Taking the

leadership leap
Developing an
effective executive
pipeline for
Indias future
Contacts About the authors

Delhi London Mumbai Viren Doshi is a senior

partner at Strategy&
Gaurav Moda Viren Doshi Jai Sinha operating across London,
Principal Senior Partner Partner Mumbai, and Paris. He
+91-124-499-8719 +44-20-7393-3572 +91-22-6128-1102 has more than 30 years
gaurav.moda viren.doshi jai.sinha of industry experience in
@strategyand.pwc.com @strategyand.pwc.com @strategyand.pwc.com the global energy sector.

Jai Sinha is a partner

at Strategy& based in
Mumbai. He co-leads
the India business and
has more than 20 years
of experience advising
companies in a variety of
industries.

Gaurav Moda is a
principal with Strategy&
based in New Delhi.
He leads the firms
organization, change,
and leadership efforts in
India.

Anshu Nahar is a
principal with Strategy&
based in Mumbai. He
focuses on strategy and
organization within
the financial services
industry.

This report was originally published by Booz & Company in 2012.

2 Strategy&
Executive summary

Indian companies have experienced explosive growth over the past

two decades, overseen by a generation of top leaders who are nearing
retirement. Unfortunately, there are not enough qualified successors to
keep pace with the countrys growth. Although the future expansion
of Indian business has been ensured, its effective stewardship has not,
leaving a leadership gap that companies will need to fill in innovative
ways.

A more participative approach, attuned to the needs of the next

generation, is rightly gaining traction but only in companies whose
leaders endorse the approach wholeheartedly, and where it can become
ingrained in the companys culture. This approach starts with a clearer
understanding of the causes of the leadership deficit. To continue
fueling Indias economic growth and fulfill the plans of individual
companies, a better approach to managing the talent pipeline at all
levels is required.

Symptoms of the leadership deficit include the dearth of potential

candidates; the lack of breadth of experience among those candidates
(who have largely been functional rather than general managers); and
the bidding war that has ensued over the few, talented managers.
Corporate Indias emphasis on technical excellence and rapid growth
has been incredibly successful, but it has dominated at the expense of
the systematic development of future leaders.

By making top management more effective, cultivating a strong set of

middle managers, creating advancement opportunities for technical
specialists, identifying high-potential employees, and building stronger
cadres at the junior level, executives can establish a leadership pipeline
that will sustain itself into the future. This change in focus toward
nurturing and developing talent will go a long way toward ensuring
a strong future for any Indian company.

Strategy& 3
Talent at the top

The greatest deficit facing companies in India today is leadership.

The countrys explosive growth since the early 1990s has allowed
many Indian companies to expand their activities exponentially.
Unfortunately, however, the development of leadership talent,
particularly in the group just below the top tier, has not kept pace.
Upper-level managers throughout the corporate world in India are aging
and ready for retirement, often without having enough experienced
next-generation executives ready to take their place. There are simply
not enough senior leaders for the future.

It is no surprise, then, that in one major survey of executives of leading

Indian companies (conducted by Harvard Business Publishing in 2010),
88 percent of the respondents cited gaps in [their] leadership practice
as their top challenge. The problem is exacerbated for many companies
because of the decentralized nature of their management. Traditionally,
Indian companies have operated in a markedly top-down manner; the
person with the corner office made the final decisions, while members
of senior management oversaw their specific silos. That chief executive
centric model, which proved itself useful in marshaling resources for
growing businesses, is giving way to a more participative approach, one
more resonant with the younger generation of business managers.

But companies now find themselves without enough experienced senior

managers to take over the larger number of decision-making roles that
are required in participative management. When the next tier of leaders
rises to the top, they are limited by a lack of a wider breadth of
experience. Having focused on their particular segment of the business
to great effect, many are insufficiently prepared to take over bigger-
picture executive duties from the retiring generation. And as that
generation ages, companies are finding themselves without equally
experienced senior managers to take over.

4 Strategy&
C-level executives in India recognize this gap, but it is not always clear
what concrete steps they can take to fill it. Indeed, few companies have
managed to produce the leadership pipeline they need. But it is possible
to overcome this hurdle. By cultivating younger leaders, and taking a
more holistic and targeted approach to their development and career
path, companies can fill their immediate gaps while building the
enterprise capabilities necessary to ensure that they thrive in the
long run.

Strategy& 5
Identifying the challenges

The leadership deficit in Indian business is widely recognized, but few

companies have successfully addressed it. Thats because the requisite
solutions, including the development of a strong leadership pipeline,
require immediate and focused efforts in Indian companies.

