Succession management is a set of organizational practices designed to plan and execute the movement of executives, senior leaders, and high-potentials (HiPo) among strategically critical roles to ensure smooth transitions and business continuity. Although it is designed as a crucial source of stable business operations amid increasingly frequent leadership turnover, only 35% of organizations report having a formal succession planning process in place. A number of possible explanations exist for this, such as inattention by the CEO or board of directors, heavy administrative time and effort burdens associated with conducting these regularly, or an attitude among senior leadership that they “know” who is next in line. But perhaps the most concerning and realistic issue lies in a lack of historical accuracy in predicting leadership potential stemming from inadequate future leader and HiPo assessment techniques.

Leadership potential assessment is a critical issue

Managing the replacement and preparation of next-up and future leaders is a uniquely difficult challenge driven by a single, but endlessly complex factor: the ability to accurately and reliably measure and evaluate human cognitive processing, behavior, motivations, and decision-making. So many factors influence those at any given time, and when they are dealing with dozens, hundreds, thousands, or tens of thousands of employees, customers, and suppliers, along with requirements imposed by company goals, policies, and government regulations, predicting how well leaders will manage the circumstances with any precision is difficult, if not impossible.

In the current operating environment, consider the uniquely challenging circumstances that those in leadership roles are experiencing, which will influence their ability to succeed, and the additional difficulties facing those trying to develop and manage effective identification of future leaders and high-potentials.

Market turbulence

Predicting how future leaders will respond to volatile market conditions is complicated by the increasingly common occurrence of a wide range of issues that were historically considered outlier events, such as global health issues, climate events, and increased socio-political polarization over government economic, trade, and regulatory policies.

High turnover and burnout

High turnover in leadership and managerial ranks is driven by low satisfaction with their performance, reduced advancement opportunities due to organizational flattening and managerial reductions in force (RIFs), overwhelming workloads, and a lack of development. Consider, for example, that middle management roles have accounted for 30% of all layoffs, leaving the average manager with 2.8 times as many direct reports as in previous eras. Furthermore, Gartner research reports that managers' job responsibilities have increased by 51%—more than they can manage effectively. It is no small leap to understand how leadership and management burnout has become a major issue, draining future leaders' talent pools and complicating strategies for assessing leadership potential.

Leadership failure rates

Wharton Business School reported that 60% of new managers fail within the first 24 months, while HBR research found a 50% chance that a newly hired executive will leave within the first 18 months and that 60% of all executives fail within the first 18 months of being promoted or hired. Gallup research found that only 10% of managers possess the right traits, skills, and capabilities to perform their roles effectively. These point to an almost desperate need for significant improvements in leadership potential assessment approaches.

Rapidly advancing work methods and workforce composition

The need for leaders’ skills to keep up with rapidly changing workflows and technologies is driving the need for continuous development and preparation of the next generation of leaders, while creating circumstances in which current leaders may fail to adapt. Managing multi-generational team members’ differing expectations, desire for face time and coaching, motivations, and willingness to “go above and beyond” is creating added pressure on their skill sets. HR leaders and their teams need to take these shifting requirements into account and update leadership potential assessment methods and tools.

Technical challenges HR navigates in managing effective leadership potential assessment

Managing an assessment process that increases prediction accuracy while reducing the risk of “false positives” (inaccurately identified as future potential) is a primary goal, and one that Industrial/Organizational psychologists are specially trained to conduct. HR professionals can learn about how to evaluate various assessment methods from their perspectives and expertise, and should work with them whenever feasible to design and validate the methods being relied upon. The most common issues when designing leadership potential assessment methods that those experts will call out include:

Managing subjectivity and bias

The most common and mostly inadvertent reliance on personal values, experiences, and predispositions as criteria for evaluating and interpreting individual skills, strengths, capabilities, behaviors, and motivations. It entails the use of limited understanding, misinterpreted observations or data, or ill-supported or subjective evaluations. Those, in turn, create non-objective judgments that drive poorly substantiated and inequitable comparisons of employees against established standards or other employees. Leadership potential assessment methods are designed to overcome these and increase their objectivity.

Separating performance vs potential

Working with managers who are both assessing employees and recommending some for future leader or HiPo status requires clarity and support in defining performance vs. potential. Research has demonstrated that only 30% of high performers can be accurately evaluated as having high potential to take on higher-level role requirements (highlighting Marshall Goldsmith's famous quote: ”What got you here won’t get you there”). In fact, it has been discovered that a full 90% of high performers are unable to meet the minimum requirements and expectations after being promoted into higher-level jobs.

Evaluating assessment quality and accuracy

The primary reason for engaging psychologists is to quantitatively evaluate the statistical validity and reliability of any assessment being used to protect the company from discrimination or other legal challenges to decision-making. In fact, all HR professionals should be aware of the laws and regulations that guide the use of formal assessments. Other methods can be used to evaluate the accuracy and fairness of any leadership potential assessment technique, such as reviews of selection decisions (by demographic, organizational, or functional backgrounds) and subsequent performance indicators that can be used to assess the accuracy of decisions made by a leader, manager, or interview panel.

