Leadership Development at Goldman Sachs - Essay Example

LEADERSHIP DEVELOPMENT AT GOLDMAN SACHS Executive Summary Excellent leadership is the core of the success of most economic, social and political systems. Business organisations often start small and grow to become large multinational organisations depending on the leadership systems and structures that are created by its particular owners. This is the main reason that underpins the importance of proper and effective leadership Often, a global market in change demands new skills and competencies. This precipitates a high demand for a competent workforce to be adaptive while remaining competitive (Nikandrou et al., 2008, 206). This scenario demands a learning organisation; in this case, a learning organisation is that which has the capacity and expertise to facilitate learning and transfer learning in continuous processes. This means that it is expected that organisations have sufficient expertise to facilitate learning for employees. The solution of the challenge war for talent is to create leadership development programme at Goldman Sachs, an investment bank at the United States. A leadership development program should cover all perspectives of the organisation, enabling it to effectively achieve its set goals. This is an analysis presents a case study of “Leadership Development at Goldman Sachs.” Among many other companies in the 1990s, Goldman Sachs was in the fire line fighting the war for talent – both to retain and attract its talent. With its initial step in managing talent, Goldman Sachs created several new managing director posts, dispersal by geography and function. Table of Contents Topic Pg No. 1. Executive summary 2 2. Introduction 4 3. Literature Review 5 4. Training and Development in Successful organisations 5 5. Significance of Training and Development in organisations 7 6. The framework for Leadership Development 7 7. Strategies for an effective Leadership Development Program 8 8. Perceived Merits and Demerits of a Leadership Development Program 10 9. Effectiveness of HR policies at Goldman Sachs 10 10. Conclusion 12 11. Bibliography 13 Introduction The United States boasts of very many investment banks that have been very successful since the time they were developed, one of these banks is Goldman Sachs. This is an American multinational investment bank, offering various kinds of financial investment in the United States and some other countries that it has set base. Between 1980 and 2000 the investment bank went through major changes that were mainly due to many factors like growth of the IPO markets, merges, growth and expansion of their businesses as well as the globalisation element. In the 1990s, several fundamental issues were raised in the investment bank, which were crucial for its growth and development First, Globalisation increased the competition of talent, thus retention was one of the main issues for Goldman Sachs. It is important to realise that the only way to retain talent in any business is by managing it effectively. As many companies started expanding, there was a high rate of labour mobility, something that forced Goldman Sachs to look for ways of ensuring that it retained most of its key employees for its success and competitive advantages in the highly competitive world that was fast emerging. Additionally, due to the expansion of businesses, almost half of the employees were working overseas, and because of the growth, new managing director positions were created with dispersal by geography and function. That created the need for training and development for managing directors to make them run businesses in different cultures, develop soft skills and retain the good talent in the company; in this case, training and development became another central issue for Goldman Sachs. As Goldman Sachs growth reached its peak, the managers and employees wanted to change the company’s corporate culture. This was to be achieved through ensuring that they retained employees, who would be instrumental in passing on the company’s organisational culture to other upcoming employees. Additionally, there was need for the company to ensure that its leadership was keeping abreast to changes in the business environment so that it would continue to offer services that were timely and relevant in the changing business environment. This paper makes an analysis of Goldman Sachs in three main sections; in the first part, the discussion will base on the effects of training and development on the company in various dimensions; in the second part, the discussion will base on the company’s leadership program and how it should be developed for the company’s present and future success. Thirdly, the final section will examine how the leadership development program can be effectively integrated in the company’s HR policies and strategies for its ultimate success. Literature review It is important to note that Education and development on work is important. As Collin (2001) cites, because of globalisation, changes in the market are big and happen fast, hence to keep ahead of these is important in learning and developing new skills (86). Globalisation increases the global competition for talent; this is a challenge which also Goldman Sachs has to face. Around the world, the company’s managing directors are expected to handle the challenges arising in the global market. Leaders, in one way or another, influence their employees, thus they need to develop skills competency that can enable them understand how to lead and manage the organisation (Gratton & Truss 2003, 81). Currently, it is no longer sufficient enough to only take advantage of the employees’ past experiences. That is because the market is changing, and the expansion of businesses and globalisation are creating new challenges for Goldman Sachs’ manager directors and staff. Additionally, Senge et al. (2004), cited in Macbeath (2006, 46) emphasize that learning, which is depended on past experiences often guides teh organisation towards understanding their perceived future. Training and development in successful organisations Majority of studies on training and development carried out have the limitation that they are done in a national context, i.e. in one country. Even though they indicate the relation between training and development and performance, one has to be critical in generalising. Russel et al (2011) explains that many