CHAPTER 4

Identifying, Assessing, and Selecting NextGen Leaders

Introduction

Today’s dramatically changing work environment demands that organizations need to continuously ensure that there is a robust leadership pipeline ready to be deployed now and in the future. Identifying, assessing, selecting, and developing the next-generation or potential future leaders are, therefore, critical strategic objectives for ensuring a sustainable, competitive organization.

The business case for doing so is clear as supported by extensive research. In the first 18 months of ascending to leadership positions, 30 to 70 percent of leaders fail (Hogan 2011). These failures cost organizations substantial time and resources, with estimates ranging from $750,000 to over $2.5 million to replace senior leaders. The estimated cost of replacing a CEO is an astounding $12 million to $52 million (Stoddard and Wyckoff 2009). Equally important, indirect costs are associated with leader failure, including increased employee stress and decreased engagement (Schippmann 2010).

Hence, organizations need to augment their leadership bench strength and also ensure the availability of leaders today and tomorrow to take on the responsibility to ensure the sustainability of the organization. In essence, the heart of the leadership challenge that confronts today’s leaders is also applicable to the next generation of leaders who will be expected to lead.

One of the challenges of identifying high-potential individuals is the inherent complexity of making predictions about how successful a person might be in the long-term future. It involves defining what you are trying to predict, assessing a person against the appropriate criteria, and making predictions about future performance. A wide range of issues need to be considered, including the person’s capabilities and motivations, and the challenges and opportunities associated with future positions in the organization. This is different from a selection decision where there is a clear understanding of the specific job requirements for the position to be filled.

NextGen Leadership Pipeline

Leading organizations continuously ask themselves where their future or next-generation leaders will come from. It would seem that the same approach has been implemented for a long time. This includes identifying high-potential talents within the workforce, providing them with development opportunities, and equipping them with critical skills and competencies required to drive the organization strategy (Bawany 2014c). Given the daunting challenges that these future leaders will face in the highly disruptive and volatile, uncertain, complex, and ambiguous (VUCA)–driven business environment, there is a need for organizations to continuously reassess their approach toward ensuring the development of the right set of skills and competencies for their NextGen leaders (Bawany 2017).

One of the most important, yet misunderstood, questions within talent management is how to successfully identify and manage high-potential employees—those talented few who can and will step up and deliver in bigger, broader roles. Smart businesses know how to take full advantage of their talent by identifying those who have the highest potential. This ability to identify the elusive “potential” in an employee is considered a key competitive advantage (Silzer and Dowell 2010).

According to the Corporate Leadership Council (2010), most companies believe that their high-potential employees are more than 50 percent valuable than an average employee. Not surprisingly, over three-quarters of these companies indicate that high-potential identification is an immediate short-term priority. The investment in high potentials has also increased, with 80 percent of companies claiming to have spent more dollars than before on this group. The appeal of these companies is clear on the other side as well—promising talent is attracted to companies known for having strong development resources and opportunities (Fernández-Aráoz, Groysberg, and Nohria 2011).

Talent management represents an organization’s efforts to attract, develop, and retain skilled and valuable employees. Its goal is to have people with the capabilities and commitment needed for current and future organizational success. An organization’s talent pool, particularly its managerial talent, is often referred to as the leadership pipeline (Conger and Fulmer 2003). Developing the next generation of leaders involves building a sustainable leadership pipeline for the organization.

Ram Charan introduced the image of a leadership “pipeline” (see Figure 4.1) and asserts that, if whatever is flowing through it gets stuck, the pipeline will not deliver the resource it contains (Charan, Drotter, and Noel 2001). Where the pipeline shifts direction, things can easily get stuck. It is the task of managers who lead to help those who get stuck to move on (up or out) and make room for others.

Figure 4.1 The leadership pipeline framework

The Business Case for Developing the Leadership Pipeline

As explained in Chapter 2, NextGen leaders are primarily the high potentials of the organization. High-potential talent is often viewed as an employee who is assessed as having the ability, commitment, and alignment to the organization’s values and has demonstrated the competencies and skills as well as the motivation to rise to and succeed in more senior positions in the organization. Each organization will have their own definitions of high-potential talent, but in essence, the process and criteria for assessment and identification of high potentials are quite similar.

A robust leadership pipeline is critical to driving strategy and growth so that organizations can achieve their goals. It can contribute to a sustainable competitive advantage for the organization. While many organizations have devoted considerable resources to the development of future leaders, few have an available pool of these leaders who are ready to take on greater responsibilities and to meet the daunting challenges of the future. This remains one of the critical talent management issues facing organizations operating in a VUCA business environment around the world.

