Even with a clear direction and strong capability, people must be committed in order to unleash their full potential.

Leadership is not what it used to be, which is both the good and the bad news. The meaning of leadership is changing, and leadership challenges are intensifying. Businesses and other organizations are being asked to find, groom, and retain leaders in an entirely new and increasingly complex environment. Old models, frameworks, and competencies don't have the impact they once did.

Peter Drucker, the late management guru, was famous for dispensing wisdom and clarity in a no-baloney style. On the topic of leadership, he was predictably plain spoken: Management is doing things right, said Drucker, but leadership is doing the right things. In an era when the distinction between management and leadership was in its infancy, Drucker highlighted one of leadership's most significant challenges. For many years, the idea of doing the right things formed the basis of the dominant model of leader as strategist. If leaders charted the strategic vision, then managers would handle the execution.

The leadership landscape has undergone a dramatic series of evolutions, especially in recent years. Leaders face a much more demanding world and are called on to meet a greater range of challenges than simply creating the company's strategy. Today's list of "right things" that need to be done is so impossibly long that executives need a leadership definition that provides new strategic clarity and a more practical focus. Nearly every company and organization today is well advised to update its definition of leadership to keep pace with the nature of leadership challenges. To borrow from Drucker a bit: It is time to clarify which things are the right things for leaders to do.

We live in challenging times for leaders in business and elsewhere, including elective politics, public administration, professional and collegiate sports, the military, organized religion, and the nonprofit world. Leadership — or the lack of it — is a common thread central to many issues, from the corporate abuse scandals of companies such as Enron and others, to the mishandling of crises such as Hurricane Katrina, to the sexual abuse scandals that rocked the Catholic church over the past several years. It often seems as if any day's headlines are dominated by developments with leadership failures and challenges at their core.

But nowhere is the leadership gulf as widespread or daunting as it is in business — for companies along the full spectrum, from large corporations to mid- and small-sized firms in nearly every industry or field. Even companies and industries that aren't experiencing an obvious leadership crisis are often woefully unprepared to develop the next generation of leaders internally or through recruiting efforts.

Without a doubt, leaders still have to be smart strategists. But the standards of leadership development today also require leaders to understand how to align their people collaboratively toward a strategy. In industry after industry, great strategies are likely to fail if people aren't aligned with them. Those situations and others call for leaders who know how to develop leadership in others — more specifically, leaders who can inspire, motivate, coach for performance, and facilitate critical agreements across a diverse group of stakeholders. In nearly every industry, the leaders in great demand today are those who are innovators and shepherds of innovators, and, most important, leaders who have the personal attributes that we all look for — but often don't know how to develop — including courage, integrity, and presence.

This article explores the underlying issues fueling the challenges to leadership and the critical components necessary for developing leaders in today's business environment.

Leadership challenges widespread

In my extensive experience with Fortune 100 companies in industries as varied as high-tech, financial services, and manufacturing, I find that executives face very similar challenges in developing leaders. Specifically, when most executives are asked whether their company has a deep bench of seasoned and high-quality leaders for the next 20 years, most answer no. Similarly, when asked whether they have the leadership ranks for the most critical roles for the next three to five years, most say they don't, that they're behind. If asked to cite the issues or barriers to developing new leaders, many executives cite the short supply of critical thinking and strategic analysis skills.

Most companies are feeling some degree of pain around their leadership development challenges. What's more, the pressure to develop new leaders is sure to grow in the coming years. At its core, this is an old-fashioned supply and demand issue: The growing demand is overwhelming the limited supply of seasoned leaders capable of meeting the challenge in today's hyper-aggressive and often highly ambiguous business environment. But several important issues point to a widening trend.

Baby-boomer retirement

This is the reason many observers love to cite as the primary cause of the leadership crisis, and it will no doubt play a huge role in creating a leadership gulf in many industries and companies. It certainly is not the only issue driving the leadership crisis, but the facts around baby-boomer retirement are daunting: Boomers number nearly 80 million. The first wave of them will hit age 65 — the magic year when many people leave the workforce for retirement — in just five years. Although it's true that many boomers likely will work after they reach retirement age, it's also true that many are retiring already. Nobody knows yet when the real impact of boomer retirement will hit, but nearly every field and industry is staring at the prospect that boomers will retire soon — and in droves. The key questions for most companies are: Who will replace them, and how will those people get up to speed?