This challenge manifests itself on three levels. First, there is a quantity

deficit: Many Indian companies simply find it difficult to fill all their
available positions with qualified applicants. Second, an experience
deficit exacerbates the problem: Todays senior and middle managers
have not had sufficiently broad or well-developed careers. Finally, the
talent war adds complexity: Competition over high-quality executive
talent is intensifying, and companies are willing to pay top dollar for
the right people. Conversations with our clients suggest that these three
gaps pose the most significant challenges to the future growth of their
companies.

The quantity deficit

Employers difficulty with filling vacancies is sector agnostic. In the

2012 Manpower Talent Shortage Survey, a global survey of employers,
48 percent of the respondents based in India reported difficulty in
finding qualified candidates for their managerial positions. Nearly
17percent reported a complete lack of candidates for these positions,
qualified or not.

Although talent shortages are seen among all skilled workers, the gaps at
the middle and senior management levels relate to both the number of
candidates and the skills they offer. Given the current state of leadership
development at Indian companies, and with continued economic growth
in mind, our estimates suggest that the top management deficit may
range between 10 and 18 percent over the next five to 10 years
(see Exhibit 1, next page). This gap leads to delays in readying growth
opportunities, and can also put existing business operations at risk.

Because of the lack of qualified successors, senior leaders are not

retiring when they should. Instead of developing and executing a clear
6 Strategy&
Exhibit 1
Estimated demand-supply gap for top management in India

Gap
20%
18%

15%
15% 13%
11%

10% 11%
9%

5% Source: Strategy& analysis,

2012 2017 2022 drawing on data from RBI,
the Indian government,
Leadership shortfall range for ET500 (top 500 Indian companies) Indiastat, and Prowess

succession plan, executives have become more comfortable extending

their tenure, lacking confidence that the next level of management is up
to the task of leading. But executives cannot stay in their roles forever,
as much as they might think they have to. Even as boards continue to
prolong their tenure, many chief executives are aging past the point at
which they can postpone retirement. Without a forward-looking plan,
companies may find themselves foundering.

People have been so focused on growth that they have not invested
in developing the next rung [of the leadership ladder], said one
senior human resources (HR) manager from a large private-sector
conglomerate. There is a strong circle of top leadership in our
businesses, but no tag team.

Until now, businesses that are closely aligned to the public sector have
been less affected by this problem; the large workforce, grown through
the ranks, has so far shielded state-run companies. But as a public-sector
bank CEO noted, The pressure is beginning to mount. He added that
this was a serious problem for the company: More than 30 percent of
our senior and middle managers will retire in the next three years. This
will leave a large numerical and capabilities gap.

Strategy& 7
The experience deficit

The experience deficit plays out differently across different sectors

of the economy and at different levels of leadership. In the rapidly
growing New Economy industries in particular, such as those driven
by digitization, too few people have been working long enough to
develop a leaders perspective. For example, the telecom boom over the
past decade has resulted in a flurry of flourishing mobile phone brands
in the country. But each of these firms has had to draw upon its existing
pool of players to build its senior team. The growth of that talent pool
has not kept pace with those of the brands. Moreover, most Indian
companies today lack an effective in-house leadership development
program. Although they rely on young leaders to take on senior
positions, they fail to provide those leaders with on-the-job guidance
and mentoring, which is necessary to prepare them for greater
responsibility.

Thus, many young, inexperienced managers have found themselves

launched into senior positions without having had enough training in
the complexities of strategy or managing people. As one regional sales
head for a mobile handset company put it: Eight to 10 years ago, there
were only three to four handset brands in the country. Today, there are
over 60. Relatively younger managers have had to step up to take on top
roles in these companies.

Old economy industries are also affected by this challenge. Although

there may be highly experienced leaders at the top, they are struggling
to find experienced middle managers, let alone senior managers, to take
their place once they retire.

Moreover, many top-level executives at public-sector and private-sector

companies face challenges because of limited quality and a lack of
breadth of experience. Without a strong leadership pipeline in place,
star functional managers have been promoted to top roles. These
individuals may have a background within only one or two specialized
domains, and may not have had the opportunity to develop a broader
perspective or set of skills.

As one chief human resources officer for a large private-sector

conglomerate put it, We have many technical [or] functional
experts but have not invested in helping them make the transition
to top positions. Without that investment, and the development of
a strong leadership pipeline that produces new batches of top talent,
Indian companies are vulnerable to the next major challenge: the
talent war.