Understanding candidate motivation and ambition

Despite the best intentions of leaders or managers, succession candidate and HiPo lists often lack input from the named individual related to their interest and motivation for higher-level roles. Leadership potential assessment assessments should always include the candidate's career ambitions as critical criteria when evaluating an individual’s aptitudes, skills, and contributions as markers of potential.

Addressing capability, performance, and motivation variability

A critical measure in leadership potential assessment is their readiness to take on new and more demanding roles. Any assessment should take into account the variability that is core to human nature. At any given point in time, issues related to the quality of a job match or fit, relationship with a specific manager, and career vs. life pressures can have noticeable effects on an employee’s motivations, ambitions, and performance. Their status as a future leader or HiPo may change over time, creating challenges for the measured consistency of assessment outcomes.

Creating a meaningful and impactful leadership potential assessment strategy

The essential first step when building a trustworthy leadership potential assessment capability is to develop a strategy that clarifies its purpose and objectives, identifies the employee populations to target, and provides guidance on developing and administering processes and tools. It can be a brief document, but it is important to gain executive sponsorship and approval, articulate the value proposition, and justify the effort. The strategy answers three key questions related to the leadership potential assessment strategy, as follows:

What is the purpose and primary objective?

The goals should be stated in terms of what is to be achieved and the value expected in terms of talent and business outcomes. For example, 

• Purpose: More accurately predict the future likelihood of individual success in higher, more complex roles, while identifying gaps to be filled in preparation, and evaluate growth and progress towards their readiness to be considered for such roles. 
• Expected value: Better assessment of future potential leaders’ skills related to managing people, processes, resources, and technology to improve replacement development and selection decisions and drive organizational performance and objectives.
  
  

Who will be assessed?

The employee roles and/or population segments should be defined to clarify the scope of data collection. This should be based on decisions about how far the net should be cast to establish a sufficiently sized and scoped pipeline and pool of potential replacements. While leading organizations have been going “deeper and broader”, others choose to start by limiting the initial effort and costs of learning by testing designated successors or potential replacement candidates for C-Suite and VP+ roles.

What will be assessed, and how?

Clarify what will be assessed based on a combination of what is currently available or in use, what can be added to improve the value of the assessment, and what is affordable (effort, budget, and technology). The primary categories include:

• Leadership competencies: Whether identified internally, using externally developed models, or by an outsourced leadership consulting firm, competency models are a popular and highly tailorable option. They include critical leadership skill combinations such as strategic thinking and action, managing ambiguity, and demonstrating adaptability, resourcefulness, creativity, ambition, competitiveness/goal focus. They are evaluated based on behavioral and performance observations, often collected through 360-degree surveys, management ratings, and panel discussions. 
• General mental abilities (GMA): These are commonly used tests of mental capabilities that predict learning speed, problem-solving efficiency, and job performance. They are widely available and measure leadership-related abilities such as abstract thinking, reasoning, and planning. They are evaluated using formal tests developed by psychologists and administered online or on paper-and-pencil forms. 
• Leadership and operational skills: These evaluate targeted skills that differentiate good from great leadership, such as decision-making, conflict management, and communication; adaptability and agility; creativity and innovation; and operational knowledge and expertise in process management, customer relations, sales, finance, or engineering. They are assessed via formally validated tests, observation, feedback surveys, work samples, or simulations. 
• Relationship management: As a critical and differentiating element of successful leadership, the most commonly assessed attributes include emotional intelligence (EI), leadership style, influence without authority, and conflict management. They are evaluated by a range of direct observations, 360-degree surveys, formally validated tests, and employee or customer feedback.
• Performance: These measure what was achieved relative to assigned goals, and ideally also consider the context in which those were accomplished - how, with whom, and under what circumstances. Assessments are initially developed by the direct supervisor (a more senior leader) and then discussed, challenged, and approved by a panel of peer leaders. They consider the ease or difficulty of the goal or the circumstances faced, the breadth and depth of capabilities the individual drew upon, and how those compare to the accomplishments of others in similar roles. Performance trends (vs. a single year) should be evaluated.
• Career ambitions, interests, and motivations: These evaluate the extent to which individuals are interested in, willing to take on, and feel prepared for the work and responsibilities required in a higher-level role. An employee’s readiness and motivation to advance must be tested, and this is done during one-on-one conversations with their direct manager or HR representative during career development and planning discussions.
  
  

Leadership potential assessment practices that optimize outcomes

Developing leadership potential assessment strategies that hit their mark and increase the accuracy of decisions about future employee advancement potential represents an ongoing challenge and opportunity for leadership and HR teams alike. The cost of executive or senior leader failures is substantial, with missed goals, poor unit performance, organizational culture drift, misaligned function or business unit direction, and decreased employee engagement and productivity. 

Certain leadership potential assessment practices decrease the risks associated with new leader selection and have been demonstrated to provide a competitive advantage.

