In the whirlwind characterizing today's talent marketplace, competition is intense. However, competition for great talent is fierce. The shortage of skilled talent is real, and the disparity between supply and demand will only become greater over time.
Progressive leaders understand that a solid talent bench is quite literally the lifeline to their future success. Developing high potentials is a crucial component of a company's business strategy, as it directly feeds the reserve of talent capable of filling impending senior leadership vacancies.
"At Aditya Birla Group, we build teams with a deep driving desire to excel to win.
"To build businesses that will win not just this year and the next, but also in the next generation and the generation beyond that.
"To build businesses not on the quick sands of opportunism, but on the solid bedrock of integrity, commitment, hard work and discipline.
"These values are embedded in leadership development processes at our group. If sticking to our values means growing a percentage or two less than our competitors, so be it," the chairman of the Aditya Birla Group said.
Value of high potentials
The aforementioned factors have created urgency for companies to focus on identifying, developing, retaining and rewarding their best people.
Talent-savvy organizations realize the significant value of their high potentials. They know that getting the right people with the right capabilities in the right places, is essential to the health and growth of the company. Such critical talent is a major competitive weapon.
According to Aon Hewitt's 2011 Top Companies for Leaders study, the top companies outperform their industry peers in growth and return measures.
In addition, publicly traded regional top company winners report, on average, a nearly 9 percent higher total shareholder return over the last three years.
Over the last decade, there has been no shortage of material written about high potential talent. Several key thought leaders have identified the impact of high potentials on the bottom line, regardless of whether they are born or made, or even how "high potential" is actually defined.
Brad Smart, co-author of the book Topgrading, writes about the impact "A," "B," and "C" players can have on an organization's bottom line. He concludes that "A" players, those synonymous with high potentials, may be expensive, but they also deliver two to six times the return of average players.
Organizations may refer to high potential employees as "critical talent" or "top talent." However, more important than the term they use to classify such individuals is that organizations first establish a clear definition of what a "high potential" looks like in their organization.
At Aon Hewitt, we are often asked, "How do organizations define high potentials? How do they assess them? What processes do they use to calibrate top talent?"
In this report, we introduce several best practice "high potential" definitions, determine the key tools used to identify and calibrate top talent, highlight a number of inherent challenges of which leaders must be cognizant and finally underline some strategies used by leading organizations to obtain high potential talent.
The information in this report draws from our extensive top companies for leaders research, and our experience with talent and leadership in high-performing organizations.
Defining high potential
Before we say just exactly what "high potential" is, we must define what "high potential" is not. While the term "high performer" is often used interchangeably with "high potential," the two are not synonymous.
Research has shown that high potentials are almost always high performers, but the reverse is not always true.
Our top companies for leaders research substantiates that the best firms understand that an individual's current performance and his or her future potential for advancement are two fundamentally different measures.
Performance is typically defined during the talent management process and is often a combination of delivering business results — the "what" — with the exhibition of certain behaviors expected of leaders — the "how."
While performance is evaluated in a historical context, typically encompassing the past six months to a year, potential is a future-directed assessment.
Specifically, a person's potential refers to their ability to take on a position of greater responsibility within a specific time period.
Drawing from our extensive top companies for leaders research, as well as our experience, we uncovered how some of the best companies around the globe define top talent.
Granted, the approach to defining high potentials varies from organization to organization with some more focused on skills and others more centered on pure potential for a particular role.
The definition used in Aon Hewitt's Top Companies for Leaders study defines a high potential as an employee who is identified as "having significant opportunity such as through their capability, drive, investment and development, to advance quickly within the organization."
Samples of actual organizational definitions of high potentials are the following.
High potentials are categorized into two groups based on their readiness to take on the next-level roles.
In category A are those identified as proven talent and among the best in the industry. High potentials in this category display readiness to take on the next level of job year on year.
Category B includes employees who display high potential but need to be tracked for some time. They may be ready to take on the next level of job over a longer time horizon (three to five years), according to the Aon Hewitt Top Company for Leaders 2011.
