This article originated on td.org and can be found here.
As aging baby boomers retire from the senior ranks of corporate America, there are fewer potential leaders ready to take their places. This dilemma creates a demand for tomorrow’s leaders that is rapidly outpacing their supply. Between the smaller numbers of Generation X (born 1965-1977) and expectations of higher demands for recognition and promotion from Generation Y or Millennials (born 1978-1994), the retention of high-potential employees is a major concern in many organizations.
According to The Conference Board CEO Challenge, a global survey of more than 500 CEOs conducted annually over the last six years, talent-related issues have been one of the greatest concerns of top business leaders. Still, few organizations are effectively identifying and cultivating high-potentials.
High-potential employees tend to know their potential and will move on to another organization if they are not recognized, motivated, and challenged, while long-term employees often remain with their organizations without being encouraged to make new contributions. How can organizations identify and cultivate employees with the potential to be star performers? What attracts them to an organization and motivates them to commit to that organization for the long-term, and how can that commitment produce maximized results over the course of their careers?
Identifying and developing high-potential employees
A recent research study shows that chief learning officers are better off developing a strong base of talent internally. It’s generally less expensive, allows them to motivate and retain key staff, and, as long as they balance the value of organizational experience with sustained independent thinking, it reduces the risk of the unknown. But with minimal resources and self-constrained budgets, how do we identify and then cultivate star performers – those high-potential employees right in front of us, but who are just a bit lower on the corporate ladder?
High-potential employees embody passion and are characterized by a quick movement through various roles in a company, a carefully monitored career path, and an elite, but usually secretive, status. As the future leaders of their organizations, high-potentials slide into new positions, receive special coaching and mentoring, and are expected to deliver superior performances.
Ideally, these top performers are identified as early as possible and benefit from specialized career development plans that ensure those that are the best and brightest quickly rise to the top. Just as competitive advantage can be generated by a speed-to-market product strategy, it also can be created with a firm’s ability to accelerate the development of leadership talent. By efficiently developing leadership skills and competencies, high-performing organizations can distinguish themselves from opponents and extend their competitive advantage in the market.
Supply, demand, and results
The demand for these leaders of tomorrow is rapidly outgrowing the supply. As a result, most organizations are actively focused on identifying and cultivating those employees with the greatest potential to grow into business-critical leadership roles. Unfortunately, surprisingly few organizations are doing this effectively.
A recent Corporate Leadership Council survey found that approximately three-quarters of companies worldwide are not confident in their ability to effectively staff leadership positions over the next five years. Moreover, the Conference Board report shows that only 34 percent of companies are effective at identifying capable leaders early in their career.
In contrast, companies that identify and develop high-potential employees show dramatic shareholder returns. According to a recent Hewitt Associates study surveying large U.S. companies, only a bit more than half consistently use a formal approach to identify high-potentials, yet those that do perform in the 75th percentile or higher for total shareholder return (TSR). The heightened results and shareholder returns increase even further when these organizations go on to formally develop and track the performance of their high-potentials (See Figure 1). Thus, to achieve consistent measurable success, an organization must enforce an effective and sustained identification and development process that focuses on the desired traits and abilities of high-potential employees.
Identifying high potentials
High potentials tend to make stellar contributions and shine above other performers. They achieve accomplishments and performance results far superior to their peers. Identifying them formally requires that managers recognize how their behaviors, skills, and attributes differentiate from others.
Identifying high potentials requires an assessment of required leadership competencies at the next level and a comparison of the results with known criteria to determine gaps and development needs. The result of these assessments provides guidelines for identifying the training and development, coaching, and mentoring that a high potential needs to develop skills necessary to take on greater leadership responsibilities.
There are conflicting opinions over whether to inform employees of their high-potential status or not. Informing employees is a powerful indication that the company values their contributions to the business and believes in them enough to invest in their future. If not told, there is a risk high potentials will resign and move on to an organization that will recognize and develop their talent.
The rationale for not disclosing high-potential status also is critical. One reason is that organizations can’t afford to make promises in today’s economic conditions for promotions or financial rewords. Organizations with a union environment risk creating legal issues if individuals are not treated according to the contract. On the other hand, it is difficult to motivate employees to take on additional development assignments without giving them some indication of the benefits. The choice is up to the employer; however, it may be a difficult one.
Many organizations wonder what the best criteria is for selecting high-potential employees besides current job performance. An assessment of leadership competencies, job performance over time, and high-potential criteria that evaluates and measures potential now and in the future is the most common selection method used. This approach increases the quality of the high-potential candidate and provides a selection tool for identifying his readiness as he develops necessary skills. When conducting talent review discussions, organizations will have more confidence in their high-potential employees and measure their success with greater accuracy.
When identifying competencies, recognize specific behaviors and attributes that reflect the organization’s unique culture, strategic goals, and operating needs as well as the behaviors needed to grow and sustain your organization’s future.