Rapid pace of market change

Change comes in a variety of forms, but two have the most impact on leadership issues: the huge changes affecting certain markets, and the changes affecting companies evolving from entrepreneurial roots to more established operations.

The markets in some industries are experiencing tremendous change. It used to be that companies knew who their competitors were in markets that were fairly static. The situation is much more fluid now for many companies. For instance, who would have anticipated that Apple would challenge Sony in the music market? A few short years ago, Apple was a market laggard in an entirely different realm; Sony dominated the personal-music-device market with its legendary Walkman products. Similarly, in 10 years, will eBay be only an online auction powerhouse? Or will its recent purchase of the Internet phone service innovator Skype position eBay as a primary competitor to conventional phone companies? And who can predict where Google is going in its evolution from search engine to Internet-based software and services giant?

Those are high-profile examples, but no company can be completely secure about where it stands in the marketplace. Rapid change in markets and in the evolution of entrepreneurial cultures is influencing how companies plan, how they understand their market and their competitors, and how they operate. But many company structures aren't set up to handle rapid change or to adapt to it easily — especially when it comes to developing leaders.

Rapid pace of internal change

And what about the rate of internal change? Organizations can change a lot faster now. Reorganizations happen one after the other, reporting relationships change, cultures shift from an adaptable shoot-from-the-hip entrepreneurial style to a more layered and complex structure. It seems that mergers and acquisitions are more common today than ever, yet many deals fail because the people component wasn't as closely planned for as the financial or operational issues. The key challenge with internal change is finding ways to develop leaders who can help the organization adapt to internal shifts and lead people through change so that they adapt more effectively and align around the new direction.

Globalization

The term itself has such a lofty feel — globalization. The word sounds so intangible when it stands alone, but the ability to shift people, ideas, and resources across international borders and cultural and geographic boundaries makes globalization a fascinating challenge. The implications for leaders are huge, especially with the logistical and cross-cultural challenges that operating globally presents. For instance, how does a leader shape a company culture and then lead across national and ethnic cultures? Using the software field as an example, consider software developers in the United States and those in India — will the folks in India have as meaningful a shot at being considered for leadership jobs as do US developers?

The rise of alliances

There are many different types of business alliances — including partnerships for going to market differently or better, and alliances for co-developing new or next-generation technologies. Regardless of the type, all business alliances present leaders with similar challenges: How do you lead in an alliance when you don't run the whole entity? Leaders in an alliance are involved in running the joint effort, but they have little control or influence over the whole company — theirs or their partners'. Alliances call for a highly collaborative leadership approach.

Organizational complexity

The rise in organizational complexity — with many organizations shifting to matrixed management structures — calls for a highly collaborative leadership approach. Many midsized companies, and more than a few small ones, have levels of organizational complexity that were once found only in large multinationals. Diverse lines of business, spanning global markets and held together by alliance partners, are constantly reorganized to maximize resource utilization, clarify reporting relationships, and support an ever-changing set of customer and internal needs. Today's leaders must adapt to this level of complexity in order to understand the shifting, interrelated workings and big picture capabilities of their businesses.

A diagnostic approach

The list of issues affecting leadership today certainly extends beyond the quick survey offered here. But regardless of the nature and combination of these issues, the central question remains: What's the best approach for understanding how to go about developing leaders for your organization? Five diagnostic questions point a way forward.

1. What kind of leaders does your organization need? Hint: You need leaders who can be collaborative, think strategically, and adapt. Equally important, you need leaders who can move quickly even in the face of ambiguity and constant change.

Although it's true that every organization has its own culture, history, and vision of the future, more and more companies have taken a fresh look at that vision with an eye toward defining the specific leadership characteristics that will help them realize it.

The myth of the heroic leader who can assess the enemy quickly, know exactly what to do, and save the day single-handedly is just that — a myth. Today the competitive environment is too fluid and the organizational complexity too great. We need leaders with the collaborative skills to tap into all of an organization's talent and energy — people who can lead the process of change without getting bogged down in procedural tar pits.

