South-Western - Management  
Firms Walk Fine Line with ‘High-Potential’ Programs
Topic Managing Human Resource Systems
Key Words High-potential leadership, leadership development, CEO tenure
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News Story

Companies have been paying more attention lately to leadership development programs, especially those designed to recognize and develop high-potential leaders. IBM recently changed its program so that only leaders who were deemed likely to move into the executive ranks in the next 18 months were eligible. Previously, participants in the program, which involves training and career consultation, could languish there for five or more years without receiving a promotion.

Striking the right balance when it comes to recognizing potential executives is vital to a company’s success. With CEOs staying on the job only an average of about five years, and with the forecasted mass exodus of leaders with the baby boomers’ imminent retirement, companies need to start looking at potential future CEOs in those that are currently under 30 and begin grooming them for the company’s top position.

High-potential programs have grown in popularity at Fortune 500 companies in the past ten years. Many companies find that they need to develop internal talent because it is hard to hire from the outside and find leaders who can fit into the culture. Leadership development can also boost a company’s bottom line.

As they are designed, however, there is a lot of room for mistakes with high-potential programs. Organizations lack consistent ways to assess talent, and often leave good people out. Others put as many as 10% of their leaders into the “high potential” category and waste resources developing leaders that are not of top quality. Experts suggest limiting these programs to include only 2 to 3% of a company’s rising stars.

Some companies, like Yahoo, have eliminated the terminology “high-potential” all together, thinking that it is demotivating to those who are not on the list to find out that colleagues are. Aren’t all employees capable of high-potential performance? Also, a definition of high-potential can change drastically depending on the company’s goals. At Yahoo, co-founder Jerry Yang characterized important talent as people that the company wanted to “build a moat around so that they wouldn’t leave.” Their program is now known as the Build a Moat program. The company’s leaders have made the decision to leave the executive training program open to all, however.

SC Johnson has made a similar decision to provide training and development for all of the company’s leaders, rather than just those that have been deemed high-potential. Their rationale is that every leader, not just those pegged for promotion can benefit from developing his or her skills.

Ronan Knox, executive vice president of learning consultancy for the Forum Corp., says that programs for high-potentials need to be tied directly to a company’s strategy, emphasize teamwork among rising stars, and actively involve senior executives as both champions and coaches. The initiatives should also allow for and stimulate innovation. Companies need to make their program fit within their culture to get the best results. The overall leadership of a firm can only benefit from a good high-potential program done well.

Questions
1.

What are the benefits and potential drawbacks to any company of sponsoring high-potential leadership programs? List at least three of each.

2.

Why are many firms changing the way they manage their leadership programs? What changes are they implementing?

3.

Some companies are opting not to use the terminology “high potential,” reasoning that it can be alienating to some who are not included and keep them from doing their best work. What is your opinion? Be prepared to discuss your opinion in class.

Source “Firms Walk Fine Line with ‘High-Potential’ Programs,” Workforce Management, September 25, 2006, v85 i18 p.44.
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