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EVEN IF A COMPANY DOES IDENTIFY THE RIGHT CANDIDATES, WHAT THEN?

Even if a company does identify the right candidates, what then? The haphazard way most organizations approach high-potential development leads to stalled careers and makes their best employees more susceptible to being poached by competitors. Studies estimate losing a high-potential employee costs the organization 3.5 times his or her annual compensation,4 not including the costs of departing institutional knowledge and productivity lost in onboarding and training time. Perhaps it’s these challenges that lead Guy Beaudin, Senior Partner of RHR international, to aptly characterize high-potential identification and development as the “Holy Grail of organizational life: mysterious, elusive, and always seemingly just around the corner.”5 That elusiveness of high potentials has real consequences. Failure rates of leadership placements are absurdly high. Many practitioners and studies estimate at least 50% of new leaders fail in a new role, costing organizations millions of dollars in talent management costs6 and running up the tab with operational mistakes. Further, the shortage of quality internal placements drives many organizations to rely on externally sourced hires to fill leadership gaps in their organizations. Unfortunately, outside hires are poor substitutes for well-developed internal candidates. A study from Florida State and Mississippi State Universities found that internally promoted CEOs bring more than 25% greater total financial performance than external hires.7 Wharton management professor Matthew Bidwell also points out that external hires get significantly lower performance evaluations for their first two years on the job compared to internal candidates promoted into similar positions.8

External hires are also typically paid 18% to 20% more, and are 61% more likely to be fired from their new jobs than internally promoted candidates. In fact, more than half of external hires will fail within their first 18 months on the job, and even the most amicable of executive departures is costly. Studies indicate that the average cost of a failed executive hire ranges from $1 million to $2.7 million.

“Outside hires face enormous obstacles,” said Hogan’s Managing Partner Ryan Ross. “They are unfamiliar with the business, its employees, its culture, and the unique internal and external challenges facing the business and its employees.”

The good news is this future leadership drought is avoidable. By building high-potential programs on a scientific foundation of validated assessments, organizations can avoid common talent management mistakes and fill their pipeline with capable leaders.

THE PROBLEM WITH PERFORMANCE REVIEWS

In a post on the Harvard Business Review, CCL Director of Global Coaching Douglas Riddle described an interaction with a leader at a large corporation: “When I asked one leader to describe candidates that were chosen for his organization’s leadership academy, he snorted — “The usual suspects. High potential is another term for good ass-kissing.9

This leader’s response reflects the prevailing attitude toward high-potential programs in the corporate world. In a survey of more than 450 organizations by AMA Enterprise, only 14% of employees regarded their company’s high-potential program as fair. 24% described their company’s high-potential program as “flawed, but well-intentioned,” and another 34% viewed it as “partial and political.”
According to the same survey, the negativity most people feel toward high-potential programs has led more than 42% of companies to avoid using the term “high potentials” entirely, especially when communicating to employees.10

One of the biggest struggles most companies face is presenting a clear definition of potential. Potential for what? High-potential programs are intended to identify individuals with leadership potential, but most often they end up mistaking current performance for leadership potential, or favoring individuals who are talented at organizational politics.

Although methods for identifying and developing high potentials have become increasingly more data-driven,11 many companies still rely on supervisor nominations and performance appraisals to identify potential in their talent pools. A survey found 74% of companies identify high potentials based on performance appraisals, and 68.5% based on recommendations from management. Of those recommendations, 55% said senior executives played the biggest role, followed by managers (52%) directors (44%), and supervisors (33%).12

At worst, promoting the wrong people can cause major engagement problems within your organization. Leadership directly impacts employee engagement. Good leadership creates engaged employees; bad leadership leaves employees alienated and demoralized. Engaged employees are energized, proud, enthusiastic, and have positive attitudes at work. Companies with engaged employees show higher returns on assets, are more profitable, and yield nearly twice the value to their shareholders compared to companies characterized by low employee engagement. Disengagement results in an estimated $300 billion in lost productivity in the U.S. each year.14

Second, performance measures tend to be subjective and biased by politics. Performance appraisals often reflect how much supervisors like their employees, and may sometimes over-inflate ratings of actual job performance. Therefore, people designated as high performers are often actually emergent leaders, the people who are already likely to build the relationships, exert social influence, and stand out enough to get ahead. The problem is that the qualities it takes to climb the corporate ladder are not the same qualities that make a leader effective.