2. What do your leaders need to do? Like most others today, no doubt your company doesn't have the luxury of developing leaders for some distant future. What specific challenges are your leaders dealing with: the turnaround or restructuring of a troubled business or process; the challenge of building global teams and alliances; the shortening the product development cycle time?

Companies need to develop leaders capable of dealing with immediate problems and opportunities. The more focused the call for leadership, the more focused the leadership response will be. Top-notch leadership development uses those real-life business needs to accelerate the building of skills that are needed in both the short and the long terms.

Companies such as Agilent, Steak n Shake, and Office Depot each have very different leadership competency needs. A complex, matrixed organization needs a different level of strategic thinking, unlike a simpler, more traditional retail environment.

PepsiCo faced a similar challenge in its leadership development work. The company required leadership that was extraordinary in two areas: innovation and the core fundamentals of the business. PepsiCo chose a leadership development program that built leadership capacity in those two areas and was solidly grounded in immediate business challenges. The result was measured in huge potential return on investment and a platform for carrying the skills over into long-term success.

3. What critical roles do you need leaders to fill? Effective leadership development is not a generic course that is taught the same way at all levels of the organization. Assess your organization's needs: Where do you need to develop leaders most: at the front-line manager level; in the senior leadership team; or somewhere in between?

The best leadership development programs make certain that leadership is taught appropriately at all critical levels. Smart companies get the highest return on their development dollar either by investing in a systemic approach for developing the entire leadership pipeline or by identifying which level of leadership will produce the greatest return.

Many companies seek to accelerate both the depth and breadth of leadership and business experience. Even an experienced CEO, someone who fully understands the business and has worked in other companies in the industry, may not have the time or the ability to develop other leaders' depth and breadth.

4. How deep is your bench for meeting leadership needs? You might think you have the right people but need to develop them further. But what about growing the bench of people capable to fill that role when those folks move on? That's a key component that's often overlooked. For instance, if your company has 400 critical leadership positions, you should have a deep bench of 400 leaders in those positions and another 800 leaders (two for each) in development to step up to those positions.

Companies have always struggled to recruit, retain, and develop the highest-quality people. It's also true that comprehensive, meaningful leadership development pipelines that strengthen and align a collaborative leadership approach are successful because they are linked to both business results and career development. We have observed that the link to career development in turn makes a significant difference in recruitment and retention. Thus, leadership development creates a virtual circle where leaders stay and the business thrives. Senior management and line leaders must become involved in the leadership competency identification process, ensuring their investment in the development programs. Leadership involvement also ensures that competencies will be tied to larger strategic goals of the company, which creates higher stakes and better buy-in at all levels.

5. Do you have a plan for developing leaders? Better yet, do you have an integrated leadership development pipeline? In other words, looking at each stage of the leadership journey — top, middle, and emerging — do you have candidates developed for each level? And equally important, do you have a program of assignments to groom them with the right level of knowledge and experience? Do they know where you're headed in the future?

Excellent leadership development is not just an event — it's a journey for both the emerging leader and the company. Both the individual and company will be pushed out of their comfort zone. But if it's designed well, the program will produce extraordinary results for both the individual and the company.

A framework for leadership development

In crafting an overall strategy for developing great leaders, it's helpful to explore a simple framework for developing strong and effective leaders capable of succeeding in today's environment.

Great leaders in nearly any industry or organization excel at four challenges:

1. Setting a clear direction. Leaders are critical in creating strategy, setting direction, charting the course, and sharing an inspiring vision that guides our collective action.

In order to develop leaders capable of setting a clear direction, leadership development programs must:

• Be designed with a clear direction in mind. A clear vision must define the program's purpose and measures of success.
• Connect leadership development to the business strategy and results. You must have a clear intention to affect the business and an equally clear intention that the emerging and developing leaders will play a significant role in creating that impact. Done properly, this accelerates the development of strategic thinking and direction-setting skills.
• Spring from a clearly developed leadership profile. The word leadership covers a wide range of cultural assumptions. You must clarify leadership, and the profile of successful leadership behaviors, before you design the leadership-development program. Companies change their business strategy with relative frequency, but they change their core values and mission relatively rarely. In the middle lies the leadership profile, which you should reexamine periodically with an eye toward the long-term future of the business.

