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Firms Walk Fine Line With 'High-Potential' Programs

October 15, 2006

A few years ago, IBM's system for grooming future executives had a bug. The computer industry giant found that at times, people nominated into its "executive resources" program were languishing there for more than five years without landing promotions.

So last year, Big Blue put a limit on the leadership development program, which involves training and career consultation. Only those individuals deemed likely to move into the executive ranks within 18 months are now eligible, says Karen Calo, IBM's vice president of global talent.

Calo says some feelings may have been bruised when individuals were removed from the program. But IBM is working on another effort to focus attention and resources on a broader swath of the company's standout performers.

"These are really good people we don't want to lose," Calo says.

The evolution of IBM's programs for rising stars illustrates a broader trend in leadership development. Efforts to identify and nurture "high potential" leaders can go awry, analysts say, in part because organizations can put that label on too many employees or miss good ones. At the same time, giving lots of corporate love to "high-pos" can turn off high performers not included in the programs and cause them to seek work elsewhere.

Striking the right balance when it comes to recognizing potential executives may be hard, but it's vital, says leadership consultant Cara Capretta Raymond. Shrinking tenure among chief executives and a likely mass exodus of leaders in the near future mean companies should start to groom individuals ages 30 and younger for the CEO slot, says Capretta Raymond, vice president of strategy and intellectual property at Korn/Ferry International's leadership development solutions unit.

"Who are your next CEOs?" Capretta Raymond asked in a presentation earlier this year. "About 50 percent of our top leaders are going to retire in the next five years."

Mixed outcomes
High-potential leader programs can take a variety of shapes, and often include mentoring, competency development and rotating stints in a company's key divisions. Such programs have grown in popularity over the past dozen years or so at Fortune 500 companies, says Jeff Cohn, managing partner at consulting firm Bench Strength Advisors. Factors behind their rise, he says, include companies' desire to rely less on external hires, which often fail to fit in, and a growing body of research showing that leadership development can boost the bottom line.

The results of high-potential leader programs have been mixed, Cohn says. "Some did it right," he says, "and a lot of them did it wrong."

Cohn says companies can commit sins of omission and commission with high-po programs. It's easy to leave out promising individuals because organizations often lack consistent ways of assessing leadership talent, he says. At the same time, Cohn says, if companies are tagging 10 percent or more of their managers as high-potential leaders, they are almost certainly wasting resources. "Once the percentage gets too high, you lose focus and squander capital," he says. Capretta Raymond suggests narrowing high-potential programs down to 2 percent to 3 percent of rising stars.

IBM's recent move is along these lines. The 330,000-employee company, which has about 5,000 leaders with titles of director and above, has relied on executives to nominate people into its executive resources program. But it became clear that sometimes solid performers were nominated as a reward rather than because of their legitimate near-term potential to become IBM executives, Calo says. The new 18-month rule is meant to help the executives make better choices. "This isn't a science," she says. "It's a bit of an art."

Some companies are steering clear of rising-star terminology altogether. Internet company Yahoo doesn't call anyone a "high-po," says Libby Sartain, the firm's senior vice president of human resources. Sartain presents a scenario: You've found out that a colleague has been labeled high-potential: "Think of how you'd feel," she says. "You're going, ‘If he's a high-po, and I don't know I'm a high-po, does that mean I'm a low-po?' "

What's more, the definition of who would truly be high-potential leaders in a company can change dramatically based on the organization's business goals, Sartain says. If an Internet company suddenly makes a foray into telecommunications, employees with a background in that industry become more valuable, she says.

Even so, Yahoo pays special attention to its stars. A few years ago, it conducted an exercise to determine who was crucial to the company. Co-founder Jerry Yang characterized that pool of talent as the people Yahoo wanted to "build a moat" around so they wouldn't leave.

Sartain and crew adopted that language, and the Build a Moat program focuses on training and career development of select employees. The company also identifies people with leadership potential through performance reviews and an annual "talent calibration" session held by senior executives.

But when it comes to an executive training program offered by the firm, Yahoo again has an egalitarian streak. The program's classes are open not only to individuals earmarked for possible advancement, but to other employees as well.

"High-pros" vs. "high-pos"
A new training initiative at consumer products company SC Johnson also looks beyond just budding leaders. SC Johnson, which makes products including Ziploc storage bags and Windex glass cleaner, launched a leadership skills program last year for the 300 or so "senior leaders" just below the top executive level. The general managers, product division heads and other participants include both individuals identified by the company as high-potentials as well as those without that designation.

Sherry Johnson Metz, SC Johnson's director of global leadership development, says the firm thought it was important that all senior leaders get training in areas such as strategic and global thinking. To focus exclusively on high-potentials would be a mistake, she suggests.

"We want the talent at all levels of leadership to be high-performing," Johnson Metz says. "Not everyone is going to be moving up in the organization. They may not want to."

IBM also is looking to expand the range of standout employees who get particular attention. The company already has a mentorship program for budding leaders called NextGen, and a career-development program for up-and-coming technical employees who are headed to positions such as "IBM fellow" or "IBM distinguished engineer."

The Top Talent program in the works might include both business managers and technical employees, Calo says. It is being designed for people who are high-performing but who are not ready to be considered for an executive post in the near term.

Such efforts for great performers are wise, Capretta Raymond says. Companies with high-potential programs can neglect to create development plans for what she dubs "high-pros," or "high professionals." These are superior employees who may not be seen as future executives but are nonetheless crucial to a company. After all, the loss of a critical engineer or product manager can seriously set back a firm.

At the same time, Capretta Raymond says it is critical for organizations to pinpoint people who are CEO material and begin grooming them at a young age. She cites research that says CEO tenure is down to a median of five years and aging executives are going to be heading for the golf course in droves soon, leaving many top jobs open.

Ronan Knox, executive vice president of learning consultancy the Forum Corp., says programs for high-potentials should tie directly to a firm's strategy, emphasize teamwork among rising stars and actively involve senior executives as both champions and coaches. In addition, the initiatives should shake up old beliefs and habits. Knox helped SC Johnson with its new program, which fostered fresh perspectives among leaders by having them work on projects in a Racine, Wisconsin, homeless shelter.

"What we don't want is for people to say, ‘That which has brought me this far will carry me forward,' " he says.

Another key is plain-old patience, says Johnson Metz at SC Johnson. She has seen companies sour quickly on a high-potential when the individual ran into trouble in a new role. "The whole idea of stretch assignments is to learn and grow. Sometimes learning doesn't look like 100 percent success," she says.

Companies also can be tripped up as they decide whether or how to communicate high-potential status. Consultant Cohn says that making it public throughout a company who is in a program for up-and-comers is likely to breed internal competition. That may be right for firms where sparring is a healthy part of the corporate culture, he says, but wrong for more collaborative companies. "There is no one-size-fits-all," he says.

On the surface, at least, the notion of a high-potential leader runs counter to one trend in management: the recognition that a heroic, decisive CEO may be less effective for a company than the overall leadership skills of the firm, including not only the CEO but also top lieutenants and even rank-and-file workers.

Cohn, though, says well-crafted programs for rising stars can shape people for this new era of leadership, teaching skills such as persuasion. "The right high-po program is always a good thing," he says.