8 Strategy&
The talent war The demand for
As they struggle with the quantity and experience deficits, human
capable leaders
resources departments have had to rely on external hiring to build continues to
their teams. The demand for capable leaders continues to rise, and the rise, and the
competition for them has intensified. This has led to an accelerating
talent war among companies. Those companies that invest in a
competition
leadership pipeline are aware that a rival company could hire the senior for them has
managers they cultivate at any time. We have gone the buy route intensified.
[hiring seasoned senior leaders from outside], said a senior HR
manager at a major Indian conglomerate. We have infused external
This has led to
talent to support our growth. an accelerating
talent war
The professionalization of family-run businesses, the continued entry
of global corporations into India, and the emergence of new sectors are
among
further fueling this race for talent. We have been hiring aggressively at companies.
entry levels to build our talent pipeline, said the chief operating officer
of a public-sector bank. However, we see an attrition [rate] of around
25 to 30 percent among these new hires. Once trained, they are picked
up by private-sector banks at significantly higher salaries.

But there are more holistic ways to develop and nurture top talent
ways that breed loyalty and provide incentives to young leaders not to
jump at the first outside offer they receive. Determining what is causing
the leadership deficit will go a long way toward not only retaining more
versatile employees, but also decreasing the need to rely on them in the
first place.

Strategy& 9
Understanding the root causes

The challenges that Indian companies face with talent and leadership
have three underlying causes. The first two Indian demographics and
the booming Indian economy are well known. The third, Indias
prevailing technological mind-set, is less obvious to many people, but
may provide more leverage for change. Each of the three is worth a brief
explanation.

Indian demographics

It is no secret that India is a young nation. The countrys relative youth

its median age is 26 is one of the driving forces behind its growth,
and an oft-cited reason for its emergence as an economic superpower.
Given that around 65 percent of Indias 1.2 billion people are between
15 and 64 years old, and that 30 percent of the population is younger
than 15, India will continue to be a young nation for several decades
more (see Exhibit 2, next page). The opportunities presented by that
young demographic to Indian companies, as both a consumer class and
a workforce, are immense, but there is also a massive downside. Indias
workforce remains overwhelmingly in need of more skills to match the
growing workplace requirements. As Indian companies continue to
expand, they must rely on less-experienced leaders who require more
development and training, which is often not a current priority.

The booming economy

The countrys unique demographics coupled with the economic

reforms of 1991 and an overall surge in globalization have produced
a remarkable decade for corporate India, one of rapid expansion and
exponential growth. The pace of that growth has, as discussed, placed
significant demand on the short supply of talent across junior, middle,
and senior levels. The economy is growing at a faster pace than the rate
[at] which our leadership is aging, said the CEO of one large private-
sector financial-services company. Without robust internal leadership
development programs, many companies will be left to costly external
recruitment.
10 Strategy&
Exhibit 2
Indias population by age, 201030

2010 Age 2030

100+
9599
9094
8589
8084
7570
7074
6569
6064
5559
5054
4549
4044
3539
3034
2529
2024 Majority (~60%)
1519 of population
1014 younger than 30
59
04
120 100 80 60 40 20 0 0 20 40 60 80 100 120

(Millions of people) (Millions of people)

Source: The Economist

Intelligence Unit (EIU);
Strategy& analysis

Strategy& 11
A technological mind-set

The first two underlying causes Indias young demographics and

booming economy are obvious contributors to the current leadership
deficit. Perhaps thats why few Indian companies have systematically
addressed this challenge; they perceive that they have no power over
the root causes, and they wouldnt want to change them even if they
could. But this subtler third cause also signals where executives can
exert the most power.

Historically, Indian business leaders have focused on developing

technology rather than people. In the same way that the countrys
demographic and economic strengths offered Indian companies great
advantages in expansion but led to gaps in the leadership pipeline, those
companies emphasis on technical excellence and rapid growth came at
the expense of employee development. As a senior manager at a large
Indian conglomerate put it, We have quality technical experts, but
cant convert them into business leaders.

Evidence for this dynamic can be found in practices prevalent

throughout Indian companies. For example:

No place for HR at the table: Few companies have provided HR a

seat on executive management committees. As a result, the HR
department often takes a backseat in the strategic planning process,
leading to a lack of focus on people matters.

Need for more breadth of experience at the top: As noted earlier, senior
team members have often risen through functional ranks by
excelling in their specialized tasks, but with a limited variety of
experience. This is not a problem just for Indian companies; it is
endemic to corporate structures in many geographies. But while
many global companies compensate through in-depth training at
the top, bringing senior executives together to help develop their
complementary capabilities, Indian companies have not invested
as much in this type of executive education.

