Developing leaders in a downturn
Turning current business challenges into leadership development opportunities will ensure faster bottom-line impact, and accelerate the development of future leaders, say Faridun Dotiwala and Gautam Kumra of McKinsey.
“Never let a serious crisis go to waste”
— Rahm Emanuel, White House Chief of Staff
The current economic crisis offers companies a unique chance—to develop tomorrow’s leaders. Companies that view a crisis through this lens stand to benefit, both through improved performance and better future leaders.
McKinsey & Company research suggests that market leadership is affected significantly during downturns. An analysis of downturns from 1998-2002 reveals that only 60 per cent of companies in the top quartile prior to the downturn retained their leadership position post a downturn. Therefore, companies need to maintain their competitive edge and effectively respond to the changed environment. This may often involve moving out of traditional comfort zones to approach leadership development in a fundamentally different way.
A highly visible leadership that uses this opportunity to reassess top team strength, capture talent through selective recruitment by identifying them from within, and embed leadership development in key business priorities, can help companies tide over the current crisis and emerge stronger with a stable source of future leaders.
Be visible and communicate clearly
Communicating a clear and consistent message that mobilises employees is most effective when backed up by a set of highly visible and often symbolic actions. Recent McKinsey research reveals that the more visible the actions of top leaders, the greater the impact during crises. For example, by recently dismantling his executive suite, one CEO not only reduced costs but signalled collaboration and empathy with colleagues.
Redirect and strengthen the top team
Leadership is context-specific. In other words, leadership requirements in times of downturn are different from those in times of high growth. Thus, a changed environment calls for an honest assessment of the top team. Is the team of the right size and composition? Does it have the necessary skills for this new environment? These questions could often lead to a drastic reassessment and realignment of the top management. Once complete, collaborate with the team on key decisions that need to be made, such as changes to company direction, modifications to team interactions, alignment across initiatives and ascribing ownership further down the line and cutting through silos where performance demands it.
Selectively hire and capture displaced talent
Studies have shown that while overall recruitment typically declines, the quality of workers employed during recessions rises. So, while companies are trying to reduce personnel costs, the current environment also provides a unique opportunity to hire displaced talent. Non-financial firms, for example, are taking advantage of the severe downsizing at financial corporations, to hire jobless, highly-skilled professionals. To maximise this opportunity, companies need to identify the specialised talent needed to expand offerings; search creatively beyond the usual sources to draw people from competitors and other geographies and fill positions faster than before. For example, as many banks trim their headcount, a smaller US-based investment bank has been expanding selectively. “We’re seeing opportunities to either upgrade or to go into businesses that we believe we have a competence in, but where we didn’t have the people before to get the job done,” said one CEO.
Identify “Hidden Gems” from within
A changing environment implies new challenges and the need for new approaches. Looking to the “usual suspects” to fill leadership roles may not work. But this does not necessarily imply companies are without the necessary talent— this is an opportunity to discover new talent from within. Companies that invited nominations for various leadership positions often found this effective in identifying potential leaders, often beyond the “usual suspects”. For example, when a multinational computer technology and IT consulting firm transformed into a services provider, a senior vice president of HR describes how the company asked its top 300 leaders to identify younger people lower down in the organisation: “Who could do your job someday?” The result? “We were amazed… 294 people we might ordinarily have never found.”
Simultaneously develop leaders and achieve business challenges
Turning business challenges into leadership development opportunities ensures faster bottomline impact, and accelerates the development of future leaders. Identify immediate business challenges and match leaders with them, setting stretch targets. Targeted leadership development support then needs to be embedded in these challenges. Such development inputs would include creating individual awareness on the skills and mindsets needed, creating the self-motivation to improve and following up with a set of actions. Several corporations that combined leadership development and delivery achieved large increases in income in the first year itself and created leaders that could transition more quickly into senior positions.
As a start, such an approach— one that sees leadership development as very much entwined with business priorities—can deliver immediate business results and simultaneously accelerate the development of people who can deal with crises. The way to take this forward is to scale up to cover a critical mass of people and parts of the business, followed by changes to some of the critical people-systems within the organisation (e.g., performance management, mobility).
Over an extended period, companies can develop a leadership engine that can, on its own, help develop people and deliver results. This can be a lasting source of competitive advantage.