Most organizations have trouble discerning key differences between leader emergence and leader effectiveness.15 There are key differences between leaders who emerge as a function of political skill, interpersonal savvy, and self-promotion skills, and leaders who are effective at building high-performing organizations, cultivating talent, and leading engaged, productive teams.11

Performance reviews and supervisor nominations tend to be good at identifying the people in an organization who “look” like leaders. Emergent leaders seem smart, confident, and charismatic. They’re interpersonally savvy — talented at shaking the right hands and forming the relationships and alliances they need to advance their careers — and excellent self-promoters.

These characteristics are critical to helping individuals climb the corporate ladder. High-potential candidates without these characteristics are unlikely to ever play the game enough to get ahead. However, these characteristics aren’t enough to succeed at the top, which is why performance appraisals and supervisor nominations don’t work and why 46% of leaders fail to meet business objectives in a new role.16 Only focusing on emerging leaders can cause organizations to miss the individuals in your organization who actually have the potential to succeed as leaders.

THE HOGAN HIGH POTENTIAL MODEL

The reason most high-potential programs struggle to produce results is that they’re missing one thing: science. Hogan’s model of high potential is built on 30 years of independent research and validated on more than 21,000 global managers across every industry.

We measure leadership potential as a function of personality and core values. Personality is best understood from two views: identity and reputation. Identity is how you see yourself — personality from the inside. Reputation is how others see you — personality from the outside. The problem with identity is most people are biased when it comes to to recognizing their strengths and weaknesses. We tend to overestimate how good we are at things, and to minimize our weaknesses. That makes identity a moving target, and a poor predictor of how you’re likely to perform.

Reputation, on the other hand, is stable over time, and tends to be a more accurate reflection of your strengths and weaknesses, which makes it an excellent predictor of leadership potential. After all, other people’s perceptions and opinions are what get you hired, noticed, promoted, or fired.

Hogan measures reputation along three dimensions:

1. Bright-side, or day-to-day personality, which predicts how people behave when they’re under normal circumstances.
2. Dark-side personality, or derailers, which predicts how people behave when they’re under the increased stress or pressure common to leadership roles, or when they simply aren’t paying attention to how they’re acting.
3. Values, or the drivers, beliefs, and interests that predict what people are willing to work for and in what type of job, position, and organizational culture they are likely to feel most satisfied.

This multidimensional approach to assessment paints a comprehensive picture of each person – his or her work habits, ideal job type, leadership potential, and probable derailers – far beyond the information available in a traditional process. We identify leadership potential along three dimensions and nine competencies:

FOUNDATIONS

Managing one’s career, being rewarding to deal with, and being a good organizational citizen

FOLLOWING PROCESS:
following rules and respecting convention

THINKING BROADLY:
solving a wide range of business-related problems

GETTING ALONG:
being cooperative, pleasant, and rewarding to deal with

ROOM TO GROW

Many organizations invest heavily in the identification of high potentials, and then approach development in a haphazard way. Some surveys show as many as 95% of organizations fail to follow-through on high-potential development plans.18

It’s rare to find a high-potential candidate prepared to step directly into top management — virtually every individual identified as having the potential for a leadership role will require some degree of development. Personality assessment provides an ideal base for building custom development plans for high-potential employees.

For most people, there is a significant gap between their identity – how they see themselves, and their reputations – how others see them. These blind spots can become crippling career derailers that undermine leaders’ authority and inhibit their ability to build high-performing teams. Validated personality assessments provide the strategic self-awareness imperative for closing that gap when developing high potentials.

“PERSONALITY ASSESSMENT AND FEEDBACK PROVIDE A CLEAR UNDERSTANDING OF YOUR STRENGTHS AND WEAKNESSES, AND HOW THOSE STRENGTHS AND WEAKNESSES COMPARE TO THOSE OF OTHERS.”

– RODNEY WARRENFELTZ,
HOGAN’S MANAGING PARTNER

THE BOTTOM LINE

Leadership matters, and developing a high-potential program that provides a steady pipeline of talented employees who are ready to lead is critical to guaranteeing your organization’s future success. But the old ways of identifying and developing high-potential employees isn’t working, and many companies are facing a talent management crisis as a result.

Hogan High Potential Talent Report harnesses the powerful science of personality to help you identify potential across three dimensions and nine competencies proven to predict leadership success and provides a strong base on which to build a development program. To learn more about Hogan’s High Potential Report, visit HOGANHIPO.COM.