Developing Next Generation Leaders: High Priority on High Potentials
Lee Konczak
Washington University
Jeff Foster
Hogan Assessment Systems
Despite the economic “meltdown” of 2008 and increased unemployment levels, estimates indicate that the impending surge in baby boomer retirements will result in a labor shortage of 10 million workers by 2010 (Dychtwald, Erickson, & Morrison, 2006). If just 10% of these retirees exit leadership positions, the U.S. workforce will soon face a shortage of 1 million leaders. To compound the problem, the need for leadership talent is a key concern for line executives and human resource professionals for at least three reasons: (a) increasing expectations of shareholders; (b) the volatility of the current financial market; and (c) rapid changes in the business environment, including globalization, evolving business strategies, continuous technological changes, and shifting demographics (Gandossy, Salob, Greenslade, Younger, & Guarnieri, 2007; Schein 2005). Given this potential leadership shortage and the need for future leadership talent, efforts aimed at building leadership pipelines and developing the next generation of leaders seem quite justified and appropriate.
Organizations are charging many I-O professionals with identifying and developing individuals to fill key leadership roles in the next few years. As an example, at one public utility, managers and executives who will be eligible for retirement within the next 5 years currently occupy over 50% of the key leadership roles. At another large manufacturer that employs 100,000 individuals globally, two-thirds of the workforce will reach retirement eligibility in the next 7–10 years. Many of these vacancies are leadership positions. Therefore, despite the current economic environment, firms are still allocating resources to identify and develop future leaders (Mattioli, 2009).
Recent research by the Conference Board suggests that a majority of organizations are increasingly concerned with their ability to identify and develop leadership talent. For example, in 1997 nearly one-half of the respondents to a Conference Board survey rated their company’s leadership as either excellent or good. By 2001, the number had dropped to only one-third (Barrett & Beeson, 2002). This decline occurred despite the fact that 90% of U.S. companies provide some type of leadership training (Schein, 2005). Furthermore, expenditures on leadership education and development represent an investment that may reach $50 billion annually (Ready & Conger, 2003).
Fulmer and Bleak (2008) recently reported that companies are placing increased emphasis on leadership development programs aimed at identifying and developing high-potential employees. Their study was part of a collaborative research effort conducted in 2006 by the American Productivity and Quality Center, the Center for Creative Leadership, and Duke Corporate Education. They designed this research to investigate (a) best practices in leadership development, (b) how these practices drive business performance, and (c) how companies evaluate the effectiveness of their programs.
Companies participating in the study included industry leaders such as PepsiCo, Caterpillar, and Cisco Systems. According to Fulmer and Bleak (2008), “We didn’t plan to write a chapter on the development of high-potential employees. However…we found that our best-practice partners placed a significant emphasis on it” (p. 83). They found that companies were not only placing greater emphasis on the development of high-potential leaders but were also increasing funding for these efforts.
In another global study of 563 companies representing 41 countries, Gandossy et al. (2007) reported that “best practice” companies were more likely to (a) identify high-potentials deeper in the organization, (b) have formal programs for high-potential development, and (c) link compensation to both performance and advancement potential. Organizations are not only focusing attention on high potentials, but successful programs identify leadership talent earlier and link incentives to leadership progression.
Given the increasing importance of high-potential programs, it is no surprise that last spring’s SIOP annual conference in New Orleans contained numerous sessions focused on identifying and developing future leaders. We chaired separate panel discussions and attended additional sessions focused on high-potential programs. We were surprised to find that, despite the number of sessions centered on the topic, all of those we observed were well attended, indicating a strong level of interest among I-O professionals.
In addition to our own sessions, we found four that focused specifically on high-potential programs, three that presented very similar information using other terms such as “talent management” or “succession planning,” and dozens of sessions that covered related topics. Therefore, we thought it would be helpful to summarize the key themes and ideas that emerged from these presentations. Following the conference, we reviewed audio recordings of several sessions that we were unable to attend. These sessions had titles or descriptions containing key words or phrases such as “high potential,” “talent management,” and “succession planning.” We then limited our focus to sessions that centered specifically on topics relating to the identification and development of future leaders.
Table 1 lists the affiliate organizations of presenters in sessions that focused specifically on the topics listed above. Given the number of sessions at SIOP each year and those at least indirectly related to the topic, we apologize to organizers and participants unintentionally excluded from this list. However, as shown in Table 1, presenters represented a wide variety of organizations and industries.
In our review, we sought to provide an overview of the “current state” of high-potential programs. Specifically, we summarize session content according to five areas:
- Key drivers of high-potential development efforts,
- Identification and selection of high-potential talent, including the role of assessment,
- Program approaches for high-potential development,
- Program impact and evaluation strategies,
- Other considerations.