Selecting high potentials
Many managers struggle to select their high potentials. Is it because they base their assessments on current performance, intelligence, or drive and determination? The most common misidentification of high potentials results from confusing high performance with high potential. Not all top performers have the potential to succeed at higher levels.
Current performance is an important consideration, but managers must also sort through external factors that affect success, such as market conditions and competitive challenges. Better yet, it’s important to find people with track records of success in a variety of situations and business climates. In fact, the greater the number of challenging situations a person has encountered successfully, the greater the chance that she has learned valuable lessons that can fuel her future performance.
High potentials also need the right motivation and drive, such as wanting to work with and through others, having an interest in financial data, and being comfortable with power. Being smart also is important: The higher a person goes in an organization, the more likely he will encounter complexity and overwhelming amounts of data that must be assimilated quickly.
Ironically, some of the qualities most indicative of high potentials also can signal potential performance problems. In a recent study conducted by Personnel Decisions International, 27 percent of individuals identified by their bosses as high potentials were also identified by the same bosses as having a high risk of career derailment – a likelihood that the person would fail in a specific role because she reached a plateau of performance, quit, or was fired. This means managers believe that one out of every four high potentials may never reach his potential.
Proper identification of high potentials requires a full assessment of an individual’s capabilities, behaviors, and fit with organizational expectations. These robust measures also make the identification of high potentials a more objective process.
The most common profile for high-potential leaders who are likely to derail is someone smart, driven, and accustomed to pushing through obstacles to meet ambitious goals. This same hard-driving, risk-embracing style that gets leaders noticed for high performance also can cause them to experience problems with their colleagues. They are more likely to derail at some point if they don’t learn to show respect for other people’s perspectives and to incorporate other people’s opinions to gain their commitment.
Other derailment patterns include leaders who have brilliant ideas and solutions but aren’t consistent in being able to implement their ideas through others, and those who get the results their bosses want to see but alienate peers and others.
Developing high performers
Managers should be mindful of how they treat high potentials in two particular areas. First, managers need to recognize that most top performers are rewarded for their results, not necessarily for the manner in which the results were achieved. If two top performers achieve the same result, they are often given the same reward, even if one achieves it through building and aligning a team and one achieves it by pushing with brute force.
Second, top performers generally consider their work style to be effective. Even if their role changes, they are often averse to changing or modifying their behavior. They have received high praise and recognition for performance and understandably believe that they will be most effective if they continue to follow that approach.
For instances, an individual who prefers isolation from others, even keeping different hours, to stay focused on specific tasks without distractions from co-workers could be effective for some tasks, but when a role changes requiring the individual to work with a team and he still prefers to work alone, this behavior now becomes a derailer. The individual fails to build the strong relationships that increase the chance for long-term success.
There are several steps managers can take to decrease risks for derailment:
- Accurately identify high potentials in your department.
- Provide clear expectations in terms of valued behaviors.
- Provide individuals with specific feedback on how well their performances and their behaviors (what they do and how they do it) meet expectations.
- Make sure rewards such as promotions and bonuses don’t send mixed messages. Reward high potentials for both the results and the methods used to achieve the results.
- Ensure that high potentials develop skills for potential future leadership roles
- Coach employees to decrease the risk of derailment and create plans that foster development of needed skills and behaviors.
- Shape high potential development through clear communication and appropriate reinforcements.
- Reinforce the company values, and teach employees to demonstrate the values of the organization’s culture.
High potentials need the right fit – the skills and mindset consistent with the organization’s strategic direction and cultural values. Most managers fail to help fast rising high potentials realize their potential. In most instances, they rarely have time to clearly explain performance expectations for each role, define goals, and development needs or provide periodic feedback on how the individual’s performance and behavior align with those expectations.
High-potential leaders often advance quickly and may not learn some of the basic lessons that others learn simply from having more time in each position. That’s why it’s important to be explicit about expectations and styles with fast-rising leaders.
Executive coaching is one way to guide high potentials to develop skills necessary to deliver long-term results. When current leaders take the time to measure and identify high potentials and work with each individual to create a custom development plan, these individuals can transform potential into realized leadership performance.
Best practices for high-potential development
There are two distinct categories of high-potential employees. Late-stage high-potentials include experienced managers ready to make their way into the executive ranks. This group is typically identified as middle or senior managers and participates in a wide variety of formal training: specialized mentoring, executive retreats, personal coaching, real-world action learning, global rotation, and more. These senior managers are among the top 10 percent of an organization, and significant costs are incurred to prepare them for senior executive roles within the organization.