examples exist of those who have done studies in a national context and proved that training and development practises increase employee and organisational performance (Eigenhuis & Dijk 2008, 89). Further, Apospori et al (2008) did a cross national study in the US and UK markets as well as the large Europe and found that training and development has a significant impact on organisational performance. These markets have recorded an increase in market and business activities, prompting the need for more staff training and development for their effectiveness at work in the advancing business environment. These studies indicate that training and development decrease the chances of turnover, ultimately increasing work performance (Green et al., 2000 269; Nikandrou et al., 2008). So far, it has been proven that job satisfaction influences work performance in a positive way (Wright et al., 2007 95). Additionally, Herzberg’s two-factor theory indicates that opportunities for personal growth and development are motivational factors, which contribute to high job satisfaction. Many other recent studies agree with Herzberg’s theory, and do also argue that the opportunity to grow and learn new skills at the work place affect both job satisfaction and performance (Chay & Bruvold 2003, 982; Pegler 2012, 21) Additionally, it is seen that good people management generates not only better employee satisfaction, but also better corporate performance (Gratton & Truss, 2003; Deshields et al., 2008 125). Developments of leaders contribute to the organisation as a system. Hence, it is recommended for Goldman Sachs develops a program which can develop and train their managing directors to be better leaders and increase the corporates’ results (Nigel Bassett-Jones & Geoffrey 2005 54). There is a strong relationship between performance and human capital (Story et al., 2009, 392). Therefore, it is recommended for managers to put efforts in programs which increase and keep firm-specific human capital (Russell et al., 2011). Furthermore it is seen in studies that highly skilled employees have a direct influence on the firm’s profit making (Vries 2011, 32). As seen, many studies indicate the positive impacts of training and developments as being essential for company growth and success. If training and development is done in right manners, it is worth spending money on it (Sachau 2007 384). However, it is always important to analyse whether a corporate needs training and development programme at the moment. One of the downsides of training and development is that it can sometimes be costly to develop. Sometimes companies are prepared adequately in order to have effective training and staff development practices that help the business achieve its goals and objectives. It should ensure that it puts across systems and strategies that will enable it to sustain its staff intrinsic motivation. Significance of Training and Development in organisations A changing global market is often characterized by advanced technology (Russell et al., 2011 444).). This precipitates a high demand for a competent workforce to be adaptive and to remain competitive (Nikandrou et al., 2008). The requirement of highly skilled workers is organisations demands and needs should therefore be a strategy objective. Focusing on the external factors in the market; it is highly recommended that having a leadership development programme at Goldman Sachs is essential. The business market is growing and expanding in new directions very rapidly and the increased growth of IPO requires new skills. The company is initiating businesses; therefore, it is important that their employees and leaders be confident in their abilities. Goldman Sachs employees are high achievers; to retain this type of workers it is important for the company to support a successful employee development program (Murphy, 2003, 33).The question should no longer be ‘why’, but ‘how’ learning and development should take place (Russell et al., 2011 444). In this case, it is important that organisational managers focus on training as an investment and not as a cost factor. The Framework for Leadership Development Any kind of training in a business organisation requires careful analysis (Nikandrou et al., 2008). First, before any progress can be made in initiating the development program, one has to conduct a successful gap-analysis. A gap analysis refers to measuring the level of skills possessed by employees in the business, and comparing it with the level of skills required by the company to achieve optimal productivity (Lawson 2008, 76). This process can be achieved through various processes like observation, questionnaire, 360-degree feedback or tests among others. An effective analysis of these factors gives an idea of what employees need to learn, and what they already know. Based on corporate strategies, goals, employees and market, it is recommended that Goldman Sachs create a corporate university which offer leadership development programs to their managing directors worldwide. Corporate universities enhance the employee commitment and performance (Fulmer & Goldsmith 2001 54). The corporate university should have dual function; development centres and mentoring. In development centres, a group of participants participate in several tests and exercises under observation (Sadler-Smith 2009, 63). They are assessed on whether they are appropriate for specific roles and their potential for further development. Strategies for an effective Leadership Development Program A corporate university is like a catalyst for change and adjustment (Meister, 1999; Rademakers 2005, 132). A corporate university does not need to be a physical university. It should be a worldwide training and development program which offers different packages depending on the needs and demands of the managing directors. The training of managing directors should be in development centres with real life scenarios (Kegan & Lahey 2001, 19), and the opportunities to have teamwork discuss and get feedback (Arnold 2002 977; Taylor 2010, 45). Additionally, employees value learning from peers, and this is a value which should be incorporated in the training and development program; hence the importance of mentoring. The leadership development programme should be integrated under the existing Goldman Sachs human resource function, HCM, for various reasons. Firstly, HCM already knows the HR