A comprehensive review of any one of these areas would easily constitute its own paper. Rather than addressing each extensively, we sought to provide a high-level overview of the common themes that resulted from the conference. Following this summary, we discuss what we believe are the key challenges in this arena and present preliminary recommendations for future research and practice.
Key Drivers of High-Potential Development Efforts
Efforts aimed at identifying and developing future leaders in organizations are not new. Although the phrase “high potential” has generated considerable buzz lately in the I-O community, the underlying goal and concept has existed for decades. To start our review, we identify the key drivers that lead companies to expend resources toward these efforts.
As might be expected, the reasons cited for implementing high-potential programs varied. However, they tended to focus on the following concerns: (a) the ability of individuals at lower levels in the organization to assume top-level positions; (b) changes in business strategy, structure, or culture; (c) the need to accommodate anticipated growth; (d) the need to retain current talent; and (e) interest by senior management in actively participating in the identification and development of their replacements.
Expressed goals also varied. In many cases, presenters expressed concern over the lack of clear-cut objectives to aid in the development and evaluation of their high-potential programs. Those who did outline specific goals tended to focus on the following areas: (a) identifying specific individuals to fill C-suite positions in the future; (b) developing successors for specific senior roles; (c) identifying individuals likely to be successful if promoted, regardless of current organizational level; (d) preparing individual contributors to assume managerial positions; (e) “broadening” the experiences of high performers to develop business acumen and increase bench strength; and (f) providing development opportunities as a strategy for retaining talent.
Identification of Leadership Potential and Selection for
High-Potential Development
The first question to consider when identifying high-potential individuals is “How do you define and measure high potential?” Session presenters provided varied responses to this question. Several expressed concerns that, although current work performance should not necessarily represent the overriding determinant for high-potential designation, it was the primary determinant relied on in their organization. Many organizations also placed value on tenure. One common theme mirrored what many I-O psychologists regularly report to selection clients that the skills needed to perform effectively change as individuals move up the organizational hierarchy. In other words, high-performing incumbents are not always the best candidates for promotion. Still, performance appraisal results emerged as the primary indicator of high-potential designation.
In addition to performance appraisal ratings, organizations often use competency-based rating tools to assess characteristics believed to be associated with successful performance in higher level positions. For example, several session participants cited the use of competency models designed to identify and measure performance constructs associated with future leadership performance. Although such an approach is future oriented, there are still concerns over the degree to which current performance influences these ratings.
These concerns inevitably lead to discussions on the potential role that individual assessments play in the identification and selection of high-potential employees. Although presenters most frequently cited personality instruments, others included assessment centers, cognitive ability measures, and situational judgment inventories. Still, the use of assessment for identifying high-potential employees or job applicants was rare.
When discussing the use of multiple indicators for identifying high-potential individuals (i.e., current performance indicators, future-oriented competency ratings, and individual assessment results), some panelists indicated that their organization used structured scoring guidelines for rating current employees. Most, however, indicated that final decisions were left to the subjective judgment of higher level managers.
Program Approaches for High-Potential Development
A second overriding question concerning high-potential programs is “How do you train and develop high-potential employees?” The most common types of developmental opportunities included classroom training, on-the-job experience, action learning initiatives, 360 feedback, assessment-based feedback, and coaching and mentoring. As expected, organizations varied in the types of and diversity of developmental opportunities provided, the resources devoted to high-potential development, and the roles organizational members played in these efforts. Another common theme concerned how organizations created specific programs to address future leadership development in the global arena.
Although there were differences in how companies approached programs for their high-potential leaders, the “70/20/10” characterization of Lombardo and Eichinger (2007) seemed to guide many efforts, at least at a conceptual level. Most programs incorporated some mix of classroom experiences, coaching and mentoring, and on-the-job learning and development.
Many organizations also relied on individual assessment results to guide development efforts. The most common types of measures included performance measures, such as 360s, and personality-based instruments. Despite their relatively high costs, several companies also used assessment centers for driving development efforts. Session presenters from at least two organizations discussed action learning approaches as a means for gaining experience in solving real business problems and gaining exposure to senior executives.
Evaluating Impact and Effectiveness
Despite differences in how companies define and approach high-potential programs, one common theme across sessions concerned the evaluation of program impact and effectiveness. Most presenters seemed to agree that evaluating impact and demonstrating value represented a critical challenge. Several session chairs presented panelists with questions concerning methods for tracking program success, ensuring accountability among program facilitators, and refining programs to improve effectiveness. Inevitably, these questions received responses that fell into one of three categories: (a) organizations do not currently track program success, (b) those charged with running the program recognize the need to track success but have no plans in place, or (c) plans were in development but were not yet clearly defined.
