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back to index backCHINAtalk November,  2004

Companies in China can grow, only when they develop leadership capacity

The biggest constraint to growth in any company is management and leadership capacity, says Simon Keeley of Hewitt. "While there are very real challenges to successfully develop leadership and management capacity, there are examples of companies who have found a solution for this problem. We can learn from them."

In his book "Double Digit Growth" Michael Treacy asks one important question: "Which has grown faster since 1997: Intel or Inflation?" Inflation has beaten Intel. The average revenue growth of the 30 companies in the Dow-index between 1997 and 2002 was 4.9%.

Strong growers like Home Depot, Merck, Microsoft, Walmart and CitiGroup outperformed the rest by a 2.3% revenue growth and a gross profit of 1.6%.

Bad performance among those companies, Treacy suggests, is caused by investing in the wrong market, the loss of proprietary advantage and too little focus on the customer. Companies neglect changes among their customers' preferences, like a shift from buying on features to price.

Treacy argues that growth is actually a choice companies can make. High performers focus on a few areas, he says. First, they try to retain customers and have gaining market share high on their priority. They know where the market is going to grow, and have a presence there. And they diversify: both into adjacent markets and into new lines of business.

Building management and leadership capacity is a key prerequisite to achieve those goals. You cannot blame your competitors or the changing market for a poor performance; you have a choice by training and retaining talent - or by getting talent from other companies. Without focusing your people on growth as a strategic discipline, double digit growth will be hard to achieve.

Hewitt partnered with Treacy to look more closely into the differences between good and bad performers. A few items stood out: First, top-management really has to be committed to leadership development. The CEO's role is not just to give a ritual speech at the start of a leadership event, but to really be involved. This involvement guarantees that the company has moved beyond verbal promises. Second, human resource policies and practices have to align with strategy--in selection, development, performance management and in rewards. Development programs that prepare up-and coming leaders for stretch roles are a critical part of this effort.

When it comes to leadership development, China and Asia are in theory no different than the rest of the world. But here we are faced with additional challenges. China has a serious talent gap, and companies cite this as a key business issue. This shortage leads to potentially escalating compensation costs and problems in retaining experienced talent.

China is also crippled by a lower percentage of employees in the 40-50 age group, the group which traditionally delivers more leaders and stabilizes the top of the organization. These issues compound the continual reliance on expatriates, and accelerate the urgency for companies to begin building their 30-40 year old middle managers into leadership potentials and rigorously focus on retention.

So if we know all of this is so important, what is keeping companies from effectively developing leaders? Hewitt's Top Companies for Leaders study research conducted last year found that over 40 percent of companies in China are pressured to focus only on short-term operations not long term development. About 30 percent cite a lack of talent as a major strain on growth. Around 35 percent see a lack of know-how in developing leaders as an impediment. These are all formidable challenges, but being proactive about leadership development in China means addressing these challenges head-on.

There is a relationship between companies that produce great financial results and the presence of great leaders in companies. Among the Top Companies we identified last year in our study we found three principles that are the basis for their culture and strategies.

Involve senior leaders. This is critical to streamlining the processes for attracting, developing and retaining leaders, and supporting these processes with abundant resources.

In Wipro Ltd, nominated as a Top Company for Leaders in Asia Pacific, both the Chairman and Vice-Chairman invest two weeks on talent review and planning each year. They are involved in the career development of both top performers and middle management. The chairman is an active faculty member at the in-house leadership program.

Dialogue and candor are essential in this process. Top leaders should assess up-coming top leaders; second-rate leaders don't need a role in this process. Only talented people will hire other talented people.

Focus on the best. Most companies understand the value that high potentials can bring to an organization. Not all will invest dis-proportionally in their learning and growth. Top Companies do!

Key in all leadership programs is not only getting them in place, but also getting them right. Figuring out a leadership strategy is part of this, and the real differentiator is in execution!

The challenge, then, is not whether to do something about leadership. It is how to do something. This is not about blindly copying programs in the mistaken belief that applying best practices is the sure route to results; it is more about copying how these companies think, and then applying those principles to designing programs that are uniquely suited to the business and its culture and strategy. You have to find a solution that fits your company best. Your future growth in China depends on it.


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