complexity of thejob effectively reduced its demand for talent.For each store, it could hire someone skilled atoperating within a tight framework ratherthan the rarer individual who was capable ofmanaging an entire business. Those rarerindividuals, in turn, were available for posi-tions such as area manager.

Companies can strip the complexity out ofjobs in a number of ways. Mine managers atthe So uth African mining company, forinstance, used to hold the title of “business-unit manager.” The job included responsibili-ties that went far beyond their mining qualifi-cations, such as working with communities and

By redesigningtheir organiza-tion and opera-tions in waysthat reduce theneed for highlyskilled leadersand technicalexperts, managerscan narrow theleadership sup-ply gap, some-times quickly.

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managing hospitals and worker accommoda-tions. When the company began providingmanagers with support staff dedicated to thenon-mining parts of the job, managers werefreed up to spend more time on the tasks forwhich their skills were indispensable. A secondimprovement involved the company’s operatingstandards. In the past, the company’s mines andprocessing plants operated according to manydifferent rulebooks. Each mine typically had itsown style of working, its own technical systemsand equipment, its own standards, and its ownmetrics. Mine managers transferred from onemine to another had to be exceptionally skilledand experienced simply to get up to speed.

The company believed it could increase pro-ductivity by making all these elements consis-tent from one mine to another. After studyingthe franchise model in retail and serviceindustries, it designed what it called “franchiserules of the game,” known internally as FROGs.It standardized methods, equipment, engineer-ing, planning techniques, and so on, so thata manager entering a new mine would seeand do much the same things as in any othermine. To avoid the bureaucracy that oftenaccompanies detailed rules such as FROGs,managers themselves helped design the rules.That resulted in a focused set of rules thatreally made a difference.

This simplification of the company’s opera-tions had a double effect on the leadershipgap. It reduced the demand for highly skilledtalent, because less-skilled people could nowtake over as mine managers. More-skilled people,in turn, could take on jobs with larger spans ofcontrol. After the change, the performance ofindividual managers rose by up to 20 percent.

Turning the tap on leadership supply

Companies that take the steps described inthis article usually see an impact on their lead-

ership supply gap in the first six to eighteenmonths. A downturn provides a unique oppor-tunity to fill that gap, as skilled, experiencedleaders often change jobs when turbulencehits their company or industry. Filling the gapsimultaneously upgrades the quality of a com-pany’s leadership.

These steps will not solve the problem of lead-ership supply by themselves. The senior teammust also pursue longer-term measures suchas cultivating new talent pools and makingtheir company the kind of business that peo-ple want to join and give their best to. But theshort-term steps have a powerful effect. Thediagnosis itself uncovers issues that need tobe addressed over the long term. And all thesteps outlined above send a clear signal topeople in the organization that things arechanging. They help build commitment tosolve the leadership supply problem over thelonger term.

Indeed, while most companies understand theimportance of leadership supply, they still findthemselves struggling with practical ways toput the issue squarely on the table. Yet thevery act of doing so is often liberating: sud-denly a company finds itself focusing on oneof the most essential tasks it faces in today’senvironment. With a talent plan that matchesits business plan, a company has a far greaterchance of success.


Do you face a leadership supply gap? Ten questions to ask yourself:

1. Can you quantify your supply of and demand for leaders, both now and in the future?

2. Do you know how many mission-critical roles are filled by top performers?

3. Do you know the bench depth for each mission-critical role?

4. What’s your win-rate for “must have” recruits?

5. How do your retention rates for top and mainstream talent compare with those ofyour competitors?

6. How close are you to 100 percent compliance with agreed-upon standards and processesfor setting goals, evaluating performance and developing talent?

7. Can you articulate clearly the consequences for individuals designated as highperforming/high potential in terms of differential pay, rates of development,investments in training, deployment, access to senior executives, mentoring and so forth?

8. How high is employee loyalty as measured by responses to the question, “How likely would you be to recommend your organization as a place to work to a friendor relative?”

9. Are your top executives and business units nurturers or consumers of talent?

10. Are you achieving your strategic goals, or is leadership a critical constraint?

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