— Faridun Dotiwala is an Associate Partner at McKinsey & Company’s Mumbai office while Gautam Kumra is a Director at its Delhi office
— Rahm Emanuel, White House Chief of Staff
The current economic crisis offers companies a unique chance—to develop tomorrow’s leaders. Companies that view a crisis through this lens stand to benefit, both through improved performance and better future leaders.
McKinsey & Company research suggests that market leadership is affected significantly during downturns. An analysis of downturns from 1998-2002 reveals that only 60 per cent of companies in the top quartile prior to the downturn retained their leadership position post a downturn. Therefore, companies need to maintain their competitive edge and effectively respond to the changed environment. This may often involve moving out of traditional comfort zones to approach leadership development in a fundamentally different way.
A highly visible leadership that uses this opportunity to reassess top team strength, capture talent through selective recruitment by identifying them from within, and embed leadership development in key business priorities, can help companies tide over the current crisis and emerge stronger with a stable source of future leaders.
Be visible and communicate clearly
Communicating a clear and consistent message that mobilises employees is most effective when backed up by a set of highly visible and often symbolic actions. Recent McKinsey research reveals that the more visible the actions of top leaders, the greater the impact during crises. For example, by recently dismantling his executive suite, one CEO not only reduced costs but signalled collaboration and empathy with colleagues.
Redirect and strengthen the top team
Leadership is context-specific. In other words, leadership requirements in times of downturn are different from those in times of high growth. Thus, a changed environment calls for an honest assessment of the top team. Is the team of the right size and composition? Does it have the necessary skills for this new environment? These questions could often lead to a drastic reassessment and realignment of the top management. Once complete, collaborate with the team on key decisions that need to be made, such as changes to company direction, modifications to team interactions, alignment across initiatives and ascribing ownership further down the line and cutting through silos where performance demands it.
Selectively hire and capture displaced talent
Studies have shown that while overall recruitment typically declines, the quality of workers employed during recessions rises. So, while companies are trying to reduce personnel costs, the current environment also provides a unique opportunity to hire displaced talent. Non-financial firms, for example, are taking advantage of the severe downsizing at financial corporations, to hire jobless, highly-skilled professionals. To maximise this opportunity, companies need to identify the specialised talent needed to expand offerings; search creatively beyond the usual sources to draw people from competitors and other geographies and fill positions faster than before. For example, as many banks trim their headcount, a smaller US-based investment bank has been expanding selectively. “We’re seeing opportunities to either upgrade or to go into businesses that we believe we have a competence in, but where we didn’t have the people before to get the job done,” said one CEO.
Identify “Hidden Gems” from within
A changing environment implies new challenges and the need for new approaches. Looking to the “usual suspects” to fill leadership roles may not work. But this does not necessarily imply companies are without the necessary talent— this is an opportunity to discover new talent from within. Companies that invited nominations for various leadership positions often found this effective in identifying potential leaders, often beyond the “usual suspects”. For example, when a multinational computer technology and IT consulting firm transformed into a services provider, a senior vice president of HR describes how the company asked its top 300 leaders to identify younger people lower down in the organisation: “Who could do your job someday?” The result? “We were amazed… 294 people we might ordinarily have never found.”
Simultaneously develop leaders and achieve business challenges
Turning business challenges into leadership development opportunities ensures faster bottomline impact, and accelerates the development of future leaders. Identify immediate business challenges and match leaders with them, setting stretch targets. Targeted leadership development support then needs to be embedded in these challenges. Such development inputs would include creating individual awareness on the skills and mindsets needed, creating the self-motivation to improve and following up with a set of actions. Several corporations that combined leadership development and delivery achieved large increases in income in the first year itself and created leaders that could transition more quickly into senior positions.
As a start, such an approach— one that sees leadership development as very much entwined with business priorities—can deliver immediate business results and simultaneously accelerate the development of people who can deal with crises. The way to take this forward is to scale up to cover a critical mass of people and parts of the business, followed by changes to some of the critical people-systems within the organisation (e.g., performance management, mobility).
Over an extended period, companies can develop a leadership engine that can, on its own, help develop people and deliver results. This can be a lasting source of competitive advantage.
— Faridun Dotiwala is an Associate Partner at McKinsey & Company’s Mumbai office while Gautam Kumra is a Director at its Delhi office
