The nature of economic growth has changed. From the mid-1990s to 2007, developing economies — especially those in Asia — experienced a period of growth unmatched in scale, optimism or speed. This era can be characterized as one of “easy growth.” During this time, it became easier and cheaper to gain access to capital than in any other period in history, globalization created unprecedented admittance to new markets and consumers, and household consumer borrowing drove spending around the world. A gen-eration of corporate leaders was shaped by this period, when growth was there for the taking; all they had to do was show up.
And now, suddenly, that era is over (see Figures 1 and 2), and we have entered the era of “smart growth,” in which growth is slow but change is fast. In his recent report, Smart Growth: Is Asia Ready?, Korn/Ferry leadership and talent consulting managing director Indronil Roy explained how this period of complexity and uncertainty — in markets, finance and currency — will require leaders to think and act differently to unearth growth where none is evident. Leaders’ shrewdness about growth will make a difference in corporate performance.
How long will smart-growth conditions persist? A resounding number of CEOs believe these conditions will last for the rest of the decade, if not longer, for myriad reasons. The global financial crisis led to a stricter regulatory regime that is (sometimes justifiably) constraining risk taking. Regulatory pressure on the banking system in particular is reducing the risk capital available. Simultaneously, rapid reduction in consumer debt, stubborn unemployment and wage stagnation in the West continue to drive down consumer demand to a degree that can’t be offset by the rise in emerging-market consumption. Increasingly focused on costs and their bottom lines, corporations are reducing investments. And, finally, the momentum of globalization has slowed, if not reversed. Some governments are reverting to a protectionist agenda and erecting higher trade barriers to satisfy domestic political pressures.
“My executive team is wired for easy growth,” one banking CEO in Asia explained. “In the 20 years that they have been in management roles, growth was a given. Even at the depths of the Lehman Brothers crisis, we knew that if we could just hold on to our basics long enough, the tide would turn. My team is still waiting for the tide.”
Like him, many CEOs are grappling with a vital question: How can we create growth where there appears to be none? Is there a combination of inventiveness, courage, wisdom and skills that can accomplish that?
As a first step, businesses must make a mental leap, moving away from the notion that growth exists in certain markets and toward the idea that growth emerges from certain leaders. In fact, it is increasingly hard to find markets that grow at a double-digit annual pace. Instead, organizations must look within for a leadership team that can carve out growth where others may see no hope. This view makes leadership more complicated and nuanced, but also more powerful: It holds that leaders, not market conditions, define the limits of growth.
But which leaders, exactly? Those who drove high performance in easy growth will not automatically excel in smart growth. In a recent study of leaders at 14 companies across Asia, Korn/Ferry found that two sets of characteristics indicate smart-growth readiness, or lack of it: leadership maturity and learning agility.
Leadership Maturity is an individual leader’s ability to operate effectively at high levels of complexity, ambiguity and scale. Korn/Ferry measures this with an assessment that examines the communication, decision-making and operating styles of executives. Think of maturity as the indicator of a seasoned executive, someone with experience in complex situations who handles challenges with grace. Given the shifts under way, maturity will be paramount.
Learning Agility is an individual leader’s ability to operate effectively amid disruption, speed and volatility. This is measured with Korn/Ferry’s viaEdge assessment, which analyzes interpersonal skills, self-awareness, deftness with complexity and change, and the ability to deliver results in first-time situations. Think of agility as an indicator of a fast-learning executive, someone who knows what to do when he doesn’t know what to do. Given a fast-changing environment in the smart-growth era, agility will be the other differentiator among leaders.
Taken together, these are the best factors for predicting smart-growth readiness. Both can be measured fairly and accurately, and benchmarked against leaders in the relevant industry and markets — pragmatic considerations if they are to be used in business. Both can be developed in individuals, giving organizations a way forward to enhance the competitiveness of their leadership teams.
The aggregate maturity and agility of a leadership talent pool point toward a company’s ability to drive growth rates over and above those of normal market participants. Broadly speaking, the ratio of those with high scores in maturity and agility to those with low scores reveals a business’s overall “smart-growth capacity.” Korn/Ferry examined both head-to-head competitors and markets with multiple competitors and found that a higher group score means that organization is far more likely to have a higher rate of top-line growth.
Businesses routinely talk about talent being their most important asset, but without a clear analytics and benchmarking platform to measure and value talent assets, that narrative often lacks conviction.
Korn/Ferry’s smart-growth research provides a new framework for investigating how leadership is linked to growth. It may provide the much-needed tools to ascertain the true value of leaders and leadership teams.
Investors, boards and stakeholders will continue to push management teams to quantify and benchmark talent assets to support evidence-based decision making, as they should. Businesses that excel in this area of competence will see real advantage in the marketplace — to paraphrase Warren Buffett — as the others are left dangerously exposed by the retreating tide of growth.