Making Leadership Development a Source of Competitive Advantage October, 2007 Robert M. Fulmer

WachoviaLeadershipBenchmarkingv1 2 Session Overview Highlights of Previous Studies Action Principles From Research on Trends and Best Practices Linking The Growth of Leaders to Business Growth and Profitability The ABC’s

WachoviaLeadershipBenchmarkingv1 3 Growing Great Leaders Delivers Great Results!  Organizations with strong leadership bench strength have approximately 10% higher total shareholder return than their weaker peers (Corporate Leadership Council, 2003)  Companies with above average financial returns have more comprehensive succession planning processes and are committed to developing future leaders (Hewitt, 2003)  Employees with strong leaders are more satisfied, engaged, and loyal than employees with weak leaders (DDI, 2003)  A conscious partnership between line execs and HR drives strategic leadership success (APQC 2005)  Accelerated development for global high potentials can be a powerful lever to develop, communicate and implement strategy (Fulmer & Bleak, 2007, Hewitt, 2007

WachoviaLeadershipBenchmarkingv1 4 Five Principles That Can Streamline Your Organization’s Success in Growing Leaders—and the Bottom Line! # 1: Start with the top  Build C level commitment and passion for leader development through partnership and results  Engage senior management as champions, role models, and faculty #2: Directly link to the business --- and deliver results  Integrate and align leader development practices with business strategy & priorities  Demonstrate value in business terms and develop metrics that reflect business goals #3: Build an integrated leadership strategy  Create a compelling vision, business case, and strategy for leader development  Design a mosaic of the “targeted” programs and development solutions for maximum impact #4: Drive consistency in the execution of leadership programs and practices ' Cascade programs to improve reception and drive cultural & strategic change Customize solutions for business units to win strong senior management buy–in Leverage key career transition points—’teachable moments’—especially for HiPos #5: Hold leaders accountable for results—development and business results  Differentiate and actively manage the development of high potential talent  Anchor all talent and performance management practices with a lean competency model linked to strategic, reward and performance systems Source: Adapted from: Duke Corporate Education, “Leadership Strategy Project” (2005); Hewitt, “The Top Companies for Leaders – (2005, 2007); : ExecSight, “Current Challenges in Leadership Development” (2004), Growing Your Company’s Leaders, 2004, The Leadership Advantage, 2007

WachoviaLeadershipBenchmarkingv1 5 How Well Does Your Organization Follow Each Key Principle? Idea # 1: Start at the top Idea #2: Directly link to the business – and deliver results Idea #3: Build an integrated leadership strategy Idea #4: Drive consistency in execution of leadership programs and practices Idea #5: Hold leaders accountable for results including development 4 We are a benchmark in this area 3 We execute elements of this guiding idea well 2 We are beginning to introduce elements of this guiding idea 1 We would like to follow this guiding idea

WachoviaLeadershipBenchmarkingv1 6 CEO Level Involvement and Sponsorship Is Absolute In Top Companies Source: The Top Companies for Leaders – Hewitt Principle 1

WachoviaLeadershipBenchmarkingv1 7 It All Begins… And Ends With the Business All of the “Best Practice” Companies Have: Leader development strategies that are closely linked to their business strategies, rather than popular “best practices” Strategies for selecting, developing and rewarding leaders, most of which are anchored by a lean competency model Source: The Top Companies for Leaders – Hewitt, The Leadership Advantage Principle 2

WachoviaLeadershipBenchmarkingv1 8 There Are Some Solid Measures Of Business Impact Available… Measures of Business Impact Improved product/service quality70% Improved customer service70% Reduced operating costs59% Increased revenues51% Improved sales efficiency49% Increased profits48% Source: Corporate University XChange 6 th Annual Benchmarking Report, 2005 Guiding Idea 2

WachoviaLeadershipBenchmarkingv1 9 Developing an Integrated Leadership Strategy is a Top Priority --- Yet Many Challenges Exist Source: Executive Development Trends; EDA Inc. EDA’s 2000 study reported the same No. 1 priority with the caveat that it is difficult to achieve ! Top Priorities for Leading L&D Organizations Principle 3

WachoviaLeadershipBenchmarkingv1 10 High Potentials Can Leverage Developmental Efforts Source: Executive Development Trends EDA Inc. Key Objectives of Executive Development Activities in Next 2-3 Years Principle 4

WachoviaLeadershipBenchmarkingv1 11 Yet, Most Companies Worry About Identifying and Helping High Potentials 46% of companies have no systemic process for identifying and developing candidates for key leadership positions Half the candidates selected internally for leadership positions fail when there is no succession management system Source: Leadership Forecast: A Benchmarking Study 2003; DDI; Growing Your Company’s Leaders, 2004, Leadership Advantage, 2007 Guiding Idea 4

WachoviaLeadershipBenchmarkingv1 12 If You Can Identify Your High Potentials, What Do You Communicate? Source: The Top Companies for Leaders ; Hewitt For Your High Potential Population, Do You: Principle 4

