Succession Planning - Jeffrey Kudisch - University Of Maryland Robert H. Smith School Of Business

Succession Planning: Trends & Opportunities for HR Professionals

Dr. Jeff Kudisch Managing Director, Office of Career Services

Presentation to the IMPACT Learning & Development Conference

February 6, 2012 - Hunt Valley, MD

Session Goals• Review the strategic importance of succession

planning (SP) amidst the war for talent• Highlight opportunities where HR professionals

can positively impact SP practices – Emphasize the importance of top management

commitment, horizontally-aligned HRM practices, and organization culture as key ingredients of building an effective and robust talent pipeline/acceleration pool

– Recognize the importance of engaging HiPo’s and rigorously diagnosing readiness using objective assessment strategies

– Explore ways to take your 9-Blocks to the next level– Recognize the importance of metrics and strategies for

enhancing “accountability”– Become familiar with some corporate best practices– Identify opportunities to enhance your company’s SP

practices

“The thing that wakes me up in the middle of the night is not what might happen to the economy or what our competitors might do next; it is worrying about whether we have the leadership capacity and talent to implement the new and more complex global strategies.”

David WhitwamRetired Chairman of the Board & CEO,Whirlpool Corporation

See Byham, Smith, & Paese (2002). Grow your own leaders. Upper Saddle River, NJ: Prentice-Hall, p. 3.

“Your competition can copy every advantage you’ve got – except one. That’s why the world’s best companies are realizing that no matter what business they’re in, their real business is building leaders.”

Source: Fortune (2007, October).

Geoff ColvinFortune Magazine

Succession Planning: A Working Definition

• “…a process that identifies important company players and pinpoints organizational gaps in work experience and skills... information that is critical for determining training needs and identifying future leaders... the sum and substance of Human Resource Planning.”1

• An ongoing process … that ensures a continuity of leadership for all critical positions.

• A system that ensures the right people with the right skills in the right place at the right time.

1 Cascio, W. F. (1998). Applied psychology in human resource management (5th Edition). Upper Saddle River, NJ: Prentice-Hall, Inc.

Food for Thought• How concerned are you about the competition for talent?• Is your SP process strengthening and growing your leadership

pipeline effectively?• Who owns SP in your company? Is your senior executive team

leading your talent strategy? To what extent are they dedicated to developing others?

• How is your organization accelerating the development of talent to strengthen your pipeline and retain top talent?

• How often has your organization had to fill key leadership positions from the outside?

• Has your organization had to compromise on leadership quality to fill certain positions?

• On average, how many people are “ready” to fill key positions in your company? What is the ratio of employees with potential to reach a certain level to incumbents at that level? (e.g., 1:1? 3:1?)

Fast Facts• A recent survey of 425 senior executives in North America, Europe, and

Asia showed that attracting and keeping skilled talent and developing employees into capable leaders were among the top ten business issues cited.1

• A 2005 survey of 750 CEOs indicated that 79% believed the ability to develop leaders was the most important or one of the top 5 factors in achieving a competitive advantage.2

• A recent Center for Creative Leadership (CCL) survey of 2,200 leaders from companies in the United States, India and Singapore identified that the four future key skills ranked most important for future success by respondents were found to be among the weakest for today’s leaders: leading people, strategic planning, inspiring commitment, and managing change.3

• A recent survey of over 1300 HR professionals indicated that 61% anticipated an increased focus on leadership, talent development and succession planning in 2010 or 2011.4

1 Accenture consulting study as cited in McGee (2005, August 16th). Why promote from the outside when the talent is inside? Information Week – www.informationweek.com.; 2 see Center for Creative Leadership.; 3 see Taylor, S. (2010, February). Bridging the leadership gap. Chief Learning Officer -www.clomedia.com/business-intelligence/2010/February/2857/index.php ; 4 see 2011 Talent Survey Report, Aon Hewitt.

Strategic Importance of Succession Planning

Provides a source of in-house replacements for key leadership positions. Retains key talent by providing challenging, growth-oriented and rewarding career

opportunities. Prepares individuals for future challenges (e.g., growth or implementing new

strategy). Aligns executive resources to new organizational directions. Accelerates the development of engaged rising stars and key executives. Ensures a continuity of management culture. Enhances corporate diversity. Increases an organization’s human capital. Makes the organization more attractive to bright, young talent. Controls costs. Increases an organization’s chances of survival and long-term health. Can increase stock value.

Adapted from Byham, Smith, & Paese (2002); Conger & Fulmer (2003, December). Developing your leadership pipeline. Harvard Business Review, 76-84.

New CEO in 6 HoursApril 2004: • CEO Jim Cantatlupo died of a heart attack; less than 6 hours

later the Board of Directors named Charlie Bell to the jobNovember 2004:• Charlie Bell steps down due to cancer; Board announces that

Jim Skinner will be the new CEO

Few are prepared to handle such a situation… could your organization respond so quickly?