1. Treat assessment as a continuous process

The organizational reality is that key role holders and HiPos come and go, based on too many factors to control. As a result, the process should not be limited to a single annual event in which candidates are evaluated, but rather to an ongoing process of candidate assessment, promotion consideration, transfer, selection, and development feedback. 

The key factor is that an individual’s performance and projected potential are continuously pressure-tested as they perform their work, respond to challenges, develop their skills, and manage the complexities of rising and falling fortunes in their professional and personal lives.

2. Identify the behaviors, skills, and proficiency levels that drive critical outcomes 

Leading organizations have a firmer grip on what differentiates successful advancement into higher-level roles and drives increased organizational capabilities and growth. They have made a science of it by using either qualitative or quantitative, statistical analysis to identify the leadership capabilities, competencies, and behaviors that contribute to: 

• Leadership success (e.g., trust, collaboration, decision quality, coaching, employee engagement)
• Financial and business outcomes (profitability, revenue generation, cost and expense control, market penetration, customer loyalty) 
• Operational optimization (e.g., process redesign, quantitative analysis, team makeup and skill mix, external benchmarking, and supplier relationship management) 

Using a formal, structured skills-based assessment approach, higher-quality, more accurate evaluations of future leaders and HiPo skills can be made. By accessing data that is increasingly available in HRIS, HRMS, LMS, and talent management systems, “hidden gems” can be more readily identified as high-potentials. The key lies in building a process (such as in talent reviews and calibration sessions that asks deeper questions that clarify, such as:

• How do I know that an employee possesses this?
• What is the individual’s level of proficiency?
• How frequently do they exercise this?
• How broadly do they apply it – across situations, circumstances, people, working relationships, and environments
  
  

3. Assess performance over time

While performance does NOT predict potential, it is nonetheless critical to evaluate potential to advance; the timeframe is what differentiates a more comprehensive and trustworthy evaluation. The likelihood of success in higher-level roles can be assessed, in part, by the individual’s ability to adapt to new challenges, requirements, environments, and relationships. 

As a result, performance should be tracked across circumstances, such as a new location, the direct manager’s leadership style, the type of role, the quality and support of teammates, and the difficulty of goals, among others. Assess performance in temporary work efforts as well—how they respond to the time and delivery pressures of special project teams, working with new people and perspectives on cross-functional collaborations, or process and technology-development efforts.

4. Leverage multiple sources of insight

Instead of basing the evaluation of an individual’s potential on the recommendation of a single leader or manager, combine multiple sources of data and insight to increase the accuracy and minimize subjectivity and natural human bias that are common in such nominations. Introduce multi-rater input (360-degree, upward feedback, customer, or talent review panels), multi-modal evaluations (work observations, surveys), quantitative performance metrics, validated leadership assessments, and/or work sample tests (online and live simulations). The combination of these yields more valid and comprehensive insights, thereby increasing the accuracy of leadership potential assessments.

5. Integrate assessment standards across the employee lifecycle

Assessments and criteria used to assess future leaders and HiPos should be integrated within and across talent processes to keep them front and center and continually reinforced as important to leaders, talent management professionals, and the potential successors themselves. The data and standards should be updated and used not only for succession management and planning efforts, but also as input to workforce planning, hiring and promotion decisions, performance management (coaching and evaluations), individual development planning, and merit, incentive, and equity pay and reward decisions. In this way, the requirements for future role consideration can be reinforced, while identified capability or behavior gaps can be addressed and reassessed.

6. Measure individual and cohort progress and outcomes

The business value of leadership potential assessments ultimately lies in their accuracy, which should be measured, tracked, and evaluated on an ongoing basis. The individual and combined contributions of the methods to critical outcomes should be analyzed for effectiveness, and a continuous-refine-stop analysis should be conducted on each element. Key future leader and HiPo process and outcome KPIs are similar to those used in quality of hire (QoH) metrics, and include:

• Retention and tenure
• Advancement history (speed, lateral vs vertical) 
• New role performance and speed to competency
• Performance ratings/rankings across roles and time
  
  

Relevant Practices & Tools

Advanced Succession Management Practices that Create a Structured Approach to Identifying and Developing Future Leaders. >

Succession Management is a formalized and structured process that drives how executive and critical skill roles will be staffed and replenished... more »

Identifying and Calibrating Successors and HIPOs for Each Role Through Structured and Standardized Assessment Sessions. >

Naming potential successors for executive and critical roles is a collaboration between leaders that requires thought, preparation, and discussions... more »

Developing Competency Models that Guide Feedback and Development Goals. >

Job competencies are the capabilities required to successfully apply knowledge, skills, and abilities on the job, commonly thought of as “success factors”... more »

Measuring Talent Outcomes vs. Processes to Increase Business Insights and Impact. >

In emerging practices, the focus shifts from process efficiency and effectiveness to the business reasons these processes exist—to secure, manage, motivate, and improve workforce capabilities... more »

The Employee Skills Survey Tool: Enable Employees to Record their Skills Using a Standardized Taxonomy and Proficiency Levels. >

A template for the individual employee to record their skills from a standardized taxonomy provided by the company with proficiency levels for each... more »