Thursday, December 06, 2007

The Leadership Funnel:

By Eric Jackson


The “Sales Funnel” is one of the most tried and true tools in business today. For every prospect you put into the top of the funnel, only a small percentage will drop out of the bottom of the funnel as a closed sale. Unless the funnel is constantly replenished at the top, it will experience moments when no sales drop out of the bottom. Every CEO, VP of Sales, and sales rep understands the importance of constant vigilance over the funnel – or else deal with the consequences of dry spots as they go on.

Yet, most organizations approach the issue of succession planning and leadership development as if it was two weeks before the end of the quarter and they realized they needed to close some business. You could make a few calls to drum up some sales – just as you could tap the executives that are immediately closest to the position that requires a new leader – but your odds of being as successful with the last-minute approach are quite low, compared to if you had been working sales opportunities and future leaders for many weeks or years in advance of needing them.

Developing leadership benchstrength within an organization follows a process remarkably similar to that of the sales funnel. At Jackson Leadership, we call it the “Leadership Funnel”™. Just as not every prospect will turn into a closed sale, not every employee you hire into your company will be a leader – which is a blessing, as you would then have all leaders and no followers. However, unless your organization institutes a structured process – the “Leadership Funnel” – to track and develop future leaders from the lower-levels up to the executive boardroom, you are jeopardizing the continued growth and success of each division and your corporate performance overall.

In this paper, we will introduce you to the concept of the Leadership Funnel and how it can help you to instill a culture of developing leaders in your organization. We start with an example of what happens when the Leadership Funnel is not followed – the case of Michael Eisner at Disney.

Michael Eisner:

Although Oscar Wilde famously said that “all publicity is good publicity,” Michael Eisner would probably disagree. He has recently been in the news, of course, for all the wrong reasons. In March, 2004, he received one of the strongest rebukes from shareholders compared with any previous CEO in history: Forty-three percent of those shareholders withheld their votes of support for him at the Disney Annual General Meeting. Why?

The business press has been quick to point out Disney’s and Eisner’s deficiencies in the months leading up to the vote: a lagging stock price relative to Disney’s peers, the risk of becoming a takeover target (which turned out to happen, when Comcast launched an unsolicited bid a few weeks prior to the AGM), a breakdown in negotiations around distributing future motion pictures co-produced with Pixar, a falling out with Roy E. Disney and Stanley Gold and their departure from the board to canvass institutional shareholders in favor of Eisner’s ousting, declining attendance at Disney’s theme parks, ABC’s continued last place performance in network ratings, and the complaints that Disney’s board was packed with too many of Eisner’s friends.

One of the least mentioned reasons, which, ironically, might undergird the other complaints, is the matter of Disney’s persistent bleeding of senior talent. Observers have commented that this has been an issue present at Disney for at least the last decade.

Steve Burke, who used to run ABC, left to join Comcast (now Comcast Cable’s president). Paul Pressler left running Disney’s theme parks (now criticized by Roy Disney and Stanley Gold as being in disrepair) to become Gap CEO in 2002. Steven Bornstein left ABC Sports to become Chairman of the NFL. Steve Bollenbach left as CFO in 1996 to assume the role of CEO at Hilton Hotels. Richard Nanula – Bollenbach’s successor – left in 1998 to become CFO of Amgen. And who can forget Jeffrey Katzenberg’s infamous falling out with Michael Eisner in 1993 to go on to co-found Dreamworks SKG? This, of course, was followed up with Michael Ovitz’s arrival and departure (with a $100MM in severance) in less than a year based on Eisner’s selection of his best friend.

Of course, senior executives leave major corporations all the time. They are normally quickly followed up by communications department missives suggesting that such departures are the normal part of doing business and that this company’s retention rate of senior executives is higher than anyone else in the industry. Yet, why have so many senior executives fled Disney? And what has been the impact? According to one anonymous former Disney exec, explaining why ABC recently turned down the Donald Trump/Mark Burnett mega-hit “The Apprentice,” so that NBC could pick it up: "Michael [Eisner] and Bob [Iger, President of ABC,] make sure their operating executives have no real power."[1]

Such complaints and the rate of so many executive departures are rare among companies that have instituted and followed the Leadership Funnel process. We now turn to a more complete description of this process and how it helps to ensure a company’s long-term success.

The Leadership Funnel:

As mentioned in the introduction, you would be hard-pressed to find anyone in business that does not understand the Sales Funnel concept. The more opportunities you chase down, the more likely you will have a real sale fall out from your efforts. You often hear the expression: “It’s a numbers game.” As a sales rep, you know that, as long as you are tracking the steady stream of opportunities through your funnel, you will ensure consistent, high-paying commission checks for you and your family. You also know that, if you ever lose focus on all parts of the funnel, and spend too much time harvesting opportunities at the expense of continuing to fill the top, you put at risk collecting a commission check down the road.