2011 25 Top Companies for Leaders 1. IBM (1)2. General Mills (3) 3. Procter & Gamble (2)4. Aditya Birla5. Colgate-Palmolive (7) 6. Hindustan Unilever7. ICICI Bank8. McDonald’s (5)9. Whirlpool Corp. (9)10. PepsiCo International (14)11. General Electric (6)12. Grupo BBVA13. Natura Cosméticos

14. Deere & Company (8)15. 3M Company (10)16. Eli Lilly (13)17. McKinsey & Company (4)18. L’Oréal19. Unilever20. Siemens21. Intel Corporation (17)22. China Vanke23. Wipro24. Bharti Airtel25. Novartis

1 See (2011, November). 25 top companies for leaders. Fortune. Based on research by Aon Hewitt Consulting and partners Fortune and the RBL Group. Numbers in parentheses denote 2009 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2012).

U.S. Companies Committed to Growing Tomorrow’s Leaders1

1. IBM (1)2. General Mills (3) 3. Procter & Gamble (2)4. Colgate-Palmolive (7) 5. McDonald’s (5)6. Whirlpool Corp. (9)7. PepsiCo (14)8. General Electric (6)9. Deere & Company (8)10. Target Corporation (12)11. 3M Company (10)12. Eli Lilly & Company (13)

13. McKinsey & Company (4)14. Intel Corporation (17)15. Capital One Financial (23)16. Sonoco Products (20)17. VF Corporation (22)18. Raytheon Company (25)19. Fluor Corporation20. United Health Care Group 21. Honeywell International22. AT&T23. Accenture LLP24. American Express (15)25. Kiewit Corporation

1 See (2011, November). 25 top companies for leaders. Fortune. Based on research by Aon Hewitt Consulting and partners Fortune and the RBL Group. Numbers in parentheses denote 2009 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2012).

a see Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61.

Most Organizations Aren’t PreparedGlobal evidence that: • Many processes are broken – pipelines

are “bone dry”• Most firms are not happy with their

systems– Too many compromises, poor decisions,

being reactive vs. acting strategically (e.g., replacement planning vs. pools)

– Gaps between competencies needed for success in a rapidly changing, complex global market and current leadership capacity

• Alarming numbers of “high potentials” report feeling disengaged from their companies a

• 1 in 3 admits to not putting all his/her effort into his/her job

• 1 in 4 intends to jump ship for another employer within a year

• 1 in 5 believes his/her personal aspirations are quite different from what the organization has planned for him/her

• 4 out of 10 have little confidence in their coworkers and even less in their senior team.

Disenchantment of Rising Stars…

See Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61. Findings based on data from over 20,000 employees recognized as “emerging stars” in more than 100 organizations worldwide over the past 6 years. Also see Grossman (2011, August). The care and feeding of high-potential employees. HR Magazine, pp. 34-39.

• Organizational politics re: who owns the talent– Not looking beyond own department needs; fear of losing employees to other areas

• Lack of candor/confidentiality among managers• Conflict over long- vs. short-term objectives/static focus• $$$• Difficulties in selecting the right people to develop; questionable data; risk averse• Insufficient attention to and integration with leadership development

– Limited time available for career planning and development• Managers/supervisors lacks skills in developing other people• Lack of integration with other HRM practices

– Limited information flow and utilization (i.e., skills banks)– Managers not accountable/rewarded for identifying & developing successors

• Process so confidential that all key players are not in the loop/lack of transparency• Negative impact on employee motivation and attitudes• Lack of top management commitment

– Fear of identifying one’s potential replacement

What do you see as the barriers to effective succession planning?

“Vitality” Starts at the Top

See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report. Also see Ready & Conger (2007, June). Make your company a talent factory. Harvard Business Review, pp. 68-77.

100%

65%

20%

40%

60%

0%

Percentage of companies where

the CEO and Board of Directors are

actively involved in developing

leadership talent

Top 20 CompaniesAll Other Companies

80%

100%

CEO Involvement

Board Involvement

65%

31%

“Acceleration Pool” Process1

1 Byham, Smith, & Paese (2002). Grow your own leaders. Upper Saddle River, NJ: Prentice-Hall, p. 3.

Phase 1: Identifying

High Potentials

Phase 5:Review Progress &

Provide NewAssignment

Phase 3:Prescribe Solutions to

DevelopmentOpportunities

Phase 2:Diagnosing Development

Opportunities

Phase 4:Ensure that Development

Takes Place/DocumentDevelopment

• Size of acceleration pool: Usually 1-2% of entire org

• Target job levels, not specific positions• e.g., 2 pools: Early Acceleration Pool & Strategic Acceleration Pool• Caveat: Also be important to consider “linchpin/ ‘A’ positions”; “Key Positions”

• Criteria for nomination: Uniform set of criteria (e.g., PA ratings, training, international experience, mobility, developmental orientation, motivation to be a strategic leader/GM, track record, support of company values)

• Consider tools for assessing “Employee Potential” (CLC’s HIPO-ID)*

• Nominators: Senior executives & major business heads; HR

• Executive Resource Board: includes CEO and/or COO

• Seek out hidden talent & recognize “talent hunters”• Invitations: Make the process transparent (CCL research; 40%)

• Length of time in pool: 1-15 years (dependent on needs)

Phase 1: Identifying High Potential Individuals

* See Martin & Schmidt (2010, May). How to keep your top talent. Harvard Business Review, 88 (5), 54-61.

