Canadian companies often invest a lot of resources to find and cultivate their next generation of leaders, those employees who demonstrate “high potential” to take on senior managerial roles. These rising stars are given accelerated development opportunities, such as mentoring, rotating stints in various divisions of the business, and managerial promotions.
But there is little hard evidence that such development programs accurately identify next-generation leaders.
We conducted a survey, in co-operation with the Canadian HR Reporter, to get a sense of the level of confidence Canadian companies hold in their high-potential identification practices – and the findings were disconcerting.
Nearly half our respondents rated their organization as either “highly ineffective” or “somewhat ineffective” at accurately identifying high-potential employees. Only 17 per cent said they were satisfied with their company’s practices.
Our respondents were human resource professionals from more than 200 organizations in a variety of industries, including finance, health care, technology, retail, manufacturing, and government. Companies ranged from less than 100 workers to more than 20,000 employees.
We found that few organizations have a clear handle on the qualities they are looking for, and even fewer can claim that those qualities can be accurately measured. In short, they don’t know if they’re choosing the right people to train as leaders – or whether that training succeeds.
The results of our survey echo those of U.S. researchers Jean Martin and Conrad Schmidt, whose findings also call into question the utility of such leader-development programs. In a Harvard Business Review article in 2010, they noted that about 40 per cent of internal job moves made by “high potentials” ended in failure.
Why the dismal results? And what should companies do to improve their eye for talent?
First, they need to evaluate the effectiveness of their high-potential programs. As simple as this sounds, most companies don’t do it. While organizations recognize the importance of leadership development (nearly 85 per cent of our respondents had a high-potential program in place), only 13 per cent said they had evaluated the accuracy of their identification process. The vast majority had no way of knowing if their bets pay off.
Second, companies need to expand their criteria for leadership potential. Ninety per cent of our respondents use performance reviews as the basis for high-potential development, along with recommendations from immediate supervisors or an upper-level manager. Other factors – such as input from peers, assessment interviews, and measures of learning ability and emotional intelligence – are relied upon much less often.
The problem is that current job performance has not been shown to be a reliable predictor of superior achievement in a higher-level position. According to recent research by the Washington-based Corporate Leadership Council of the Corporate Executive Board, fewer than one-third of all high-performing employees have the critical abilities to excel at the next level of the organization.
And performance reviews have other weaknesses: In our interviews, for example, a number of executives spoke of employees who were initially “written off,” but after being transferred to a different supervisor they “blossomed” into high potentials. In other words, performance reviews are limited in their ability to gauge whether a less-than-stellar performer could excel in a different environment.
Finally, given the importance of managerial recommendations in identifying high-potentials, companies should provide formal training to the assessors.
Fewer than 10 per cent of our respondents indicated that senior managers in their companies were “highly effective” at picking potential stars. More than 20 per cent said their leaders were “not very effective” or “ineffective,” and 66 per cent said they were only somewhat effective.
There’s no question that defining the elusive concept of “potential” can be daunting; factors range from a person’s track record, to leadership experience, to strategic thinking and general industry knowledge. Those who are charged with choosing which employees to groom for leadership need to be fully trained to make that call.
Len Karakowsky is a professor of management at York University, Toronto. Igor Kotlyar is a professor of management at University of Ontario Institute of Technology, Oshawa, Ont.