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Rethinking Potential

Global Leadership Forecast 2018

Rethinking Leadership Potential:

Why Broader is Better

Evan Sinar

Identifying and preparing future leaders is a quintessential “top of the house” issue. Our research drew on responses from nearly 1,000 senior-level leaders to identify the issues demanding their greatest attention for the coming year. Their top two concerns are deeply integrated with proactive talent strategy and high-potential management: developing “Next Gen” leaders and failure to attract/retain top talent. To provide context, senior leaders chose these issues more than twice as often as slowing economic growth in emerging markets, labor relations, and global recession. This intense focus also cascades into cost and time investments: On average, companies spend $4,000 and 39 hours per high-potential leader, per year for development activities. For organizations with 1,000 high-potential leaders, this translates to an annual investment of more than $4 million and 4,800 person-days. Clearly, the stakes are high for a data-driven evaluation of high-potential programs’ effectiveness.

Rethinking Leadership Potential

Mixed Results on Potential’s Progress

It’s important to start by recognizing the signs of positive movement for high-potential programs between 2014 and now: High-potential success rates are up from 56 to 61 percent, and high-potential programs are more gender-diverse, a boost from 19 to 24 percent women. The next layer of data, however, reveals problem signs for potential efforts. Despite 65 percent of organizations having high-potential programs, 68 percent rated them as less than highly effective. Outcome links are also unraveling: Relationships between high-potential programs and leadership outcomes are 19 percent weaker now than in 2014.

And perhaps most alarming, looking at the most important reason these programs exist—to address CEOs’ top concern by building a strong pipeline of future-ready leaders—progress is nonexistent at best and retreating at worst. Currently only 14 percent of organizations feel they have a strong bench (down slightly from 15 percent in 2014), and only 43 percent of critical roles can be filled rapidly by internal candidates (down from 46 percent).

The Perils of a Top-Down, Top-Only View

To gauge why few organizations succeed in cultivating potential, we looked at one of the first decisions made when creating a high-potential program: how deeply to extend it. Nearly half of organizations (46 percent) limit their potential focus to senior-most levels. Even more troubling, this percentage has barely changed from 2014 (45 percent) and reflects a costly misstep.

Organizations that opt to extend their development of high-potential talent below senior levels are 4.2 times more likely to outperform those that don’t on a financial composite of revenue growth, operating margin, EBITDA, and return on equity. Companies that take a full-pipeline view of potential also have higher-quality senior leadership and more women leaders at every level, not just high potentials.

Can Bigger Pools Drive Better Outcomes?

The conventional wisdom that high-potential efforts need to be restricted to an exclusive few simply isn’t supported by the research. Companies designate 32 percent of their leaders as high potential, up from 25 percent in 2014, and larger pools tend to be more effective. Yet, just stocking the pool with more leaders isn’t the key to success. Use of analytics, peer and mentor-driven coaching, long-term developmental assignments, and personalized learning propel organizations to outperform companies with a narrowly constrained view of potential. Larger pool sizes alone aren’t the answer; rather, a full reshaping of a company’s orientation toward potential is required.

Best Practices Aren’t Just About the Pool

Turning to the practices themselves, the graphic above shows the top 10 practices linked to higher success rates for high potentials. Most companies don’t use them all; in fact, just 18 percent of companies use all, and more than a third use half or fewer. Note that not even half of the practices driving success are specific to high potentials. Instead, they deal with core themes of development, diagnosis, and objectivity for all, representing an inclusive, systematic view of potential.

Driving Returns on Potential Investments

As noted earlier, high-potential programs and individuals require outsized investments. When pairing these financial figures with an average success rate of 61 percent for high-potential leaders, it translates to wasted expense (for the 39 percent not successful) of about $1.6 million and 1,900 person-days. By employing proven practices, organizations can dramatically boost return on their investment in potential. Those that engage in at least 9 top practices can reduce unrecovered investments by over $520K and 600 person-days for each 1,000 high-potential leaders.

Where to Start
  • Broaden the potential pool. It’s neither sufficient nor financially responsible to limit the high-potential view to the organization’s top level.
  • Target diversity, not just numbers. When companies expand their view of potential, they increase gender diversity for leaders at all levels.
  • Don’t invite more without building objectivity. Bigger pools are more likely to be data-driven, boosting inclusivity along with head counts.
  • Create a culture of coaching. Companies with more successful pools use peer coaching and external mentors heavily.
  • Use scalable tools for deeper diagnosis. It’s rare that the same tools used with a senior leader-only view will be appropriate for a full-pipeline talent review; introduce new tools accordingly.
How to Excel + Differentiate
  • Hours over money. Hours spent on high-potential development has a 68 percent stronger relationship to leadership and business outcomes than money spent, including a significant link to the financial composite that doesn’t exist for money spent.
  • Prioritize immersive, personalized learning. Formal learning that incorporates personalization to the high-potential learner and well-planned developmental assignments increases success rates.
  • Strengthen your analytics backbone. High-potential success rates rise with benchmarking, forecasting, results metrics, and data visualization in place.
  • Track return on the potential investment. High-impact practices can yield high returns, but only when integrated, sustained, and monitored.
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