Specific programs to identify and develop “high-potential employees” (or HIPOs) are common at many big companies. In fact, the average firm spends 27% of its learning and development budget on the HIPO program and and two-thirds of companies divert budget away from other talent investments to fund it, according to CEB data.
But despite the spending, only 24% of HR managers are satisfied with the results. The head of HR at a consumer goods firm in CEB’s networks sums it up well: “We’ve invested heavily in finding and developing highly agile HIPOs to hedge ourselves for an uncertain future, but when leadership positions open up, hiring managers often prefer external candidates with specialized capabilities. It makes it really challenging to justify our investment in the HIPO program.”
One of the main reasons behind these problems with HIPO programs is that leadership roles are evolving rapidly. Two-thirds of HR managers expect over 40% of senior leadership roles to be significantly different within five years. On top of that, one-third of those managers can’t predict what those changes will look like.
This uncertainty puts tremendous pressure on HR to design an effective HIPO strategy. HR teams are being asked to find and develop leaders to fill future roles when they have scant understanding of what those roles will look like.
Betting on Agility
In response to all this uncertainly about future leadership roles, many HR teams have concentrated on finding and/or developing employees who are agile enough to quickly and easily adapt to changing needs and new circumstances, and handle a variety of roles.
In a bid to find the right future leaders, over two-thirds of HR teams now include agility as a selection criterion for their HIPO program and/or provide HIPOs with a broad range of experiences to cultivate “agility.”
But, unfortunately, these moves have not paid off. Over the past several years, the proportion of companies with a strong leadership bench has declined. And HR teams that focus on agile people have struggled in particular: they are 17% less likely than HR teams with alternative strategies to have HIPOs who are ready to assume leadership roles and 71% less likely to be able to fill a role that requires a new set of skills with an internal candidate.
This is not to say that agility itself is bad. In fact, highly agile leaders are almost twice as likely to be among the top quartile of performers, according to CEB analysis. However, basing an entire HIPO strategy on employing highly agile people is not a solution to changing leadership needs.There are three major problems associated with HIPO strategies that focus on agile people.
Fewer viable candidates: There simply aren’t enough highly agile people for this strategy to work. When accounting for other employee capabilities, adding “agility” to the list can reduce the number of viable candidates to less than 5% of the overall pool. Furthermore, companies can’t add more employees to the pool by developing them. Common development experiences offered to HIPOs do not increase agility, no matter how many of them are offered.
High risk of turnover: The popularity of individual agility has reached recruiters, and they are looking out for candidates who fit that profile. Not only are recruiters more likely to look for these individuals, but they are also more likely to entice them with a better offer.
Unintended consequences: Adopting a strategy based on highly agile people may also have unintended consequences. First, it can spread development too thin and mean that no one is fit for any leadership role. Second, it reinforces an approach that prevents collaboration. Only half of highly agile leaders are seen as effective collaborators, according to CEB data, and they are significantly more likely to be seen as overconfident by their teams.
Processes, Not People
Instead of focusing on more agile people, HR teams should work on building more agile processes. All HIPOs need a combination of ability, aspiration, and engagement to succeed. HR teams need to find a way to make sure these attributes align with what the company needs. There are three imperatives that will help HR teams make their HIPO processes agile enough to match ability, aspiration, and engagement with changing business needs.
Include a wider range of people in identifying what’s needed in a leadership role: Success in leadership roles requires a combination of foundational capabilities, which are associated with success in any situation, and context-specific capabilities, which are associated with success in only certain situations.
In rapidly evolving companies, HR teams often struggle to identify changing leadership needs quickly enough. In fact, 72% of leaders don’t believe current HIPO identification criteria are accurate and relevant. To improve, HR should include people such as line managers, customers, or colleagues from other business functions, who are closer to changing business needs and can provide a more accurate view of context specific requirements.
Understand and manage HIPOs’ aspiration over time: Most senior HR managers think the level of aspiration that employees need to be a HIPO is innate and only marginally fluctuates over time as a result of personal factors. However, CEB analysis shows that aspiration can fluctuate by as much as 23% over the course of a HIPO’s career and is influenced by organizational factors such as major change initiatives, not just personal factors. These organizational factors can affect an employee’s aspiration by opening up new opportunities elsewhere, making opportunities more obscure, or making it more difficult for HIPOs to see a path to the top.
This means that HR teams can risk investing in HIPOs who no longer aspire to a leadership role or fail to invest in those who do. To prevent this, HR teams should help employees identify their path to leadership, discuss the implications of major changes on HIPOs’ careers, and keep an eye on how HIPOs aspirations are changing.
Make sure HIPOs feel they are progressing: Failure to provide the right progression opportunities can decrease HIPOs’ engagement, and increase the risk of them leaving by 15%. Companies typically struggle to provide the right progression opportunities at the right time because of scarce promotion availability and an overreliance on HIPOs’ managers for providing those opportunities.
Fortunately, promotions are not the only way to meet HIPOs’ need for progression. Giving HIPOs the opportunity to develop their capabilities can have an even greater impact on HIPO engagement than focusing on compensation or promotions. Unfortunately, the managers who are often charged with providing those opportunities find it hard to identify the right ones because they either lack visibility across the whole firm, are reluctant to send their best talent elsewhere, or simply don’t have enough time.
The HR team at one firm in CEB’s networks have a process where they ask the HIPO’s manager to delegate some of their responsibilities to the HIPO and then redistribute the HIPO’s responsibilities among the rest of the team. This gives the HIPO a meaningful “stretch opportunity” without performing two roles simultaneously, and the HIPO’s teammates get exposure and broader responsibilities as well. At the same time, the HIPO’s manager can focus on more value-added projects.