Potential For What?

Potential For What?

This is the first part of a series on Leadership Potential.

I was speaking recently to a senior HR leader in a large IT company who’s engaged a recruiting firm to assess the potential of their top two layers of leaders in Asia. Unfortunately, with all the work put into the assessment, everyone forgot to ask one important question: Potential for What? This company, like many others, is trying to improve its ratings of leader potential. This is important. Managers rated as having potential on their company’s 9-box grid are generally given more development resources and are given the first opportunity for promotion to next-level jobs. These ratings make or break the careers of managers and significantly impact business performance. Having better potential ratings helps maximise the returns on decisions made about these leaders

The firm is using a valid assessment tool, which will provide better input for potential ratings than relying on supervisor judgement alone. Still, the IT firm would have benefited even more by asking two “Potential for What?” questions.

First, they could have asked: “What role might these leaders perform in future (i.e., Potential for What Job)?”

Frequently, companies rely on measuring one “core” or “generic” area of leadership potential. This is a step in the right direction. Research shows that there are a set of capabilities that predict potential across companies and situations. One of the best “core” predictors is cognitive ability. Higher levels of leadership require greater cognitive ability to cope with increasing complexity.

The recruiting firm engaged for this work uses the same assessment for leaders across levels, companies, industries, geographies and business challenge. The assessment does not consider important differences that might predict leader success, such as:

  • Potential job level (e.g., potential for a CEO role or potential for next level job)
  • Type of leadership role (e.g., Finance vs. Marketing)
  • Industry dynamics
  • Geography (e.g., working in Asia or Africa vs. the US)
  • Growth expectations (e.g., high-growth, start-up, turn-around)

Different roles require different leader capabilities. For example, more senior roles in a company require greater strategic agility. GM roles require cross-functional experience. Working in Asia requires the ability to work across cultures. Ratings of leader potential need to reflect the future target role(s) for those leaders.

This particular IT firm has a strong talent management process and will likely address issues regarding potential for specific roles in their talent discussions. Adding one assessment of a core leadership skill area will help them improve those discussions. They would benefit even more by adding a broader array of capability assessments. (See the next article in this series for a discussion on types of assessment to include.)

The second question the IT firm could have asked is: “How well does this tool measure potential?”

In choosing an assessment, companies need to ensure the tools are valid and understand what they are valid in predicting. This helps you understand the limitations of a tool.

Potential assessments are valid if the assessment correlates with outcomes of “potential”. Some types of “potential” outcome measures include:

  • Supervisor ratings of potential for the leaders (i.e., potential calls)
  • Job performance of the leaders in their current role
  • Job performance of the leaders in their next job
  • Rates of promotion
  • Career success (e.g., destination jobs in 10 or 20 years)

Most assessments use the first two outcomes when measuring potential. Although such tools are sold as predicting “potential”, most are predicting a supervisors’ rating of potential or current job performance. Some assessments use next job performance as a measure of potential. Very few assessments have been correlated with rate of promotion or with future destination jobs.

There are a number of good reasons for these limits. The main question is: What should you do to understand and address these limits? A few tips are below:

  • Buyer Be Aware. Ask how the assessments were validated, what outcome measures were used and the level of managers that were in the studies. This will help you understand the strengths and limits of your assessment tools and may impact how you use the tools. If the assessment correlates only with current job performance or supervisor ratings of potential, be aware that your measure of potential may be limited
  • Incremental Validity. If you are buying one assessment, ask how much value that assessment adds above and beyond using cognitive ability and personality assessments alone. For example, EQ is a useful assessment, but it does not add much value beyond cognitive ability and personality, which are both important “core” predictors of potential. Make sure you are using core measures of potential and then look at the value add of other measures
  • Bogus Benchmarks. If benchmarks are offered, understand how the benchmark decision is made. Some consulting firms conduct interviews with your leaders (or conduct an interview 360) and then compare these leaders with leaders in similar positions outside the company, within the same industry. There is no hard benchmark in this case. The competency ratings of your leader against benchmark are purely based on the consultant’s judgment. Make sure you know the limits of your benchmarks

In summary, if you want to measure potential, make sure you ask the question: Potential for what? Use this to better understand the advantages and disadvantages of your potential assessments so that you can make better informed calls on your leaders. The next article in this series will address the right balance of measures you should have in predicting potential.

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