Cover Story : Leadership’s looming crisis

Business and organisation leaders are overwhelmed by the complexity and scale of the problems confronting their organisations. They are facing perfect management storm which, like the changes playing merry hell with the globe’s climate, is the outcome of suite of simultaneous actions, inaction, policies, practices and life-changing technologies.
The increasing complexity of organisational life and leadership is the wave that threatens to become tsunami of economic misadventure. Less certain is an exact understanding of the sequence and relative importance of the changes happening at the epicentre of global enterprise.
Pennsylvania-based talent management consultant Development Dimensions International (DDI) has just released its 2011 Global Leadership Forecast. The findings are, it says, so disturbing that it will take “leadership revolution” to halt the slide in both the individual competency and the number of leaders equipped to cope with the pace and implications of change.
Christien Winter, director of Sheffield, an Auckland-based executive recruiter and DDI’s New Zealand licensee, agrees that “leaders are overwhelmed” by complexity. “But whether it is their own lack of skill and capacity or the pace of change and the lack of people with the skills and experience to support them, is the more interesting question,” she says.
The DDI forecast is the largest biennial study of its kind in the world. This year’s is the sixth undertaken since 1999. It is based on interviews with 12,423 leaders and 2000 human resource professionals in 74 countries. Its findings mirror similarly extensive global study of 1500 chief executives undertaken last year by IBM Global Business Services.
The studies show that leaders now make decisions in an increasingly unpredictable business environment. About 60 percent of the CEOs surveyed by IBM said their businesses were “more volatile, uncertain and complex” than they had ever been. They expected them to become even more so.
The complexities facing leaders include the pace of change, increasingly competitive markets, political and financial instability, increasingly scarce talent resources, the Global Financial Crisis (GFC) which strafed the ranks of middle managers, poor governance, short-sighted or non-existent leadership development strategies, demographic changes, outdated organisation structures and changing management cultures.
Does leadership quality matter? Yes, apparently. growing volume of research suggests the quality of leadership can make or break an organisation’s sustainability.
The DDI study found that top performing leaders have 50 percent more positive impact on their organisations than do average leaders. Organisations with the highest quality leaders were 13 times more likely to outperform their competition in key bottom-line metrics such as financial performance, quality of products and services, employee engagement and customer satisfaction. Only six percent of those in organisations with “poor” quality leaders outperformed their competition.

Passion versus pay
On the other hand, 78 percent of those who rated their organisation’s leadership “excellent” were in organisations that outperformed their competition in bottom-line metrics. According to the study, quality leaders also retain good employees and keep them engaged. And “passionate” leaders, rather than those who simply take promotion for the “greater compensation”, are even more effective.
Leaders are not keeping up with the speed of business in today’s increasingly competitive world. According to the DDI Forecast, only 38 percent of the leaders in their study rated their organisation’s leadership either very good or excellent. The HR respondents were even more critical. Only one in four rated their organisation’s leadership highly.
These outcomes echo those found in DDI’s 2009 Forecast which suggests that, “despite the billions of dollars spent on an array of talent management initiatives over the past two years, organisations have made little progress”.
This outcome might, at least in part, be explained by the somewhat rosier view higher-level leaders have of the problem. Mid or first-level leaders who are more exposed to the everyday realities of good and bad leadership are much less optimistic. The disconnect between top and next level leaders might also be reflection of the fact that senior level leaders are accountable for developing leaders. They might, therefore, be hesitant to admit fault for low leadership quality. “Either way, their perspectives could prevent them from fully understanding the pressing need to develop leaders at the lower management levels,” according to the study.
Another major US talent consultancy, California-based Bersin & Associates, has released similar findings. More than half of the organisations in the B&A study said businesses were “being held back by lack of leadership talent” and their top priority in the next year is to improve leadership skills.
“The world is changing very quickly and leaders are struggling to keep pace,” says Winter. “But the acute shortage of leaders generally is equally problematic. It may be that the lack of people resource is also preventing leaders from developing the skills and competencies they need to lead effectively.”
The world’s swelling shortage of “management talent”, which both supports incumbent leaders and replenishes the pool from which new leaders emerge, has been measured, researched and widely reported. Despite this, there has been little progress in filling the gap and developing managers for higher leadership roles.
The shortage of talent on the leadership and management bench, both locally and globally, is troubling. The GFC and subsequent recession haven’t helped. Many organisations stopped focusing on talent development, slashed their middle management ranks and switched to satisfying short-term, rather than future, strategic objectives.
After DDI discovered what it calls “the truly dire state of leadership” more than decade ago, it believed better leadership practices would evolve. “Evolution now seems too light-handed (and relaxed) for the kind of progress that needs to be made,” it says in this year’s Forecast.
“Organisations are forging ahead at lightening speed and revolutionising other parts of the business. It is time for leaders to move forward too. The time has come to revolutionise leadership practices to develop leadership capabilities that can keep up with the speed of business.”
Breaking out the New Zealand and Australian findings from the body of the DDI survey is even more worrying for Australasian enterprises.
Only 34 percent of leaders and 22 percent of HR professionals in the two countries rated their leadership quality high. As relatively small players in the global business landscape, Australasian organisations are strongly influenced by shifting global trends, market conditions, currency fluctuations and increasing involvement in the broader Asia Pacific market. The need for strong leadership is, therefore, even more critical.
Winter also calls New Zealand’s leadership and talent shortage “acute” and warns that it is likely to remain so for some time. “Our talent is often attracted to growing economies and interesting career tracks offered offshore,” she says. “The world’s fastest growing economies, particularly in Asia, South America, Russia and so on, are aggressively recruiting talent to meet the demands of their expansion.”
New Zealand’s worsening talent and leadership shortage is impacting our successful exporters and companies that are expanding their operations in other countries. “Exporting companies, like Fisher and Paykel or Raycon for example, need leaders who know how to run global businesses,” says Winter.
Fonterra chief executive Andrew Ferrier told NZ Management last year that, when it came to recruiting for senior executives, he was more often than not forced to fill the posts