2. Making sure that the people are capable of moving in the direction of change. In the past, this was assumed to be the role of management and was a part of resource allocation. Companies believed that changing the organization's systems, structures, budgets, and so on would enable people to move in a new direction. However, organizational realities, such as the high incidence of failed organizational change and the other changes mentioned earlier, have pushed us to adapt our concept of leadership to focus as much on people as on the direction of change. Leaders lead people, they don't just map strategy. And people need capability building to meet the current challenges.

For example, a sales division of PepsiCo created a leadership-development initiative and tied its action-learning component to measurable business goals. The participants launched and sustained implementation teams, with a support process and coaching from Interaction Associates. The leaders applied the skills and tools they acquired during the first phase of the leadership-development process to create and present a variety of innovative business solutions, in many cases collaborating with customers. By using real projects as the core of the program, participants could immediately see the impact of their innovation and strategic thinking skills on PepsiCo's business. The potential impact of the action learning teams' projects totaled $250 million.

At Agilent Technology, leadership-development participants create a profit or performance improvement proposal (PIP), which is not an "extra" initiative, but part of the participants' regular work duties. Participants meet in cluster groups to solve similar issues, applying the competencies they've developed.

In order to build capability, leadership development programs need to:

• Use the best of theory and practice.
• Use a comprehensive learning and development approach to accelerate knowledge transfer and skill development (assessments, coaching, mentoring, e-learning, classroom, action learning, and so on).
• Make sure that action-learning projects will build the capabilities that the organization needs and produce results that the organization needs.

3. Collaboratively building people's commitment to move in the direction of change. Even with a clear direction and strong capability, people must be committed in order to unleash their full potential. The leadership challenge has always included inspiration, motivation, and alignment. Successful leaders understand that they must adapt their role to integrate the reality that commitment building is part of their responsibility. The old models (command and control, heroic individual leadership, and so on) are inadequate in the current context or with the emerging generation of knowledge workers. This generation will pledge its commitment only in exchange for meaning and purpose and a higher degree of autonomy. They want their lives and their work to be a part of a larger whole. They also want their lives to be better balanced — and they don't want to be ordered or coerced in order to be committed. Although people have always responded best to skillful, collaborative approaches, the new generation may give its full commitment only in response to collaborative leadership. That's an important shift that takes many leaders by surprise today.

Consider the following issues in building commitment:

• A properly designed, collaborative approach builds both individual and organizational commitment to leadership development.
• Motivating, inspiring, building skills and confidence, and connecting development to a clear career path (the leadership pipeline) strengthens commitment.
• Take a systems approach with organizational commitment to the entire process, not just isolated activities and events.
• The emerging leader must take some shared responsibility for learning, developing, and leading at each stage of the process. This is critical to full commitment and true capability.

4. Producing real and measurable results. And by results, we really mean measuring impact. Leaders need to be clear on the key measures of success and then structure simple but thorough systems to capture accurate data, draw conclusions, make necessary adjustments, and report results.

A short list of sample activities and measurement processes includes:

• standard paper-and-pencil evaluations
• pre- and postworkshop assessment tools directly linked to workshop objectives
• third-party behavioral observation and feedback processes
• decision-making cycle-time-reduction measures (for example, time to market for teams without training versus time to market for teams with training)
• 360-degree feedback instruments tied directly to workshop objectives and administered over various periods of time
• explicitly linking learning-program competencies to key business initiatives and agreeing on the relative value of those skills in successfully reaching the business objective

In order to develop leaders to produce results, leadership development programs need to:

• anticipate individual impact on the emerging leaders
• deliver organizational, business impacts, measurable for ROI (both return on investment and return on involvement)
• develop and strengthen the organization's bench of future leaders

Coming full circle

To some degree, the Drucker idea that leadership is about doing the right things is still relevant, though the definitions of those things and of leadership itself have grown considerably. As we've explored here, the nature and focus of leaders have also changed considerably over the years and likely will continue to change as the issues affecting leaders continue to deepen and grow. Businesses in almost any industry are challenged with fielding leaders capable of success in today's unique markets. And leaders themselves are under pressure to adopt a new framework for providing leadership, regardless of industry or company size. In that context, perhaps leaders are people who redefine leadership for themselves rather than follow Peter Drucker's definition — or anyone else's.