Early-stage high potentials are different. These new managers and individual contributors are at the beginning of their careers and are identified more by their talent and drive than their track record. Early-stage high potentials are found in the lower ranks of an organizational structure, and their employers are generally not yet ready to invest the same amount in their formal training and development. While historically organizations have focused primarily (if not entirely) on their late-stage leaders, more organizations today are adopting an aggressive program for developing bench strength at all levels. Top-performing organizations in particular now recognize that the earlier potential talent is identified and put into the pipeline, the sooner the entire organization reaps the rewards of more productive and effective leadership.
At the minimum, early-stage high potentials should be identified within the first two to four years of employment. Both human resources and business line managers should be involved in the identification process so assessments are driven from both empirical performance of the high-potential and the organization’s ideological criteria and vision.
Implementing a high-potential program
When planning and implementing an integrated program for early-stage high-potential development, there are many factors to consider. The first step is critical but often overlooked. Holistically, the organization must agree on and then support the goals of the proposed development program. Specifically, the organization must justify the program by answering the following questions:
- Why do we need a high-potential program?
- How will it support our business strategy and improve our competitive advantage?
- How will it benefit the organization, the high potentials, and the rest of our employees?
- How will we measure the success of the program, and what dollar value will we place on high-potentials at different stages of development?
Once the organization’s goals for the program are clear, the next challenge is to develop a relatively larger group of early-stage high potentials at a fraction of the budget of late-stage candidates for senior management. Here are some cost- and resource-efficient best practices that top-performing organizations use when implementing a successful early-stage high-potential program:
- Specialized leadership development tracks. In a recent research study of Fortune 500 organizations, most companies reported having a well-defined leadership curriculum in place. Yet a majority of respondents indicated that the curriculum was more voluntary than mandatory in character. Only a few organizations referenced having specialized, highly customized, mandatory leadership development tracks for their high-potential employees. For those that did, there was a tendency to identify the program as being distinctive and highly effective in elevating the leader potential of their organizations.
- Multi-disciplinary rotation program. Another experience-based leadership development tool is the rotation of managers across disciplines, divisions, and geographies. The fixed-choice component of the same study found that less than half (45 percent) of organizations use rotational or developmental assignments as a regular component of their leadership development package. In contrast, significantly more top-performing development practitioners utilize this technique to provide a more diverse base of experience and perspectives for their future leaders.
- Unlimited learning opportunities. Most organizations restrict the number of courses available to all employees. This helps both to control costs and to reserve coveted development opportunities for peak performers later in their careers. While it’s important to focus high-potential employees’ attention on priority topics and not waste time on the mastery of less relevant knowledge, they tend to seek and absorb behavioral skill building at a much greater pace, and top-performing organizations provide them unlimited access to self-paced learning programs that accelerate their growth.
- Leverage technology. Recent studies indicate that technology-enhanced learning is now independently sufficient to improve leadership behavior on the job. The combination of synchronous and asynchronous tools and content, especially when paired with reinforced group application, can not only improve the high-potential employee’s performance, but can do so at a fraction of the time and cost of classroom training. (Up to 90 percent reductions were reported CNA in 2005).
- Action learning. By taking development initiatives outside of the classroom and putting employees to work solving real-world business issues, action learning is taking over as the classroom trainer’s interactive simulation. Groups of high potentials and mentors are put into a situation and must solve the challenge. Many organizations are migrating to this approach as a way to expand high-potentials’ perspectives on how the business operates.
- Mentoring. According to a recent study by the American Society for Training & Development (ASTD), approximately 71 percent of the Fortune 500 use internal mentoring programs to develop high-potential employees. Through pairing with internal senior mentors, high-potentials are introduced to years of knowledge and experience.
According to a recent Accenture study, companies with forward-thinking learning organizations have a far greater impact on overall business performance when compared to their peers. Does this mean that identifying high potentials and deploying a comprehensive program is a guarantee of success? Not necessarily. Nowhere is it written that a promising 26-year-old high-potential matures into a successful 55-year-old executive leader. Yet only by combining potential talent with access to and time for learning new skills will an organization consistently and cost-efficiently develop its high-potential leaders.
It also is important to note that high-potential programs can be controversial to implement. Lack of transparency in the process of selecting high-potential employees has been known to cause serious morale issues. Employees who are passed over or deprived of the progress may even leave. There also are concerns regarding the pressure organizations put on high potentials. If the process is not monitored carefully, high potentials can burn out. Organizations should provide necessary support mechanisms, such as counseling and mentoring.
Reflecting on what we know today about programs to systematically and consistently develop high-performers, a few conclusions have become clear:
- While continuing to invest heavily in late-stage high potentials, the earlier we start focusing on early-stage high potentials the greater their impact on the organization will be.
- There are now cost-efficient techniques that make it possible to effectively develop large numbers of early-stage high-potentials with limited internal budgets and resources.
- If we want to maintain our growth rate and unique competitive advantage, we can’t afford not to implement a formal program for internal high-potential development. Now it’s time to get the rest of the organization on board.