I recently read at article by Dave Ulrich and Norm Smallwood in the July-August 2007 issue of Harvard Business Review that advocates companies focus on leadership instead of leaders. The authors are partners and co-founders of RBL Group, a leadership development and human resource education consultancy.

The authors submit that some companies produce a steady supply of strong managers because instead of focusing on building up the strengths of individual people, they concentrate on developing a “broad organizational leadership capability.” That’s what they call a Leadership Brand.

Firms that have leadership brands use an “outside-in” approach to develop their executives. That is, they look outside at what they want to be known for by clients and customers and then link that with required management skills for their executives. For example, Lexus takes it “The pursuit of perfection” tagline and translates it into an expectation that its leaders excel at managing quality processes. The outside-in approach helps companies develop a reputation for high-quality leaders whom clients can trust to deliver on the company’s promises.

The authors looked at 150 companies with reputations for strong leadership and found that those organizations follow five strategies. Those strategies are:

• Ensure managers master the basics of leadership—for example, setting strategy and developing talent.
• Ensure that leaders internalize the’ high expectations of clients.
• Incorporate client feedback into evaluations of executives.
• Invest in programs that help managers hone the right skills by tapping clients to participate in them.
• Track the success of efforts to build leadership bench strength over the long term.

What results, the authors conclude, is “outstanding management” that persists even when individual executives leave the company. In fact, companies with the strongest leadership brands often become “leader feeders” and generate executives who go on to head other companies. Examples of these firms are GE, PepsiCo, P&G, Disney, Toyota, and Kraft, among others.

The authors actually provide a list of companies that they consider leadership brand companies and their P/E ratio compared to their category (they used the past ten years’ worth of data). The chart below shows that consistently a leadership brand is correlated with higher P/E ratios versus the category.

How do you rate? The following graphic shows a short assessment test that will help leaders determine their company’s leadership branding capability.

24 or less: Start working on the fundamentals of leadership. 25 to 34: Select one or two dimensions where you’re not yet strong and focus on improving them. 35 to 44: You are well on your way to becoming a leadership brand company. 45 or higher: You’re sitting pretty, pat yourself on the back.