How to Win the War for Talent:

Identifying & Developing Leadership Potential

This is a follow up to the article I wrote in July 2014 on Potential, Potential who has Potential? Most of the article was about how the Talent Management process commonly known as the 9-Boxevolved and how it is used with varying degrees of success to assure that an organization has a clear picture of its supply of talent and its upcoming talent needs. In the book, the Talent Masters, Dennis Conaty (Head of HR at GE under Jack Welch) and Ram Charan (former Harvard Business School professor) take an in-depth look at a number of organizations that exhibit well established Talent Management processes. The organizations they profile, make little use of external talent pools, rather focus their efforts on developing and retaining their own internal talent pool.

PRESSURE ON THE TALENT POOL

Even though the world does not seem convinced that economic recession is abating, in many parts of the globe there is more interest in hiring and staffing as firms look to take advantage of a more favorable business climate. In developing markets, the other challenge is the general shortage of well-qualified talent in the market place. Two factors have actually reduced the amount of global talent.

One is that during the last decade, there was inconsistent focus on long-term development of talent. Many organizations went through downsizing, re-engineering or mergers and as a result spent little time and money on ongoing talent development. One way to see this is the reduction of corporate sponsored attendees in executive MBA programs as well as global development programs.
The second is the mass exodus of Baby Boomers from the work force due to retirements. This generation is also the most likely to identify with long term employment. This is one reason that employee tenure (how long a person stays with an employer) is dropping. Today’s new hires are entering the workplace stating that they do not intend to work for a company for more than 3-4 years. It is difficult for organizations to commit to a long-term investment in expensive development programs, when their employees are not intending to stay more than 3-4 years.

Shorter job tenure puts more pressure on organizations to assess talent as quickly as possible. As stated in my last article “Potential, Potential, who has Potential?” our concern for accurately assessing and putting the right people with potential for leadership into executive roles has a strong business case beyond the cost of executive placement failure. Ullrich and Smallwood noted that investors identified three important variables in valuing a company for investment. They are:

1. Organizational Performance (38%),

2. Industry favorableness (33%) and

3. Quality of Leadership (29%).

Leadership pipelines have been strong considerations for investors. Organizations need to have a good TM process to keep their leadership pipeline 1) filled with ready-now and emerging leaders, and 2) clear of obstructions. In a 2012 global survey of CEOs and CFOs by the Economist Intelligence Unit (EIU), 53 % of respondents said that a lack of adequate talent within their organization could harm them financially over the next 12 months. The number who said it was a significant concern rose to 67 % in organizations with more than 1,500 employees. Also in 2012, Deloitte published a report called Talent Edge 2020 and in that, 83% of executives said their Talent Management programs need to be improved. Their primary concern was identifying both internal and external talent pools to fill all their talent needs. More and more organizations are looking for fewer and fewer capable resources. The war for Talent is upon us.

STOCKING THE INTERNAL TALENT POOL

The 9-Box matrix has helped organizations identify their inventory of talent and quantify their talent gaps. The nine-box matrix requires separate assessments of an individual’s performance and their potential. (see figure 1) In the article, Potential, Potential, who has Potential we identified that there are 2 distinct levels of potential.

High Performers with potential for greater contributions within a function, business or track the person is already on (typically rated as High Functional Expert, High Performers, Consistent Performers in the nine-box) and;

High Potentials with potential for succeeding in higher more complex Leadership positions beyond their current function, business or track. (typically, rated as Developing Top Talent or Top Talent in the nine-box)

(Figure 1 from the Leadership Potential Report)

The most commonly mismanaged career transition is the move from star individual contributor to supervisor or manager. Close behind this is the move from manager to executive. The Peter Principle* is still alive and well in many Talent Management programs, largely because most organizations tend to rely on past performance as defined in their performance management process. However, the performance management process is backward looking. It summarizes the person’s performance over the last measurement period. Using this to assess future potential is like driving while looking in the rear view mirror. It is further complicated when the new position one is being considered for is on a different track than the one they have been on. Silzer and Church referred to this as the Performance Potential Paradox and they have called for a new measurement process to separate performance from future potential, particularly leadership potential.

(*The Peter Principle-author Lawrence Peters-notes the fallacy of promoting people on to a higher level based on superior performance at their current level, especially when the job requirements of the next job are far different than those for the current job. They are often not qualified for the new job and fail because there was not consideration of their capability to perform to a new set of standards.)