practices and secondly, because having the LDP stand alone initiates the need of hiring new people. With HCM Goldman Sachs can use its already existing knowledge and employees (Gill 2006, 35). The instructors should be both external and internal, for innovations and to avoid group think. However, the mentors should be local senior managers as they are the ones who know Goldman Sachs well. By using internal instructors managing directors, do not feel that others who do not have knowledge about their challenges and tasks are trying to teach them. Considering that new hires do not have sufficient knowledge about Goldman Sachs, it is important that they are offered mentoring for a longer period than others. However, it is difficult to say an exact period of time, considering the fact that development is a continuous process. Hence, the mentoring should be offered for at least one year. Further, the participation in development centres should not have a time frame. The training should be localized; i.e. the programme should emphasis the local business market and culture, because only when the training and development is contextualised, it will bring innovation (Gumusluoğlu & Ilsev 2009 271). As Goldman Sachs expands into new areas, it is important that the company’s managing directors and other staff in these areas receive an introduction to the organisations core values. Their core values are corporate culture, integrity, teamwork and soft skills. Perceived merits and Demerits of a leadership development program It is important to note that any kind of a leadership development programme must have some kinds of merits and demerits. Based on the literature review leadership development programme will prepare managing directors for future task and challenges in new and unknown situations. Training paid by the company and specific training generate lower rate of turnover, say Green et al (2000); as training and development will be very specific to the tasks of the managing directors, it will increase the chances of the employee to retain in the organisation. Further a LDP will give confidence to managing directors across the world that they can handle unexpected situations in a different market. With an effective training and development programme it is always expected that some downsides will soon emerge. A LDP makes the employees attractive for the competitive companies, and employees are more likely to leave (Taylor 2010, 36), especially if the employees get training in transferable skills ((Green et al., 2000). There are also some disadvantages of a development centres; it is costly and time consuming. Further the evaluators need to be highly skilled and experienced, but there is still a chance that inspectors can be biased in their judgement. Effectiveness of HR Polices to Goldman Sachs In order to achieve business goals, it is important that a company’s HR policies be adequately aligned, supporting each other. It means that Goldman Sachs must focus on the horizontal integration, but also the vertical integration in order to meet the goals expected by the managers ((Gratton & Truss, 2003). Spending time and money on employees’ education can make Goldman Sachs even more attractive for people outside. It can in certain contexts create a larger pool of talented applicants because people would like to work for a company who take initiative in educating its employees.- To avoid brain drain after training and development it is important to create opportunities for internal mobility (promotion, job rotation) in the company. The human resource department should therefore first look for potential candidates within the company. When employees know they have the chance of promotion based on their results they might perform better and retain in the company. This is also a way of compensating employees. It is also cost effective to make internal recruitment as opposed to external recruitment. As mentioned earlier, training and development is an investment not a cost. By Goldman Sachs going global, it means that the company has to reflect the diversity of the cultures where they operate. Thus, it should attract and retain people from different backgrounds. At Goldman Sachs, The HR department is expected to run performance appraisals to evaluate the leadership development programme. By using 360-degree feedback it is possible to measure how well managing directors are on building relationship with their team and colleagues (Gratton and Truss, 2003). 360-degree feedback enhances the overall reliability of the feedback (Day 2000, 586). This is a very important factor for Goldman Sachs considering the fact that Goldman Sachs’ corporate culture is mainly built on teamwork and employee relations. It is however important that the performance appraisals carried out have clear structure and management directors know what is being evaluated. Uncertainties in what is evaluated can cause decreased motivation and performance (DeNisi & Pritchard 2006 261). For managing directors, a training and development programme is expected to initiate changes in the existing performance management. The criteria which the employees are being assessed upon should be changed. That is because a development programme will teach managing directors new skills; hence those new skills have to be a part of the evaluation. The training programme has to support the performance management by using the training as a way to help an employee meet a performance goal. Conclusion Based on the empirical evidence provided in the foregone literature review, it is proved that training and development often increases the process of job satisfaction and organisational performance. Additionally, it has also been proven that educating employees has the ability to decrease turnover given that the training is work specific and has impacts on the performance compensation. The leadership development programme suggested in this paper has considered the market, Goldman Sachs’ needs, culture and type of workers. It is suggested that Goldman Sachs create a corporate university with a dual function. The first function is a development centre for their managing directors and the second function is to offer mentoring. A leadership development programme will attract talent to Goldman Sachs for various reasons like opportunities to develop and internal promotions (Vries 2011, 31). 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