A great performer with significant upside has more significant upward potential. He or she has the capability and desire to be promoted at least one level and/or take on a significantly expanded role in the next two to three years, according to Aon Hewitt Top Company for Leaders 2011.
A high potential individual demonstrates the intellectual aptitude and leadership capacity to progress through multiple roles of increased responsibility, complexity and scope, and is likely to do so at an accelerated pace — at least two new roles in five years, according to Aon Hewitt Top Company for Leaders 2011.
An important aspect organizations must consider when developing a consistent and relevant definition of "high potential" is to ensure the definition is simple and consistent across the organization and is explicitly linked to the current and future strategy of the organization.
Defining high potential talent
Aon Hewitt's approach to defining high potential talent builds and expands on the multi-faceted approach reflected in the definitions listed above. It also reflects key facets of potential that our extensive research and consulting experience, with best-in-class organizations, have uncovered.
Organizations typically identify high potentials as those employees, or leaders, who possess the business acumen, vision and leadership capabilities to become leaders or more senior leaders within the company. They look for the skills and attributes that allow top talent to propel into more challenging roles within a relatively short timeframe.
However, this definition of high potential fits only one piece of the puzzle.
Organizations must focus their efforts on employees who demonstrate potential combined with readiness.
Aon Hewitt defines potential as the assessment of an employee's ability to rise to and succeed in a more senior or expanded role. Potential considers an individual's performance, character, capability and motivation.
Furthermore, organizations can benefit by placing individuals who demonstrate these attributes into categories best suited for their current level of potential: "high potential", "medium potential" and "at potential."
Doing so allows organizations to calibrate talent more effectively and identify where specific investments and accelerated development opportunities will have the greatest impact.
This is well articulated by an executive at one of the top companies for leaders: "We bet on an internal talent currently ready or even 60-percent ready. Just the fact that they have been identified is such a motivation boost, and people strive extra hard to deliver on it."
A second component to determining where an individual is placed on the high potential spectrum is to evaluate the employee's readiness to take on expanded responsibilities or experience a change in role.
Readiness is typically categorized into three stages: "Ready Now" (less than one year), "Ready Soon" (one to three years) and "Ready Future" (more than three years).
Placement in these categories aids organizations in determining the timeline they have to identify critical gaps in their capabilities and identify pipeline risks within their succession planning processes.
Determining readiness can be influenced by many factors outside an employee's capability, including location (local market versus regional or global high potential), position/level (top leader, senior leaders or emerging leaders), career stage (early versus late, work-life balance needs) and diversity measures (gender, ethnicity, age).
These influences should also be individually assessed on an annual basis through developmental conversations between the employee and his or her leaders.
One of the Asia Pacific winners of Top Company for Leaders 2011, who also won at the global level, has an underlying philosophy that every employee has the potential to be a leader.
This multinational conglomerate puts great emphasis on building a coaching culture within the organization — continuous coaching sessions, intensive courses and top leadership involvement in the development of all employees. They believe in investing in the best; and focusing on the rest as a pipeline building initiative.
While this organization is known for its risk-taking appetite and has a diverse pool of high potentials, the Indian arm of a multinational company, (also an Asia Pacific Top Company for Leaders 2011), hires an external company to identify their top 100 people and benchmark them with the best talent in the industry.
Given the rigors undertaken in identifying and building high potentials, it is no surprise that this company has been consistently regard as a "leadership factory" and has always had available successors, irrespective of attrition or high business growth.
High potential development is a unique experience for each organization; but the principles that make a success of the process remain the same.
Companies that focus on building a robust leadership pipeline are better equipped to leverage growth opportunities that the market has to offer.
These companies have a "killer app" of high-performing, adaptable leaders who can ride through economic uncertainties and at the same time create business opportunities.
Lorraine Stomski is a partner of leadership practice at Aon Hewitt.