BREAKING THE PARADOX

Some organizations combine the Talent Management Process with that of their risk management exercise to identify successors for key management positions in the event of a key managerial or executive role becoming immediately vacant. The question being asked is “what would we do if Ms. or Mr. A was to suddenly leave for whatever the reason? Who could we move into that job tomorrow?” The two lists (immediate replacement candidates and candidates for further development to take advantage of their leadership potential) may not always be the same. The succession planning exercise plans for an emergency filling of a position with little or no advance notice. In organizations like those sited in the Talent Masters, their Talent Management process is so constant and robust, that TM and Succession Planning are 95% the same list. However, in most organizations, the succession-planning list has technically capable people who could handle the position in the short term but are not necessarily viewed as capable executive leaders. In the Talent Management process, the question being asked is “who should be developed to move into key leadership/executive roles?” and, “how and when should we move identified high potentials into another assignment?”

Charan and Conaty, point out that organizations that are good at Talent Management have developed an organizational competency in this area. They regularly discuss people with the same frequency and attention as their financial results. They talk openly about their observations and check perspectives of both behavioral observation and financial results. They develop a consensus view of what potential looks like. Over time, the organization learns how to define and assess leadership potential through regular reviews of their 9-Box matrix. They eventually make fewer mistakes and make more moves that are right. All of the organizations that they site in the book are truly great organizations whose executives tend to be long serving and have developed a shared perspective of what potential in their world looks like. It is a part of their corporate DNA. We can learn from observing the best but we have to adapt the lessons to the environment most organizations face.

The world of work is changing fast. Long-term employment with one organization does not appear to be of interest on either the employer or the employee side. People are staying with an organization on average four years or less. This is a far shorter tenure of employment than in the companies that the Talent Masters wrote about (GE, Hindustan Unilever, and P&G) — all great companies with above average employee tenure. Today, the Talent Management process needs to start with a new hires’ on boarding. This means that selection processes need to leverage best practices (which is now commonly available to anyone interested) in assessment methods used to support the selection process. Fifteen years ago, Hunter and Schmidt did research on the validity of selection process elements to identify the most valuable contributors to accuracy in selection. They came up with a list of selection elements that each contributed incremental predictive power to the overall validity of the selection process. Their research revealed that organizations that used Behavioral Interviewing, Big 5 Personality and Cognitive ability tests, reference checks and Work Simulations were statistically better at making selection decisions than organizations that did not. They had lower turnover and fewer failed assignments. This is further outlined in the book Selecting Talent on how to set up and manage a best practice selection process.

DEVELOPING HIPO’S STARTS AT HIRING

Because we have less time to evaluate employees (shorter job tenures) and in many markets there is a scarcity of talent, we say, Talent Management needs to begin at the on-boarding process. If the selection process is robust and truly represents best practice, organizations can have faith in the accuracy of their candidate assessments. Once the successful candidate is identified, the new hire starts to get feedback on what their strengths and development needs for their new job and organization, from the output of the selection process they just completed. A robust selection process identifies the strengths and development areas in building the rationale for hiring candidate “A” over candidate “B”. Sharing this information with the new assignee becomes part of the onboarding coaching. After 6 months, with targeted observation on the key development feedback given early, the hiring manager can more clearly see progress or lack of progress in key areas. The onboarding coaching provides the road map and the targeted feedback provides the GPS coordinates to keep the new assignee headed in the right direction.

Using the selection process output as the foundation for onboarding coaching provides improved self-awareness for the new assignee. It also establishes the ongoing feedback that is needed to help the new hire onboard. This is especially important for anyone going into an executive position. New executives are by nature busy from day one and also have to construct a reputation and manage people’s expectations and perceptions of them. They have little time to get it wrong. It is estimated that 40% of executive placements result in failure. In some research, over 80% of the failure rate is attributed to the new assignee failing to gain alignment with the organizations culture and values and not building productive relationships with other executives and their team. There are very few of these people who want to fail. Their intention is to succeed. They are often placed by executive search firms who have been paid substantial sums for the placement of this candidate. For all new executives, the use of onboarding coaching based on the output from the candidate assessment and selection process can play a big role in eliminating a failed placement.

Telling people why you hired them also works to increase the tenure of talent. By providing on boarding coaching, the success rate of keeping new assignees can often increase by up to 50%. New executives who get help to survive and thrive in their first year are more likely to succeed and to stay longer, which is aligned with the goals of Talent Management, particularly keeping high potentials.

ASSESSING POTENTIAL

Silzer and Church advocate for a standardized process and focus on the assessment of individual traits that they see being common to successful placements. However, they note that putting all the emphasis on assessments and leaving out managerial judgment may remove a critical step in making sure that the organizational culture will accept certain people. This fits well into the 9 Box model, where assessments and evaluations are discussed resulting in a more fair, accurate and predictive placement of potential within the 9 Box matrix. It also is aligned with the Talent Masters approach which is to develop a consensus view of the talent within the organization through sharing candidate data within the executive group. With the addition of relevant, reliable and valid assessments, talent management discussions will be less prone to bias and therefore more fair and accurate.