A primary obstacle for evaluating program effectiveness concerned a lack of measurable objectives surrounding many programs. Even when both senior management and program facilitators recognize the need for developing future leaders, clear success indicators rarely exist.
Other Considerations
A number of additional topics consistently emerged during these sessions. For each, company practices varied according to factors such as organization size, industry, culture, and resources. Again, many of these topics could warrant their own in-depth review. These include:
- Scope: How many employees are included and at what level? Is the program organization wide or locally driven?
- Duration: Does the program have a set duration? If so, how long does it take to achieve the program’s objectives?
- Transparency: Should organizations inform individuals of their high-potential status? What are the implications for both those individuals and those left out?
- Executive support: Do senior managers actively participate in and endorse the program? If not, how do you overcome the hesitation of some senior managers to participate in a program designed to replace them?
- Integration: How do you link high-potential program efforts with other human resources efforts?
Key Challenges and Future Recommendations
When identifying key challenges, one overriding theme was the lack of clear definitions for “high potential” and, in turn, clear goals and objectives. A number of obstacles stem from this around identifying high-potential employees and applicants, planning development initiatives, and most directly, a near-universal lack of effort aimed at evaluating program effectiveness.
Another challenge surrounds the lack of communication in our field concerning what other practitioners are doing in response to the need for high-potential programs and what existing research in related areas—like career development, succession planning, and talent management—has to offer.The number of related sessions and their strong attendance at the conference indicates that many I-O professionals are not only engaged in high-potential programs but are very interested in what others are doing. We could all benefit from future efforts focusing on specific components of and issues surrounding high-potential programs. Such topics might include key challenges faced by practitioners, important areas for improvement, and the research needed to advance understanding in this area.
Another relatively unexplored area is the role of individual assessments. As I-O psychologists, we believe firmly in the old adage “past performance is the best predictor of future performance.” But as we know from our work in the area of job analysis and competency development, jobs differ in terms of knowledge, skills, and capabilities required for exceptional performance. Past performance may no longer be the best indicator of future success when an individual’s responsibilities change. As a field, we need to develop a better understanding of the role that individual assessments can play in predicting performance throughout levels of the management hierarchy. We believe that factors like adaptability and learning agility may offer promise in terms of enhancing prediction in high-potential populations.
Finally, I-O practitioners need to work closely with senior management to increase buy-in, develop clear objectives, and tie practices to these objectives. These efforts should involve research on the best mix of various development efforts, including assessment, training, coaching, and on-the-job experience. Although considerable research exists examining the value of these methods for increasing performance within current jobs, little research exists examining these tools for future jobs. What is the right mix of approaches for optimal growth and development? Does this mix vary as a function of job type or job level? Should practitioners consider individual difference variables in determining the right mix of experiences?
The drive to develop future talent is not new. I-O psychologists have devoted considerable effort towards this objective for decades and, as a field, we are well equipped to help organizations systematically and effectively identify and develop future leaders. It is imperative, however, that we do a better job of focusing research on how to best (a) help organizations with these efforts, (b) measure our success, and (c) communicate both effective and ineffective practices to others in our field, thereby ensuring that we achieve our fullest potential within our own organizations.
References
Barrett, A., & Beeson, J. (2002). Developing business leaders for 2010 (Research Report R-1314-02-RR). New York: Conference Board.
Dychtwald, K., Erickson, T. J., & Morrison, R. (2006). Workforce crisis: How to beat the coming shortage of skills and talent. Boston: Harvard Business School Press.
Fulmer, R. M., & Bleak, J. L. (2008). The leadership advantage: How the best companies are developing their talent to pave the way for future success. New York: AMACOM.
Gandossy, R., Salob, M., Greenslade, S., Younger, J., & Guarnieri, R. (2007). Top companies for leaders: Research highlights-North America, Hewitt Associates. Retrieved August 3, 2008, from ArticleDetail.aspx?cid=4336http://www.hewittassociates.com/Intl/NA/en-US/KnowledgeCenter/ArticlesReports/
Lombardo, M. M., & Eichinger, R. W. (2007). The leadership machine: Architecture to develop leaders for any future. Minneapolis, MN: Lominger International: A Korn/Ferry Company.
Mattioli, D. (2009, February 9). Despite cutbacks, firms invest in developing leaders. The Wall Street Journal, B4.
Ready, D. A., & Conger, J. A. (2003). Why leadership development efforts fail. Sloan Management Review, 44, 83–88.
Schein L. (2005). The business value of leadership development (Research Report R-1361-05-RR). New York: Conference Board.