Companies were scored on five key criteria:
1. Having a formal leadership process in place
2. The commitment level of the CEO to the leadership development program as measured by the percent of time spent
3. The depth of the leadership funnel as measured by the percentage of senior management positions filled by internal candidates
4. The number of other companies that report recruiting from the company being evaluated
5. A shareholder value performance metric based on 10-year growth or decline in market capitalization
Best Practices for Identifying and Developing Leaders
How do leading companies make the most of potential talent within the organization? Nearly every organization today espouses some version of the mantra, “our people are a critical, competitive asset.” The most successful ones tend to take that statement literally, making sustained efforts to assess, manage and increase their stock of employee talent. In particular, many maintain formal programs to develop high-potential individuals for future leadership roles. But companies follow a range of approaches in choosing to adopt these programs and in the ways they implement them. What did the best companies identify as best practices for corporate high-potential programs?
Because creating and maintaining a formal program represents a substantial investment of resources with largely long-term benefits, the study looked at smaller firms (under $1 billion in revenue) and larger ones separately. Specific, high-potential programs prove to be not very common among smaller companies, with only 8 percent reporting them among the top three types of options favored for leadership development. In contrast, 56 percent of larger firms rank them in the top three.
For reference, the most common categories overall are coaching and mentoring, action learning, assessment and high-potential programs.
High-potential programs can vary widely in their scope, approach and degree of success. The initial challenge in making any program succeed is simply having a clear definition of “high potential.” Seventy-one percent of all companies surveyed and 83 percent of larger ones reported having a definition for the term.
While the study did not investigate approaches taken by the firms that have not defined the concept, establishing a definition of “high potential” offers numerous benefits. Besides helping make the process fair to potential candidates, a formal definition provides a foundation for designing an effective program and makes it possible to measure results in a meaningful and consistent way.
Among all the companies studied, those whose leadership development efforts ranked in the top 15 percent grew their market capitalization by 122 percent over the 10 years ending in 2014—while those in the bottom 15 percent grew by only 37 percent. Given these figures, a closer investigation of how high-potential leadership programs are best implemented promises to pay substantial dividends for talent-focused organizations.
Kenneth W. Carroll is CEO of Chally Group Worldwide. J.P. Donlon is Editor in Chief of Chief Executive magazine.