Do you want your business to be at the top or bottom of corporate financial performers?  If the obvious answer is at the top, Evan Sinar (chief scientist and director of the Center for Analytics and Behavioral Research of Development Dimensions International) suggests you start grooming women and Millennials for leadership roles.

Research led by Sinar shows that companies with higher percentages of women in leadership roles perform better financially than those with lower percentages. The research also connects the percentage of Millennials in leadership roles with overall business success.

Focus on two populations

“We focused on women and Millennials in particular because those are groups in which companies have specific initiatives directed towards the encouragement and identification of leaders. Approximately a third of companies have initiated programs focused on female leaders, and a third of companies have programs focused on Millennial-generation leaders,” says Sinar.

The study found that gender differences were a stronger indicator of a company’s financial success than the number of Millennials. Organizations that had a high percentage of female leaders were three times more likely to outperform their peers on financial metrics than those with few female leaders. “We feel that both gender and generational diversity stem from well-planned leadership development practices that are rigorous and transparent. These practices promote diversity and drive organizational success more broadly,” says Sinar.

The study also shows that an organization’s pace of growth is directly related to the percentage of Millennials in leadership roles. Aggressive growth companies, such as those in high-tech industries, claim a higher proportion of Millennials in leadership positions (30 percent) than organizations with cautious growth (25 percent) or no-to-low growth (21 percent). Companies that were more financially successful were also more likely to have a higher percentage of Millennial leaders.

“There are two factors at work here. Millennials bring unique skills and perspectives to work, such as how to adapt to and use new technologies.  We also saw Millennials learning differently. They tend to have a slight preference for social and mobile methods of learning how to be better leaders.” 

“Generally, when we asked Millennial leaders to tell us how they liked to be developed, we saw more consistency than differences among diverse generations. Most differences in learning preferences were smaller than we expected. That told us there is more similarity than difference among generations,” said Sinar. 

He admits to being a bit surprised by the strength of these relationships.  “Gender difference had the strongest link to an organization’s financial success. We think that’s because effective management of gender diversity in the workforce generally accompanies doing many other things right. These companies are taking subjectivity and stereotyping out of their talent management practices. They tend to be very visible and transparent about how they develop, manage, and identify their leaders. Companies which do a better job identifying and promoting female leaders see many positive outcomes.” 

Confidence versus true skills

When leaders of both genders were put through a rigorous and structured assessment process, “We saw a lot of balance,” said Sinar. “Male and female leaders rated themselves similarly in their skill levels. However, when we asked leaders to make an overall evaluation on where they stood relative to others, that’s where we saw men rating themselves higher than women.

“Essentially in the absence of true skill differences (competence was very similar) there seemed to be confidence differences between men and women. This might be because some opportunities are given more often to men than women, particularly international assignments.”

Confidence is often rewarded by organizations, which see confidence as an indicator of skill, even though that may not be the case. Incorrect assumptions are made by equating confidence to skill.

“We found that organizations with a high proportion of female leaders didn’t rely on such assumptions when hiring and promoting leaders. These companies gathered data and made evidence-based decisions about how they managed and grew their leaders. These organizations made sure their leaders had high-quality, up-to-date development plans so their leaders knew where they were going and how to get there,” said Sinar.

Personalized, up-to-date, targeted, development plans

Organizations with a high proportion of female leaders also tended to be more visible about how they identified high-potential leaders. “That speaks to the transparency in their leadership practices, and how clearly they defined the competencies that were required for leader success, rather than relying on subjective ideas of what was required to make a good leader. They defined those competencies and stuck to them when they were making performance management and promotion decisions,” said Sinar.

The research also found compelling links between high-caliber talent management, leadership development practices, and financial performance. “When we compared organizations that were performing well financially to those performing at the low end, we found very large differences in the talent management practices they were using. Not only did the successful organizations have a superior number of high quality leaders; those companies also had effective leadership development programs in place. 

“When we compared a company’s financial success based on current data with its current talent management practices, we saw a link. Even more interesting was how companies who participated in a research study three years ago were performing today.  Companies that had high-quality leadership development programs in place back then were more likely to have high leadership quality, and were much more likely to be financially successful three years later. That showed us the sustained impact of these programs over time.”

Sink or swim

Many organizations take a sink or swim approach to developing leaders. This often leads to failure when there isn’t any back-up, Sinar said. “There needs to be support for a variety of assignments. Companies need to assure that the individual is growing and not just relying on others or deferring to them. The organization needs a structured process to assure the employee knows his assignment, knows the resources he can draw on, and recognizes skill sets he needs for the job. Through careful planning, his manager can plot growth for him. Organizations which put emerging leaders into situations where they expect failure, will fail.”

The report asked leaders what they found most beneficial from developmental assignments. “Leaders felt they gained a lot of value from development assignments when they were able to experiment with various styles in directing their co-workers. Experimentation allowed them to try things out in different settings, and it built their confidence. Experimentation also helped leaders convert things they’d learned in a formal training setting into on-the-job application,” said Sinar. 

The study also found that successful organizations pair formal learning with developmental assignments. “It helps to be exposed to different styles of leadership,” said Sinar. “Leading others might be cross-functional, so an individual may have to come up with ways to lead others through vision and inspiration. That includes working cross-culturally where leaders have to adapt their leadership styles to different cultures. The challenging situations and responsibilities that test how a person leads and chooses to lead tend to provide the strongest learning experiences.” 

The top three leadership development methods that leaders in the survey found most effective were:

• Developmental assignments  

• Formal workshops and training to provide a foundation for on-the-job learning

• Manager coaching to supplement formal training and developmental assignments. Coaching brings everything together. It converts learning into performance and builds continuity into a person’s job and shows how it is relevant to the organization’s success. 

The research found that successful organizations in the study tended to integrate learning more strongly into leaders’ jobs than less successful companies. “They thought of leadership development as a journey rather than as independent events,” said Sinar.