A lack of structured leadership development in the middle: There is also

a shortage of broad-based leadership development and succession
planning programs for those in middle management. Furthermore,
limited development opportunities exist for technical specialists.
When specialists are forced to take on general management roles,
they are typically neither well prepared nor motivated to handle
them.

12 Strategy&
 A dearth of integrated training at the bottom: Cadre-building Changing the
programs have often been ad hoc, run in isolation or as one-off
initiatives. In addition, many Indian companies struggle with MBA
culture of a
hiring programs. Often, the MBA class is not integrated well enough company to
into the broader workforce, and companies put too much hope too one that will
early in these young managers. Meanwhile, rotation programs meant
to train the new recruits are often ill-conceived and seen as an
incorporate a
intrusion into daily work by line managers. Corporate has assigned sound leadership
two MBAs to my department for rotation I dont know what to do pipeline is no
with them, said a department head at one midsized company. My
people are already overworked with their routine work we do not
small task.
have the time to train these overpaid young recruits. But with a
well-developed
Changing the culture of a company to one that will incorporate a
sound leadership pipeline is no small task. But with a well-developed
plan, it can be
plan, it can be achieved. Such a plan will imbue managers with an achieved.
understanding that training such young recruits is an essential part of
their routine, and will provide the incentives for them to contribute. In
order to establish this type of plan, and to reap the benefits of a better-
prepared managerial workforce, companies will have to undertake a
comprehensive overhaul of how they approach leadership development.
This is an important, and wholly achievable, goal. Failure to devote
time and attention to it will cause more leadership problems and
promote a vicious circle in which short-term fixes, such as recruiting
disproportionately from outside and promoting more people to positions
they cant handle, will further aggravate overall leadership problems.

Strategy& 13
Taking the leadership leap

What does it mean for Indian businesses to take a holistic view of the
entire leadership pipeline and systematically build leaders from the
bottom up? It means making talent management identifying,
nurturing, and elevating high-potential employees a key component
of HR strategy. This involves five main steps:

1. Invest in senior management effectiveness: Creating an effective senior

team begins with setting clear objectives, selecting the right people,
defining clear roles for team members, and promoting productive
interaction and dialogue among members. This type of structured
teamwork will also encourage better development of strategies,
which can then be more precisely interpreted and more rapidly
implemented. The stronger the team at the top, the more confident
the rest of the company, customers, and stakeholders can be of its The stronger
strategy. the team at
Key insights on how to make top management more effective: the top, the
more confident
Encourage collective decision making at the top level to mitigate the rest of
the risks of overlooking certain issues and to ensure that a well-
informed choice is made. the company,
customers, and
Create forums for discussion in order to align the overall strategy stakeholders can
among top management.
be of its strategy.
Transparently define the big-picture responsibilities of top
managers, in addition to their segment duties.

Assign executive coaches who have business experience and an

appreciation for the companys specific context to work closely
with top managers and provide advice on issues related to their
individual leadership style, development, and performance.

2. Set up feeder roles and successor pools among the next tier of leaders
under the top team: For each key position in an organization, multiple
feeder roles must be identified. Feeder roles are the next line of roles
in the same division as a critical role; these can be set up to ensure
14 Strategy&
 employees develop the required competencies. These roles must be
chosen carefully and, together, must encompass all the duties of the
considered position. Management must then identify potential
successors from across these feeder roles and create a pool of ideal
candidates. Potential successors should have the opportunity to take
on a variety of feeder roles to prepare them to embrace broader
responsibilities at the next level, resulting in a well-rounded next
generation of upper management.

Key insights on how to develop feeder roles and successor pools:

Set up feeder roles to undergird critical positions wherein the

departure of an incumbent can cause business disruption. This
may mostly involve senior leadership positions, but can also
include critical middle management positions.

Identify at least two successors for each critical role, selected from
those occupying feeder roles or with relevant job experience.

Select successors based on consistent performance, future

potential, long-term cultural fit, and commitment to the
organization.

Provide members of the successor pools with individual

development plans, close involvement from a top leader through
mentoring or coaching, and short-term leadership roles, building
readiness for leadership within a 12-to-36-month timeframe.

3. Manage the technical ladder: Although it is important to develop

business leaders, it is equally vital to develop technical leaders.
Companies should adopt parallel leadership tracks that allow high-
potential technical staff members to rise to a level of leadership
in their chosen technical field without being forced to take on
significant people responsibilities. This allows fast-track growth
opportunities to optimize the progress of high-potential employees
who do not wish to move completely to business management (see
Exhibit 3, page 16).