WachoviaLeadershipBenchmarkingv1 13 …How To Develop Them All of the Top 20 Companies also link compensation to a leader’s future potential Developmental Techniques Used To Develop High Potentials: Source: Top Companies for Leaders –; Hewitt Guiding Idea 4

WachoviaLeadershipBenchmarkingv1 14 Best Practice Firms Anchor Their Leadership Development With A Lean Competency Model Tied to Performance and Reward Systems Leader competencies are integrated into: Source: The Top Companies for Leaders – ; Hewitt Metrics from performance management process are integrated into succession planning Top Quartile Metrics Integrated Not Integrated Bottom Quartile Metrics Integrated Not Integrated Principle 5

WachoviaLeadershipBenchmarkingv1 15 Organizations have teachable moments, too. Leadership development can be a powerful tool to help formulate, translate, and communicate strategy. Linking corporate strategy & leadership development strategy creates winners. Lean competency models and values are the foundations of strategic HR & leadership development. I. Developing a Strategic HR Architecture

WachoviaLeadershipBenchmarkingv1 16 VISION 2020 STRATEGIC GOALS Our Values in Action – INTEGRITY, EXCELLENCE, TEAMWORK, COMMITMENT WORLDWIDE CODE OF CONDUCT ENTERPRISE STRATEGIC AREAS OF IMPROVEMENT STRATEGIC PROFILE New Product Introduction Order-to-Delivery Encoding 6 Sigma Sustainable Development Growth Beyond Core CRITICAL SUCCESS FACTORS PEOPLE QUALITY PRODUCT VELOCITY DISTRIBUTION CHINA TROUGH People Performance Product & Process Profitable Growth MAKING PROGRESS POSSIBLE Caterpillar’s New Strategy Engagement Index 90% by 2010 Leadership Index 80% by 2010

WachoviaLeadershipBenchmarkingv1 17 Strategic HR is a partnership between senior line executives and multiple human resource systems. Strategic HR (especially HRD) is a key part of the corporate planning cycle. HR can win the support of top management by involving them in strategic learning initiatives and by knowing and advancing the mission. Leaders who teach are more effective than those who tell. Strategic leverage comes from a focus on high potentials. II. Aligning Strategic HR Systems

WachoviaLeadershipBenchmarkingv1 18 Leaders in HR maintain control of custom design and delivery of their programs. Lean HR groups leverage their talents with the judicious use of consultants and outside service providers. Integration of leadership development with other talent management systems creates alignment and synergies within the HR function. III. Implementing a Successful HR Strategy

WachoviaLeadershipBenchmarkingv1 19 Developing people is a growing measure of executive success. Return on learning (ROL) is increasingly measured by corporate success rather than individual performance. Successful programs are a process rather than an event. IV. Assessing Success in Strategic HR

WachoviaLeadershipBenchmarkingv1 20 Alignment Business Focus Collaboration Success Factors for Future Leadership in Strategic Human Resources: The ABCs

WachoviaLeadershipBenchmarkingv1 21

WachoviaLeadershipBenchmarkingv1 22 Reflect on the best practices/principles you just heard about and then discuss  What best practice or principle is most important for the overall success of leadership strategy? What will be most important in 2010?  What is the one additional question you would most like to ask of Best Practice partners? Leadership Best Practices Dialogue  Individual Review (1’) – write on post –it or notebook  Small Group (5 – 7”) – develop list for your group  Large Group (5”): Report out Process Task

WachoviaLeadershipBenchmarkingv1 23 Referenced Reports James Bolt, "Executive Development Trends 2004: Filling the Talent Gap,” (survey of 101 global companies) Executive Development Associates (EDA) Inc. Corporate Executive Board: Driving Performance and Retention Through Employee Engagement (September 2004) Corporate University XChange 6th Annual Benchmarking Report, 2005 Robert M. Fulmer & Jay A. Conger, Growing Your Company’s Leaders, AMACOM, 2004 Robert M. Fulmer & Marshall Goldsmith, The Leadership Investment, AMACOM, 2001 Robert M. Fulmer SME, “Next Generation HR Practices,” APQC, 2005 Robert M. Fulmer & Jared Bleak, “The Leadership Advantage, 2007 Hewitt & Associates, “The Top Companies for Leaders,”2005, 2007 Andre Martin, “Differences in the Development Needs of Managers at Multiple Levels,” Center for Creative Leadership, Mark Nevins and Stephen Stumpf, “21 st Century Leadership: Redefining Management Education,” Business & Strategy, Scott Saslow, “Transforming Corporate Leadership: Best Practices in Executive Education,” ExecSight, (April 2004). Training Magazine’s 2005 Survey of Top 100 Companies Training Magazine’s Annual Comprehensive Analysis of Employer-Sponsored Training in the US, October 2004 Watson Wyatt," Maximizing the Return on Your Human Capital Investment”2005

WachoviaLeadershipBenchmarkingv1 24 Key Takeaways From Skil

WachoviaLeadershipBenchmarkingv1 25 Key Takeways from Skil Create a (simple) Formal Pocess Involve a Multi-Functional Team (Over) Communicate the Strategy Be Consistent Over Time Establish Balanced Measure Review Strategy Regularly