While the severity of the issue varies among organizations and industries, it is clear throughout the business world that the demand for these future leaders is greater than the supply. The complexity and fast-changing nature of the hypercompetitive global economy have created the demand for new leadership mindsets, skills, and capabilities. As a result, many organizations face a shortage of leadership talent. If leadership development programs fail to develop people fast enough to fill the new and changing roles required for success, it will put organizations in a predicament, and their long-term sustainability is in question.

Developing a leadership pipeline starts with identifying and then transforming high-potential individuals through a variety of developmental opportunities and experiences (Bawany 2014a). This is achieved by identifying and cultivating emerging talent early on while enhancing organizational capability. But organizations face unprecedented challenges in their effort to cultivate new leadership. This includes developing leaders from different generations (likely to be from Gen Y or millennials), meeting the demand for leaders with global fluency and flexibility, having the ability to innovate and inspire others to perform, and acquiring new levels of understanding of rapidly changing and emerging technologies and new disciplines and fields.

As experienced leaders, managers, and professionals continue to leave an organization, their intellectual capital and tacit knowledge, unless codified, will be lost. This adds to the challenges, especially at a time when the market is growing globally. It also translates to tougher competition in the marketplace, making the search for high-potential people more difficult and future success more elusive. Furthermore, there is a sense of urgency for organizations today to accelerate the effort to build competence, and this compounds the challenge of building a strong leadership pipeline from within (Bawany 2018d).

Identification and Assessment of NextGen Leaders (High Potentials)

In recent years, the use of formal assessment efforts has broadened both within and across organizations (Scott and Reynolds 2010). The increasing emphasis on the hunt and competition for talent, first identified in the early 2000s (Michaels, Handfield-Jones, and Axelrod 2001), has raised awareness levels and concern over an organization’s ability to fill gaps in the leadership pipeline. This, in turn, has led to an increasing emphasis and focus on talent management strategies and frameworks in organizations (Cappelli 2008), including the creation of new job titles, dedicated roles, and entire functions dedicated to this area of focus.

It has also led to a heightened focus on high-potential identification in corporations (e.g., Campbell and Smith 2010). In particular, there is an increasing emphasis on finding the most effective assessment method or tool that will identify future leaders with the greatest potential for enhanced development and succession. The leadership development training programs may be strengthened, broadened, and deepened to enhance the capability to inspire and engage others as well as cognitive readiness skills and emotional and social intelligence competencies. These capabilities can be addressed by incorporating specific activities and exercises designed to increase awareness of their impact and importance through using familiar techniques such as case studies or applicable business simulation models.

In addition, opportunities for application and practice can be provided in experience-based approaches where participants work to apply the concepts and skills directly to real business issues, while colleagues and facilitators provide feedback on the basis of behaviors they observed during their work together.

Many organizations recognize that assessment, selection, and development procedures for their people are of paramount importance to achieve a sustainable competitive advantage. Increasingly, they are turning to the Assessment Center (AC) approach, which, when carefully constructed and well run, can provide a number of benefits to an organization seeking to improve its approach to the selection and development of their talent. This can, in turn, identify and predict key behaviors in the workplace that can transform future leaders. These benefits may include, but are not limited to, the following:

1. Reduction in turnover and subsequent recruitment costs (as the most appropriate individual is selected for the leadership role)
2. Identification of high-potential talent within an organization
3. Identification of individual strengths
4. Identification of individual development needs
5. Identification of crucial “skills gaps” to drive the organization forward
6. Provision of a robust process for the restructuring of the organization if needed
7. Provision of relevant and credible information for succession planning
8. Execution of a detailed talent audit within the whole organization

The purpose of an AC is to obtain the best possible indication of a person’s actual or potential capability to perform in the target job or level of responsibility. The AC is designed to focus on the systematic and objective identification of behaviors of an individual for the purposes of selection, placement, promotion, development, career management, succession planning, and training. The AC method is now regarded as one of the most accurate and valid assessment procedures and is used globally for both selection and development.