The Leadership Funnel operates in exactly the same way. Yet, leadership is sometimes still treated as a bit of a “black art.” Most organizations do not see the direct link between developing leaders today and an immediate pay-off in terms of sales or profit growth tomorrow. Therefore, leadership development gets ignored until there is an urgent need to be filled. Most commonly, someone in senior management quits and that role must be filled immediately for the sake of continuity of that function or division. “The CFO quit, who can we get to replace her?” A quick scan of her direct reports is usually made, and probably a couple of calls to different search firms. How can you expect one of those direct reports to step up to become the best possible leader in that CFO position, if your organization has done nothing significant to that point to prepare him? It is unrealistic to expect latent leadership abilities to appear from that candidate.

The Leadership Funnel is a systematic process we follow with our clients to address this issue and ensure that there is always abundant supply of leaders growing throughout an organization. What’s more, if this process is followed religiously – up and down the organization, not just in the office of the CEO – it is going to protect against potential leaders leaving once they hit a certain point.

Keys to the Top of the Funnel:

At the top of the funnel, your concern is ensuring that enough of the people that you hire into the organization are going to be able to one day take over a leadership position. Of the total number of people that you hire, it’s likely that only 15 – 20% will be later recognized as being a “high-potential” who could, one day, assume a leadership position within the organization. The vast majority – more than 60%, if your initial hiring screens are good – of early entrants will grow to become “tried and true” contributors. They will do an excellent job in their domains with good attitudes – but they will never be interested in, nor should they be given, a promotion to a managerial or leadership position.

We normally recommend that our clients assess for leadership potential among managers at the 5 year mark of their tenure within the company. At this early-stage of their careers with your company, you want to be able to do some early handicapping, without creating an elite group versus a “passed over” group dynamic within the company. We often hear the concern expressed: what about the late bloomers? For example Jack Welch’s early years at General Electric were not particularly outstanding. At this stage, you want to be able to earmark those folks who are showing a tendency to be individually successful and who might be capable of making the transition to management. However, just because someone misses a first-cut at getting in the funnel at this stage should not preclude them from making their way in down the road – assuming that their performance merits their inclusion.

Keys to the Middle of the Funnel:

A recent study by Hewitt Associates found that 49% of senior executive respondents are within a decade of retiring. Do you have the best talented people in the middle of the funnel to take over for you and your managers in key positions, if you or they were hit by a bus this afternoon?
We recommend that high-potential candidates are assessed for their strengths and areas for improvement at the 7-year mark with the company in a Leadership Assessment. Out of this assessment, the participants receive a detailed report analyzing their strengths and weaknesses and suggesting actions they should take over the coming two years to improve their areas of weakness. All high-potentials are then put into an intensive two-year developmental plan, where they look to improve or cover-off their areas for improvements. A major part of this two-year developmental program is an assignment of a coach and a mentor from the company. They meet with the participant (separately) on a regular basis to discuss how she is progressing towards their goals.

Keys to the Bottom of the Funnel:

It’s not enough just to hire the right people and then invest in developing them. One of the by-products of instituting the Leadership Funnel throughout your organization is that you will keep your best people.

What drives good people away, like those who fled from Disney? Some CEOs believe that it’s money or the simple fact that some high-potentials will simply leave so that they can assume the top spot somewhere else. It’s usually never about compensation. If these people have risen to the top ranks of Fortune 500 firm, they are almost always fairly compensated. Therefore, it is usually the non-pecuniary aspects that figure most in their decision to bolt.

Here are some questions to ask yourself about your top direct reports to ensure you keep hold of your best and brightest at the bottom of the Leadership Funnel:

· Have you given your top leaders challenging stretch assignments that test their ability to perform? What are the most critical business problems facing the firm today? Do you have your best people working on them? While you don’t want to put one of your best lieutenants in a situation where she might be a poor fit or in an impossible situation that might tear down her confidence, you need to ensure that they are adequately challenged and solving problems that are important to the organization.

· Are you shining a light on their successes or are you hogging the spotlight? Do you mention their names when they do a stellar job on your quarterly conference calls or do you characterize it as an organizational achievement?

· Are you providing them with enough discretion to run their businesses? Many departing executives complain that the biggest reason for leaving a position was that they felt hamstrung in making some of the decisions that they saw as crucial to their division’s or the company’s future success. While some leaders clearly long to have the title “CEO,” most #2s or #3s leave because they feel their current #1s don’t give them enough rope to do what they think is best. Give them the rope they want, but ensure you hold them accountable for results as well.

· Is your company and industry growing? Many executives will jump ship when they feel that their current company has seen better days. The more attractive the external environment is, the more important it is that your company be seen as having an attractive growth curve ahead of it. If you are not growing, how can you make your current senior management team part of the solution to leading your company back to growth? Are you asking them only to be responsible for downsizing or are you also asking them to find small new ways for their divisions or functional areas to grow?

The Culture of Change and the Leadership Funnel:

I would be surprised if your organization was not going through some radical change at the moment and if your industry was not going to be very different in 5 years from how it appears today. The most common destabilizing threats include industry consolidation, introduction of new technologies, price commoditization, automation, out-sourcing, off-shoring, and larger adjacent players coming into the market. Organizations are not abstract objects; they are a collection of people and assets. Sometimes the people are the assets. Therefore, to change the organization, you need to change the people’s attitudes, skills, and behaviors and that is done through leadership – not through changing some numbers on the budget or through lay-offs.
Without an abundance of leaders, who will lead your divisions and functions through radical change?