Silzer and Church’s writings on potential vs. performance, have campaigned for the development of a reliable and valid assessment of potential separate from performance. It is estimated that only 15% of those people rated as high potential are truly capable of rising to successful performance in executive roles This is primarily due to the over reliance of assessing an individual’s potential on the basis of their technical capabilities and recent performance (the Peter Principle). There are several assessments aimed at identifying potential. One concept is called Learning Agility, which is a personality based assessment of an individual’s attitude towards continuous and flexible learning approaches. It is felt that people who are assessed high on Learning Agility have the right attitude towards continuous learning and are more willing to deal effectively with ambiguity and change.

Another recently developed assessment tool that is showing great promise is the Leadership Potential Report. The Leadership Potential Report (LPR) seeks to identify people with potential to be “Top Talent” or “Developing Talent” in the 9-Box vocabulary. These High Potentials have passed two hurdles, being assessed as both High Potential and High Performance. This is the top 15% of your talent pool. The LPR develops an overall rating of Leadership potential using 3 facets of cognitive ability and 4 facets of personality closely associated with successful executive performance. The LPR gives equal weight to an individual’s Behavioral Growth Potential using the 4 personality facets (very much aligned with Learning Agility) and 3 facets of Cognitive Ability or intelligence. This allows an organization to measure Leadership Potential (future orientated performance) separately from the Performance rating (recent past performance) thus overcoming the Peter Principle.

This approach is consistent with what Malcolm Gladwell points out in his book, “Outliers”. He notes that studies on IQ clearly differentiate people’s cognitive capability, but there is a limit to how useful this measure alone is in predicting success. He says, that the relationship between IQ and success in the world of work has its limits. He cites research by Arthur Jensen showing that once a person has an IQ above a certain threshold (about 120) other factors more related to personality are more important to understanding the differences in personal success. Sydney Finkelstein, author of Why Smart Executives Fail, researched several spectacular failures during a six-year period. He concluded that these CEOs had similar deadly habits of which most were related to unchecked egos. David Dotlich and Peter C. Cairo, in their book, Why CEOs Fail: The 11 Behaviors That Can Derail Your Climb To The Top And How To Manage Them, present 11 cogent reasons why CEOs fail, most of which have to do with poor personality fit. Call it overconfidence or ego, but powerful and successful leaders often distrust others or feel they don’t need advice from anyone. Even so, motivation, achievement and ambition are strong attributes of successful leaders. These are personality traits that can be seen in advance and fine tuned through coaching.

Executives are facing an ever more complex decision making environment. Berman and Karsten (2010) discussed the rapid escalation of decision complexity facing global leadership. Author David Campbell in his book “If I’m in Charge Here, Why is Everybody Laughing?” (fourth edition 2014) talks about this concept of leadership development through experience in various roles on the way up. He starts off by saying that leaders tend to be smart — statistically higher by one or two standard deviations than non-leaders (about 128 IQ). Once they have that in their tool kit, they add to it as follows: “Leaders climbing up the leadership ladder still do it by ascending an upward spiral of Experience—Creativity—Leadership: Gaining experience, being creative, then making things happen. He also notes that the most successful ones are those that consistently seek and use feedback. He seems to support the concept that while intellect can get you there, personality will keep you there and avoid derailing careers.

SUMMARY

It seems clear that assessing potential needs to involve a look at a person’s intellectual capacity along with certain enabling personality facets. Using the LPR, a Leadership Potential score is developed from the combination of cognitive ability and personality (The LPR measures 4 of the Big 5 Personality traits) closely associated with successful executives’ performance. A “potential” score is plotted for an individual on the Potential axis of the 9-Box. When the Performance rating is plotted on the Performance axis, the intersection of the two accurately places assessed individuals in the most appropriate box within the 9-Box. This improves the use of the 9-Box model as an objective Talent Management tool. It provides the standardized measure of Potential, separate from Performance that Silzer and Church have advocated, thus eliminating what they call the Performance v. Potential Paradox. Even though they support the development of an overall standardized Potential measure, Silzer and Church recognize that there are many variables, including the organization culture that can and do influence who is identified as being high potential and potential for what from organization to organization. The use of the LPR as a standardized assessment process focused on the individual traits that are closely correlated to executive role success streamlines the TM process. However, they note that putting all the emphasis on assessments and leaving out managerial judgment may remove a critical step in making sure that the organizational culture will accept certain people. Furthermore, situational factors (e.g., business turnaround, etc.) may also emphasize certain variables for success. We believe that given a more accurate and predictive assessment, these talent management discussions will be less prone to bias or organizational politics and therefore more fair and accurate, less time consuming and more productive.

By Tom Payne: Talent Management January 13, 2015