It takes a mix of leaders and talent to pursue a variety of growth strategies simultaneously. Few executives can do it all. Here is an excerpt from another outstanding article featured online by McKinsey & Company’s Quarterly magazine, co-authored by Katharina Herrmann, Asmus Komm, and Sven Smit. To read the complete article, check out other resources, sign up for free email alerts, and obtain subscription information, please click here.

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Source: Organization Practice

Is there a link between growth and specific leadership traits? We’ve tried to shed some light on this question by integrating two unique databases: McKinsey’s granular-growth database, with information on the growth performance of more than 700 companies, and a database created by the executive search firm Egon Zehnder International that contains performance appraisals of more than 100,000 senior executives (see sidebar, “Two unique performance databases”). The overlap between the two databases—a group of 5,560 executives at 47 companies across a broad range of industries — allowed us to examine in detail the relationship between leadership competencies and revenue growth. We found that leadership quality is critical to growth, that most companies don’t have enough high-quality executives, and that certain competencies are more important to some growth strategies than to others. Companies that know how they want to grow can use these insights to cultivate the right skills in top executives.

Great leaders are hard to find but vitally important

Excellent leaders are few and far between. Only 1 percent of the executives in our sample achieved an average competency score of 6 or 7 out of 7 (although excellence in a single competency was more frequent). Just an additional 10 percent had an above-average score of 5.

That’s a challenge for growth-oriented corporations because leaders with high competency scores appear to make a difference: for every competency we reviewed, executives at companies in the top quartile of revenue growth scored higher than their counterparts at companies in the bottom quartile

Similarly, companies where the top teams as a whole had excellent scores (that is, 6 or 7) on the various leadership competencies were also those with strong corporate revenue growth. On the other hand, we found no measurable correlation between revenue growth and teams with solid but unexceptional leadership. [Note: The correlation coefficient for top executive teams rated 6 or 7 and corporate revenue growth is up to 0.74 for individual competencies. For ratings of 5, the correlations are around 0.5; they fall to 0.01 for appraisals at the 3 or 4 levels.]Since such a small percentage of executives had above-average scores across all competencies, trying to jump-start growth by looking for great “all-rounders” is a risky bet. An alternative approach is for companies to cultivate specific competencies correlated with growth in their existing teams or to seek new talent with the needed skills.

Customer focus first

If your company is seeking a launching pad to improve performance, the analysis shows that one competency drives the greatest gains: delivering customer impact (defined as the capacity to understand customers’ evolving needs). Companies that had a critical mass of executives who got excellent (6 or 7) scores in this competency recorded superior growth consistently—both organically and through acquisitions.

What constitutes critical mass? Companies where at least 19 percent of the senior executives excelled at customer impact were also the most likely to achieve above-average revenue growth (in the top half of our database). For a company to be highly likely to have superior growth (the top quartile), 40 percent of its senior executives needed to be highly skilled in that area.⁴ So all of an organization’s leaders don’t need to be top flight at customer impact, but when a substantial number are, the impact on growth can be significant.

Tailor talent strategies to growth priorities

At most large companies, of course, there isn’t just one growth strategy. Rather, companies rely on a diversity of approaches that vary by business segment and by circumstance: at times executives might place more weight on acquisitions, while at others they focus on stealing share from competitors, for example. Our analysis shows that high growth rates for these different strategies are associated with excellence in a range of leadership skills wielded by managers at various levels of the organization.

Consider portfolio momentum growth, which flows from market growth across a company’s existing business segments. To drive this type of growth, senior managers beyond the top team typically need to execute a strategy effectively across often far-flung organizations. Senior managers at companies in the top quartile of this growth category were highly rated in competencies relating to dynamic people and organizational leadership: developing organizational capability, change leadership, and team leadership

By contrast, companies in the top quartile of M&A-driven revenue growth had top-leadership teams that excelled at a broad range of skills. The first is market insight—in other words, looking beyond a company’s current business landscape to discern future growth opportunities. That competency no doubt supports the identification of deals, while another competency crucial for M&A-driven growth—a well-honed orientation toward achieving results—helps in postmerger integration.

If your company pursues multiple growth strategies, the talent bar is even higher. Our study shows that the average skill level of top teams at companies with a dual-growth strategy—defined as top-quartile performance in two of the three strategies (portfolio momentum, stealing share from competitors, or growth through acquisition)—was almost one and a half times that of their single-growth-strategy counterparts on key competencies.

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To read the complete article, please click here.

Katharina Herrmann is an associate principal in McKinsey’s Berlin office, Asmus Komm is a principal in the Hamburg office, and Sven Smit is a director in the Amsterdam office. The authors would like to acknowledge their collaboration with Stephen P. Kelner and Magnus Graf Lambsdorff of Egon Zehnder International on the research and writing of this article, as well as the contributions of Verena Renze-Westendorf, also of Egon Zehnder International.