Most companies are poor at developing their executives, and most of them acknowledge this: only 3 percent of the 6,000 executives occupying the top 200 positions at 50 large US corporations examined by a recent McKinsey survey strongly agreed that their organizations developed talent quickly and effectively.¹ In no area of executive development—job rotation, traditional internal and external training, or mentoring—did a majority of these executives believe that their employers were doing a good job (Exhibit 1).

Some companies feel that their high performers will rise to the top naturally, like cream. Others, believing that talent can be bought, try to recruit executives from such sources as General Electric, a famous developer of people. In fact, though businesses should look for senior-level talent outside their own organizations, they themselves must also be good at developing it. In the first place, as talent becomes scarcer—and demography suggests that it will—the "buy-only" strategy becomes risky and expensive. Moreover, recruiting all of a company's senior executives externally sacrifices cultural cohesion and institutional memory. In any case, companies that can't develop their own talent find it hard to attract good people from...