The Truth About Leadership Skill Gaps
Five skills — entrepreneurship, business savvy, driving execution, decision-making and leading change — link prominently to bottom-line returns like net profits and return on assets.
Few things in business ever stay the same for long. That includes leadership skills. Some skills — communication, coaching, execution — are always important and never go out of style. Others ebb and flow with the changes that define the increasingly complex environments in which leaders must operate.
To help bring clarity to these skill shifts, Development Dimensions International in February of 2016 conducted a comprehensive analysis of assessment data from more than 15,000 leaders and candidates for five leadership levels from the front line to the C-suite. This dataset includes more than 300 organizations spanning more than 20 industries and 18 countries.
‘Money Skills’ Leaders Need
The study, “High Resolution Leadership,” analyzed which competencies most closely associate with organizational growth and profit to find out whether organizations that invest in leadership development show better bottom-line financial performance than their competitors. Data includes assessment results from 1,028 senior executives from 33 large organizations — on average, 26 per company — and combined these skills domains into a composite index of leadership competence. There was a strong relationship to revenue growth over a six-year period.
The study also conducted a profit analysis, focusing on net profit and return on assets, using assessment data from 2,077 senior-level executives from 44 organizations, about 47 per company. Organizations with leaders scoring higher in business management and leadership of people showed significantly greater net profit and ROA.
Five skills in particular — entrepreneurship, business savvy, driving execution, decision-making and leading change — link prominently to bottom-line returns, including net profits and ROA. These are the “money skills” that correlate with a healthy bottom line.
Readiness for Business Challenges
The study also revealed the 10 most common business contexts that organizations encounter, then synthesized them into business drivers that capture the broad leadership challenges that have to be overcome to execute strategy. The assessment data revealed that, given the wide range of these business drivers, leader readiness varies considerably; it isn’t particularly strong in any area. There is a critical mass of leaders who can effectively build strategic partnerships, focus their organizations on customers and improve process efficiency. Further, leader readiness showed strength in allocating resources to support strategy and enhance quality.
On the other hand, the assessment data showed disturbingly low levels of leader readiness in shaping strategy, building a high-performance culture and enhancing organizational talent. The five lowest-rated business drivers point to a lack of capability to improve talent and performance, make big organizational enhancements — such as mergers and integrations — and take businesses in a new direction.
The data show that executives are best equipped to focus on “here and now” challenges, such as improving quality, building relationships and focusing on customers and efficiency. Navigating the ambiguity that comes with more strategic challenges, however, like building or reinventing brands, markets, organizations and cultures, represent the most serious, context-driven skill gaps.
Getting Leader Skills on Track
Gaps in critical leader skills can have serious consequences for organizations. Here are some steps organizations can take to close the gaps:
Start early. Organizations need to start developing the five “money skills” at lower leadership levels to increase the chance the organization can reap the payoff that accompanies having more-skilled leaders.
Assess context alongside skills. Assessment is the most accurate way to determine a leader’s skills, but learning leaders also need to assess the business context. When CLOs understand the specific challenges leaders face now and in the near future, they can better grasp the width of leadership skill gaps.
Implement a one-two punch. The next logical step is to combine knowledge of the business context and leaders’ skills into targeted development that grows the specific leader capabilities the organization needs. That one-two punch of learning and application is a proven way to ensure leadership skill development drives leader transformation.
Not having leaders with the right skills can cost an organization — in profitable growth, in the ability to respond to major shifts and changes, in readiness to meet the current and future business challenges. On the other hand, skilled, capable leaders can impact the bottom line and make an organization more nimble, responsive and prepared.
The best part is, organizations have a choice about what kind of leaders they want.
Evan Sinar is chief scientist and vice president for the Center for Analytics and Behavioral Research at DDI. Rich Wellins is senior vice president at DDI. To comment, email editor@CLOmedia.com.