Leveraging on an AC

It is difficult to provide an exact definition of an AC because its content may differ widely depending on the objectives of the program for each organization. In general, however, an AC involves the standardized evaluation of behaviors, and the following key factors should be included in the process:

1. Assessments are behavioral based: The primary purpose of an AC is the evaluation of the performance of participants against a preidentified set of competencies or criteria. These competencies or criteria can be identified by carrying out a thorough job analysis of the role in question (whether the job is an existing one or a new position). These criteria should incorporate the participant’s knowledge, ability, personality, and personal motivation. This will enable the identification of those behaviors that differentiate successful from the less successful performance. It is also important at this stage to ensure that the context in which the behaviors take place is understood, together with the level of complexity of the problems likely to be encountered by the jobholder.
2. Several candidates or participants are observed together: This allows interaction between participants, both in the actual exercises and less formally, ensuring that the program is more interactive as well as more economical. With the increasing advances in technology, these groups can be formed not only physically but also in the form of, for example, a virtual AC. While there are no hard-and-fast rules on the number of participants to be involved in each center, the practical considerations for the design of the center usually require multiples of four or six participants.
3. Assessment is via a combination of methods: A key factor in the design of a center is the inclusion of at least two work sample simulations that replicate, as far as possible, the key challenges of the job in question. These simulation exercises will typically be used in combination with other assessment techniques to ensure comprehensive coverage of attributes and skills and to increase the reliability of measurement. Two important factors to bear in mind when selecting appropriate assessment methods are:

   i) Do they capture the different situational contexts of the job?

   ii) Do they provide the opportunity for the accurate assessment of the range of skills and competencies required to perform the job?

   When designing the AC program and selecting the assessment methods to use, it is important to ensure that there are at least two measures for every competency to be assessed.

4. Multiple assessors or observers: The involvement of a number of assessors increases both objectivity and impartiality. A key factor in the use of multiple assessors is that the timetable should be designed in such a way as to allow for their rotation so that, ideally, a range of assessors observe each participant. The assessors can be taken from a range of personnel specialists, line managers, and psychologists. All should be fully trained in the behavioral assessment process and in its application to the particular exercises being used in the center.
5. Integration of data: An integration session provides a fair and objective review of all the evidence gathered and aims to gain consensus among the assessors. The aim is to focus on the participant’s overall performance against the competency model and to identify a pattern or profile of strengths and development needs of each individual. When used for selection, no decision should be taken until all the evidence has been shared and a final rating agreed upon. This session should be used to gather information to provide feedback to the participant on their strengths and potential development areas, and the participant may even be given some feedback during the AC. Ideally, no one assessor should have all the data on a single participant until the integration session.

Lessons Learned from Derailment of High-Potential Identification

It would be prudent to learn from mistakes that organizations have made in identifying candidates that were eventually proven not to succeed in future leadership roles. Interestingly, most managers will nominate high performers (based on past performance), but the selection is not validated with some form of observational or psychometric assessment or through an AC. These managers mistakenly assume that high performers are automatically high potentials (Bawany 2018d).

There are research findings that clearly support the case; these seem to point to the fact that only 20 percent or less of high-performing employees are also high potentials (Ready, Conger, and Hill 2010). A manager may be a high performer at their current level but struggle with a higher-level business leadership role due to increased demands and capabilities required to succeed in those roles. Furthermore, after implementing a high-potential identification program in the company, there are no organizational systems or processes to develop, rotate, or deploy candidates to help them gain the right experience so that they can prepare themselves for their next role.

Leading organizations develop their high-potential leaders best through job-based exposure and stretch experiences, so the organization must have a well-defined process to support these activities. For those high-potential leaders who are not managed under a structured development process, many or most lose faith in the company’s desire to provide for their career and may leave the company to pursue their career goals with another firm. On the other hand, there are many instances that many or most of these high potentials stay with their current companies when they can see that their future is aligned with the company’s future.

Often managers and executives confuse assessing an individual’s current skills and abilities with that individual’s potential, just as they confuse past performance with future effectiveness. Current skills and abilities are different from potential and need to be considered separately. Accurately assessing a person’s current knowledge, skills, and abilities is an important first step, but it should not be confused with determining the person’s ability to grow, adapt, and develop enough to handle more complex future work challenges and responsibilities. Unfortunately, this difference is not typically recognized or discussed in most organizations, even when they understand the difference between past performance and future effectiveness. This may be due to not only a poor understanding of the difference but also a poor definition and measurement of potential.

Unfortunately, the judgment about an employee’s future potential is often left to a hasty discussion at the end of a long succession planning meeting, and the decision is frequently made by few or even a single senior executive. Few organizations have specifically defined what they mean by potential or how an individual employee’s potential differs from their past performance or their current abilities and skills. Even when potential is clearly defined, the judgment can be difficult. How do you evaluate a person’s ability to grow and develop in the future? Making predictions about the future is more complex than assessing a person’s current skills and abilities. It may be similar to predicting progress on other development variables (Silzer and Church 2010).