Key insights on how to develop a technical leadership pipeline:

Identify key technical positions on the basis of their importance

to business continuity and how they add value.

Establish a separate technical leadership pipeline for these

positions.

Define technical career ladders, separate from those of general

management. Allow these highly skilled specialists to flourish in
Strategy& 15
Exhibit 3
Pathways to senior management

C-suite
Top management executives

Successors Successors

Middle management

High-potential High-potential
Management leader
Technical leader

individuals individuals

Junior level
Cadre Cadre
pool pool

Leadership pipeline Source: Strategy&

16 Strategy&
 aspirational career paths that do not require them to take
managerial positions with people-oriented responsibilities.

Look for candidates on the technical career ladder with managerial

potential. Provide them with short-term job rotations perhaps
supplemented with external training so they may gain the basic
skills that are mandatory for senior roles.

4. Identify and promote high-potential employees: As weve said, the lack

of a leadership pipeline is not a uniquely Indian phenomenon. Less
than half of the worlds organizations take the time to identify high-
potential employees, and as recently as two years ago even fewer
(around 39 percent) had programs to accelerate development. But it
is a uniquely Indian problem to have so much raw talent available,
with such a huge proportion of it remaining undeveloped.

Talent management systems need to be redesigned to focus on

potential as much as on performance. Objective measures must be
put in place to gauge leadership potential. Top performers must be
identified as high potential only if they also have great managerial
or technical leadership potential, measured against specific criteria.

Key insights on how to develop high-potential employees:

Identify employees who have the potential to take on roles that

are two to three levels above their current role not just the
next higher role they would move to in due course of time.

Dont mistake performance as a proxy for potential; performance

ratings reflect an individuals ability to deliver on expectations
from their current role and not the potential to take on greater
responsibilities.

Rate high-potential employees on the basis of whether they

display the ability, mobility, engagement, and aspiration
needed to take on more senior roles.

Employ a variety of tools to assess potential, such as 360-degree

assessments, psychometric tests, and assessment centers. (These
tools are useful, but they are not a substitute for real talent
discussions; talent review processes need to be owned by the
business leaders.)

5. Build quality cadres at the junior level: The cadre level is an ocean
from which future leaders will emerge, so special attention needs
to be given to it. First, the organization must determine the optimal
mix of cadres recruited directly from universities and entry-level
hires from the job market. Within the former, the organization
Strategy& 17
 must carefully select which undergraduate and postgraduate
schools it plans to hire from and the initiatives taken at those
schools to promote the company. The organization also needs
to develop a structured, integrated internship program to
attract outstanding students early on. Finally, as with all other
development programs, it is critical that these programs not be
run in isolation.

Key insights on how to develop a quality cadre pool:

Select technical and management institutes in line with the

companys skill expectations and compensation levels its
advisable to choose a targeted approach, focused on a small set
of institutions whose graduates fit the companys needs, rather
than casting a wide net.

Ensure that there are sufficient on-campus initiatives to promote

the organization as a desirable recruiter.

Evaluate the success of campus recruiting over a few years in

terms of attrition rate and quality of employees; add and drop
recruitment campuses according to the results.

Institutionalize a standout summer internship program as a

default route to full-time hires; many companies make the
mistake of not taking summer internships seriously enough, and
interns do not get the right kind of assignments and oversight. As
a result, companies lose the important opportunity to conduct an
extended interview process to evaluate candidates.

18 Strategy&
The long-term opportunity

Weve presented the talent shortfall as corporate Indias greatest Weve presented
challenge more difficult to master than growth, expansion,
technological advancement, or business strategy. But talent is also the
the talent
countrys greatest opportunity. As more Indian companies compete on a shortfall as
global scale, as their external ambition grows, senior executives will be corporate
drawn to think more effectively about people. India has one distinctive
cultural asset in this regard: It has a tradition of taking the long view.
Indias greatest
People need time and discipline if they are to develop, and if Indian challenge. But
companies are willing to apply that long-term outlook, they may be talent is also
able to leap past other nations companies in their approach to human
capital.
the countrys
greatest
Before the countrys top business leaders retire, they should put their opportunity.
full attention on the care and development of people coming up behind
them. That will allow them to retire with confidence, knowing that they
are leaving their business in good hands not just immediately, but long
into the future. By building the right, integrated capabilities, and
instituting a holistic leadership development program, they can ensure
strong leadership for generations to come.

Strategy& 19
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