A Dilemma in Leadership Development: Performance vs. Potential

At least 50%¹ of new leaders fail after assuming a new role. Incorrectly identifying high potentials is one of the reasons for this failure. Additionally, many companies face a significant shortage of quality talent. Therefore, their only resolution is to source high potentials externally.

Performance vs. Potential in Leadership Development

Fortunately, the "leadership drought" is entirely avoidable. By establishing systematic programs to develop high potentials and leveraging scientific assessments, organisations can keep all the leadership pitfalls at bay and nurture a strong, capable talent pipeline.

Read more: The urgent need for a leadership development plan?

Who are your high potential employees?

To successfully develop your future leaders, you need to first understand what makes a person “high potential”? Many often confuse "high performing" with "high potential" though these two terms are drastically different. So, how do we distinguish high potentials from high performers?

High performers are individuals that consistently exceed the manager's expectation by effectively tackling all the set goals and targets in the shortest time possible. As a result, they often get recommended or considered for higher-level roles.

To be qualified as high potential, one needs to possess all three of the following traits:

• Aspiration: the desire to succeed in management roles which entail extended accountabilities, complex challenges, and rewards.
• Ability: possess technical and soft skills along with a willingness to learn new skills to take on challenges in the new role.
• Engagement: commitment on both emotional and rational levels and the intent to remain with the organisation long-term.

Infographic: High potential vs. High performing employees

Your workforce is a mix of potential and performance with greatly varying degrees. As a manager, you should thoroughly assess them across both dimensions.

The ideal talents that you want to cultivate are those with high performance and equally high potential, but only a portion of them fall into this spectrum. The table below from Software Advice summarises the four basic levels used to categorise your talents.

After you've sorted all the employees to their respective quadrant, you can develop a development plan suitable for their needs. 

In essence, high performers are capable of doing their jobs well, but they may not have the potential to move up the career ladder and lead others.

Having said that, the potential factor is challenging to detect. Therefore, leaders and managers tend to evaluate employees based on something more concrete such as their performance.

The critical role of high potentials to business’ success

Without a doubt, top performers are smart, confident and charismatic individuals who know how to get things done and how to form an alliance with others. They are also excellent self-promoters and are sometimes viewed as "emerging leaders."

Read more: Giving “difficult” high performers special treatment – Yes or No?

These characteristics are critical to fast-track employees’ career. However, these traits alone are not sufficient for them to "survive" in higher-level roles. 

Only 30%¹ of your high performers are high potentials. Promoting the wrong people and put them in the wrong positions can result in losing real, quality talent. 

A SHRM's article² revealed performance appraisals and senior management recommendations are the two most popular methods for recognising high potentials. However, neither of these methods are optimal as other studies have also stated that 46%¹ of leaders promoted through performance or recommendations fail in their new roles.

If correctly identified and developed, high potential employees can play an active role in developing talent throughout the organisation. They will utilise their unique development opportunities to shape their subordinates into well-rounded leaders. 86% of respondents in a CCL’s survey³ agreed that they are constantly identifying and developing other high potentials when working in their current roles.

Read more: Maximising employee’s training and development in the digital workplace

The cost of losing high potentials

It is estimated that in the case of a high potential employee leaving, it can cost your organisation 3.5 times¹ their annual compensation. Moreover, your company can also suffer lowered productivity, knowledge loss and additional costs associated with finding a replacement.

Read more: Why your employees are leaving you (besides salary)

Dropped productivity

Other team members have to cover for the absent high potential employee on top of their daily responsibilities. With the extra workload, the team members may lose their focus, or in a worst-case scenario, feel worn out. Therefore, a decrease in the overall performance is unavoidable.

Lost knowledge

When a high potential employee is leaving, you lose the talent and everything that makes them so valuable: their unique skills, their knowledge, their networks etc. 

This is a significant blow to the organisation's bottom line, especially when the employee has established a tight bond with the customers. The insights the high potentials employee has gained from these relationships are also beneficial to the company.

Decreased morale

When a high potential is let go, this sparks curiosity among other employees. They will start doubting their position within the company and its culture. Such negativity can affect the dynamics of the team and the company's culture as a whole. 

It is essential for managers and leaders to be aware of the situation and come up with resolutions to prevent the situation to worsen.

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Sources:

1. Hogan, “The Politics of Potential: How Organizational politics are poking holes in your high-potential program”, Hogan, September 29, 2019, https://237jzd2nbeeb3ocdpdcjau97-wpengine.netdna-ssl.com/wp-content/uploads/2017/02/PoliticsHiPo_eBook.pdf

2. Babcock, Pamela, “Selection Criteria for High-potentials Vary Widely”, SHRM, April 3, 2012, https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/selectioncriteriaforhighpotentials.aspx

3. Campbell, Michael & Smith, Roland, “High-potential Talent: A view from inside the leadership pipeline”, Center for Creative Leadership (CCL), 2014, http://www.ccl.org/wp-content/uploads/2015/04/highPotentialTalent.pdf