In 2009, Executive Development Associates (EDA) embarked on a research and published the findings of its study on the identification of high-potential leadership talent. The respondents were asked to address the factors they consider important to identify high-potential leadership talent (Hagemann and Bolt 2009). The following factors as listed in Table 4.1 are rated the highest:

Table 4.1 Factors in identifying of high potentials

Competency-Based Selection of NextGen Leaders (High Potentials)

The work of David McClelland (1973) set the stage for the widespread growth of competencies. McClelland argued that aptitude tests, almost universally used to predict performance, do not serve their intended purpose well and are prone to cultural biases. Also, he argued that other traditional measures, such as examination results and references, are equally poor at predicting job success. Instead, McClelland suggested that individual competence might provide a more promising alternative for predicting performance. He described competencies as representing groups of behaviors underlying individual characteristics that enable superior job performance.

The 1980s witnessed growth in using competencies to identify and predict leadership effectiveness and long-term success (Boyatzis 1982; McClelland and Boyatzis 1982). These applications led to the development of leadership competency models and competency-based selection tools, such as behavioral event interviews (Boyatzis 1994; McClelland 1998). Competencies also provide a structure for linking performance with cognitive ability and personality, coaching employees to overcome dysfunctional behavior (Boyatzis 2006), and selecting and developing high-potential employees (McClelland 1994).

Managers are required to ensure that organizations achieve their objectives. Managerial competencies are defined as sets of knowledge, skills, behaviors, and attitudes that a person needs in order to be effective in a wide range of managerial jobs and various types of organizations. Organizations applying several managerial competencies, which draws attention to the need to understand how different these competencies are working in organizations, therefore, are required to highlight the most effective competency in order to enhance it for a good performance.

Competency is an important concept in organization management since it is closely related to excellent work performance. Individual competencies are one of the factors that determine the effectiveness of organizational performance. Managerial competency models located in the literature capture business skills, intra- and interpersonal skills, and leadership skills as important competencies for effective performance. Managerial competence is the ability of managers and leaders to direct work streams and define outcomes clearly. Identifying the requisite competencies for achieving in an occupational field is a critical process in management, where the task of identifying qualities defines the efficiency of managers. Competency often means “a fairly deep and enduring part of a person’s personality” (Levenson 2011).

Competent managers have been required by the organizations from the early 1950s (Boyatzis 1982). Managers are required to ensure that organizations achieve their objectives. Many researchers over a period of time have tried to identify and establish competencies that are required for managerial effectiveness leading to superior performance. Managers may thus be seen as seeking to give, take, and manage knowledge through work and the organization. Boyatzis (1982) defines managerial competencies as characteristics that are causally related to effective and/or superior job performance. Boyatzis (2008) also analyzed managerial competencies and defined competencies as an underlying characteristic of a person that could be a motive, trait, skill, aspect of one’s self-image, social role, or a body of knowledge that they use. These characteristics are revealed in observable and identifiable patterns of behavior, related to job performance and usually include knowledge, skill, and abilities.

Earlier in Chapter 3, we have discussed the specific competencies that NextGen leaders need to demonstrate to succeed in today’s “new normal,” which includes cognitive readiness, critical thinking, and emotional and social intelligence.

Leadership competencies are the most frequently assessed criteria for high potentials and future leaders. Competencies have become fully embedded in the language and practice of leadership assessment, selection, and development, and they also help drive business strategy, but they are not the only way to measure leadership effectiveness.

Some organizations believe that competencies are not the most appropriate target for leadership assessments and that organizations would be better served to define leadership effectiveness on the basis of expected outcomes rather than on proficiency in a set of competencies. People with many different styles and skills can achieve excellence in leadership; therefore, organizations should select and develop leaders for their overall competence and not just based on a list of attributes (Hollenbeck and McCall 2001).

Morgan W. McCall of the University of Southern California has defined a set of five leadership demands that can serve as the basis for evaluating leadership competence (see Table 4.2). These leadership demands are drawn from successful leaders and reflect hundreds of descriptions of experiences and thousands of lessons learned (McCall 2010). Assessing a leader on the basis of how well he or she meets these five demands avoids the search for a single style, personality, or set of competencies common to all leaders.

Table 4.2 McCall’s five leadership demands

The field of identifying and assessing high-potential talent in organizations is evolving. On the basis of challenges identified through various research reports discussed in the earlier sections of this chapter, we believe several key issues in the area are needed to be addressed in the future in order to advance the field.

There is certainly room to do better in terms of identifying high potentials. The greatest opportunity for improvement starts with having a clear definition of potential, followed by a systematic assessment of those nominated for inclusion in the high-potential pool. Increasingly, leading companies use the competency-based talent review process to select and align on high potentials.