One of the pleasant secondary benefits of adopting the Leadership Funnel throughout your organization is that it changes your culture. Everyone throughout the company starts to talk the language of “benchstrength” and building up a “complementary team” in different parts of the business. Preparing those underneath you for one day assuming your role implies that you will be moving on to a larger role within the company. That movement suggests growth and change. We find that many of our clients who have adopted the Leadership Funnel report back that tracking how they were doing with their funnel correlated with a heightened ability to deal with externally-driven or internally-driven change initiatives.

What to do on Monday Morning:

Based on what you have read in this white paper, tracking and enhancing your organization’s Leadership Funnel sounds attractive. Now, how do you put it in action? Here are some quick suggestions for Monday morning:

1. Take stock of what your funnel looks like today. Do a quick inventory of who you have today? Are you surrounded by A, B, or C players? Where are the holes in the funnel? Is there one division or functional area that is particularly weak? Why?

2. Are the right people currently in the right leadership slots? Are there certain people within your organization that are driving away those that work with them? Can they be moved into other positions or easily replaced to help stop the bleeding?

3. Do you have a method of flagging someone’s leadership potential at the top of the funnel? Leadership Assessments can help here.

4. Are you building the glue between your organization and your high-potential leaders who are currently in the middle of the funnel? Start developing a culture of seeking and rewarding talent. Instituting a Leadership Development program for these people can help here. Establishing a coaching and mentoring program for these hi-pos with others from within your organization can be the most effective tool at this stage. Stretch assignments can also be extremely effective at this point. Finally, delegation is important here. You want to ensure that they are receiving not too much or too little delegation from their managers.

5. Keep the leaders at the bottom of your funnel challenged? Now that you have made the investment in bringing along the most senior-level leaders in your organization, make sure that you keep them cared for and fed properly. Neglect and oversight at this stage can cause them to seek a situation where they are more properly recognized. Ensure that you are giving them enough discretion to implement the plans they want to, while still holding them accountable for delivering results.


At Jackson Leadership, we believe that 5% of an organization’s success comes through the effective development of its strategy but 95% of its success is based on a zealous focus on the execution of that strategy. Your organization will execute when you have installed the right people in the right leadership slots and you have developed a culture of leadership development using the Leadership Funnel process. Leaders do not just appear when the organization needs it most. They must be carefully developed over the course of many years to ensure they will be able to operate at their maximum level once called on.

The best organizations understand the weaknesses, as well as the strengths, of their leaders. They then cover off these weaknesses with others who bring complementary skills. To use a basketball analogy, you can have a great point guard to lead your team, but she won’t be as effective without a big center. You need to have the full complement of skills throughout your organization.

Every organization has a Leadership Funnel, whether they are conscious of it or not. Take stock of what is in your Leadership Funnel today. If it’s empty at the top, take steps today to start to correct that imbalance, so that your organization’s success is assured for years to come.


Five Signs you need a Leadership Funnel:

1. You overly rely on external hires, rather than internal hires, for key management positions.

2. You have been caught off-guard with a senior-level departure within the last two years.

3. You feel as though certain division’s leadership is weak.

4. You feel uncomfortable that your organization’s performance would be adversely affected if any of your senior execs (including yourself) was hit by a bus tomorrow.

5. Although you have a few senior execs who value developing those underneath them, you do not believe that your organization has a culture of grooming those with high-potential for senior leadership positions.

Leadership Funnel Best Practices:

1. You assess for leadership potential among managers at the 5 year mark of their tenure within the company.

2. High-potential candidates are assessed for their strengths and areas for improvement at the 7-year mark with the company.

3. All high-potentials are put into an intensive two-year developmental plan, where they look to improve or cover-off their areas for improvements.

4. Internal coaches and mentors are assigned to high-potentials from within the company and they regularly meet.

5. High-potentials continue to be tracked after they graduate from their two-year developmental program and further developed.

6. The CEO backs the Leadership Funnel process, speaking out in its favor, and holds the VP of HR accountable for instituting and tracking its success.

7. The VP of HR receives buy-in and support from all division and functional heads for the successful roll-out of the Leadership Funnel process.

8. Regular communication by the VP of HR with the CEO and all senior executives on the Leadership Funnel process.

[1] Bill Carter, New York Times, March 8, 2004.

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Nick McCormick said...

Enjoyed the post. Especially liked the comment in the conclusion indicating, "5% of an organization’s success comes through the effective development of its strategy but 95% of its success is based on a zealous focus on the execution of that strategy." So true.

Companies don't work as much as they should on their leadership funnels for a number of reasons. First, it requires planning, which most don't like to do. Of course that's only a small part of it (5% right?). Second, the execution takes time and it takes money. It requires a level of commitment that few are willing to make, especially since the benefits are long term and not easily identified. Cutting leadership training results in hard savings. Impacts may not be fealt for five years and in most cases won't be linked back cut or the cutter.