The Coming Leadership Crisis

By Staff Report

Oct. 17, 2007

Companies are heading toward a catastrophic shortage of qualified leaders with the knowledge needed to run global businesses, according to a new IBM survey of more than 400 human resources executives from 40 countries.

IBM’s Global Human Capital Study, released today, also found only 14 percent of the companies surveyed believe their workforces are capable of adapting to change, and that only 6 percent of organizations are confident of their ability to assess their human capital and use it to make strategic decisions.

“Companies are heading toward a perfect storm when it comes to leadership,” says Eric Lesser, an associate partner with IBM’s Institute for Business Value, who was the lead author on the study.

IBM found that organizations in every part of the world are facing crises over their ability—or lack of it—to develop future leaders. In the Asia-Pacific region, 88 percent of companies are concerned about the issue, and about three-quarters of companies in Latin America, Europe, the Middle East and Africa worry about it as well. In North America, 69 percent of companies fear a dearth of executive talent.

Lesser says that the leadership shortage is being caused by a combination of factors.

“The retirement of the baby boom means that a lot of leaders will need to be replaced, and it also puts companies under pressure to transfer the knowledge that they’ve accumulated,” Lesser says.

Beyond that, the next generation of corporate leaders needs new skills and knowledge to cope with a global economy in which change is increasingly rapid and business teams operate on a multinational, virtual basis.

“Future leaders, for example, need the ability to communicate in a virtual environment,” Lesser says. “In the past, you had an executive in China leading the sales team there. Today, you’ve got teams scattered everywhere, people who aren’t seeing each other or you on a daily basis.”

“How you develop trust in a virtual environment, how you get around local silos and work across them—all these are crucial skills, because you’re not just giving orders anymore, but enabling work to flow across regions fluidly and leveraging talent from across the world.”

IBM’s research also identified three key factors that influence the ability of organizations and their leaders to adapt to change. One is the ability to predict skill sets needed in the future by a company’s workforce.

In addition, companies must be able to locate experts within the organization with the knowledge to meet unexpected challenges, such as the rise of a new competitor or the advent of a paradigm-shifting technology.

Lastly, companies must be able to foster collaboration on a global scale, using electronically linked teams of experts who may be geographically distant and accustomed to very different business cultures.

Lesser says the premium placed on change management is part of a larger seismic shift in business. “It used to be that companies focused upon physical and financial capital,” he says. “But now, they’re looking to human and social capital to make the difference.”

Nevertheless, IBM found that companies remain slow to change their cultures.

“Even though many of the companies interviewed in the study have been experiencing higher than usual turnover over the past two years, they’re still focusing upon skill building rather than talent attraction and retention,” Lesser says. “We think that’s a mistake, because the war for talent continues to escalate, with new competitors for talent emerging all the time. This is no time to feel comfortable.”

The study also recommends an array of measures for companies that want to meet future leadership challenges, including increased use of mentoring, rotations, action learning assignments, and the use of social networking tools, such as blogs, to transfer knowledge of how present leaders do their jobs.

—Patrick J. Kiger

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