HIPO-ID: A Tool for Measuring Employee Potential

Note: Per the Martin & Schmidt (2010) article, this abbreviated version can be found at www.executiveboard.com/humancapital/CLC-highpotential.html

LeadershipPotential

Past examples ofJob-Relevant

Behavior

Behavior in FutureJob Situations

On-the-JobPerformance

UnderlyingPersonal

Characteristics

Sources of assessment information

Phase 2: Diagnosing DevelopmentOpportunities

Byham, Smith, & Paese (2002). Grow Your Own Leaders. Upper Saddle River, NJ: Prentice Hall

LeadershipPotential

Simulations Personality, Interest &Ability Assessments

Assessment tools

Behaviorally-BasedInterviews

360 / Multi-raterSurveys

Rigor in Assessing Talent

84%

64%

20%

40%

60%

0%

Percent of Succession

Planning Efforts that Include…

Global Top 25 CompaniesAll Other Companies

80%

100%

Unique identification of a leader’s current

performance vs. his/her future potential

56%

88%

See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report. For more regarding the importance of assessment tools see Grossman (2011, August). The care and feeding of high-potential employees. HR Magazine, pp. 34-39. The author notes that a survey of 120 HR professionals who manage high-potential programs indicated that 48% of managers are ineffective at identifying Hi-Pos due to inconsistent selection/assessment approaches or a lack of rigor.

360-degree feedback

Personality Inventories

– Assess unique blend of personal characteristics that define individuals’ pattern of interactions with the environment.

– Big Five personality dimensions• Openness to experience• Conscientiousness• Extraversion• Agreeableness• Neuroticism (Emotional Stability)

– Buyer beware!

Some Recommended Personality Inventories

for Selection: NEO-PI-R™ Hogan Personality Inventory (HPI) Hogan Development Survey (HDS) California Psychological Inventory

(CPI) DiSC 16 PF Occupational Personality Questionnaire

Recommended primarily for Development & Team Bldg:

Myers-Briggs Type Indicator (MBTI) Strength Deployment Inventory (SDI)

Also see Clifford, S. (2006, August). The new science of hiring. Inc. Magazine.

Cognitive Ability Tests• Some Recommended Business-Related Tests

• Watson-Glaser Critical Thinking Appraisal; Employee Aptitude Survey (EAS); Wonderlic Personnel Test (used by the NFL)

• Logic Puzzles• Question whose aim is to test the deductive reasoning skills of the

person answering it.• Some questions do not have specific right answers, instead the focus

is understanding the logic people use to solve problems. • Ex. How long would it take to move Mt. Fuji?16

• Other questions have correct answers; here the focus is on process and outcome (c.f., Google recruiting strategy).

• Ex. How many times a day do a clock’s hands overlap?1

1 Poundstone, W. (2003). How Would You Move Mount Fuji?. Boston, New York, London: Little, Brown and Co.

Beware ofAdverseImpact

Assessment Centers• Individuals participate in a series of

situations that simulate the real world• Behaviorally-oriented process used for a

variety of organizational/human resources purposes

• Candidates evaluated on multiple competencies across multiple techniques

• Use of multiple assessors (raters) and integration session to reduce rater bias and thus increase rating accuracy

• Effective tools for predicting future overall job performance, management potential, performance in training, and career advancement; valid across cultures.

• Entry-level to executive applications; used increasingly around the world.

Popular Simulations:• Written:

• In-basket exercise• Case analysis

• Interpersonal:• Oral Presentation• Group Discussion exercise• Interview Simulation

Stress Interview (OSS, WWII)

Organization Purpose(s) of ACCapital One Financial Corp. Exec Development/Succession Planning a

Nissan Exec Development/Succession Planning

Lockheed Martin Exec Development/Succession Planning

Home Depot Selection/Succession Planning/Develop

British Petroleum (BP) Succession Planning/Development

McCormick & Company Executive Development c

Microsoft Executive Selection/MBA Hires b

Pfizer Selection (Nationwide sales force)

Johnson & Johnson Selection/Promotion

United Nations Selection (Country Directors)

Black & Decker Development (Financial Associates) c

a Denotes Capital One runs Executive Development Centers (top-tier) and Leadership Development Centers (next tier) – see Delahoussaye, M. (2002, March). When tomorrow comes. Training; b denotes Microsoft is using ACs as part of their selection process for Country Managers (GMs); b denotes these companies have used ACs in the past, but did not sustain use.

Sample Organizations Using/Have Used Assessment Center (AC) Methodology

“Would Do” vs. “Can Do” Assessments

Signs(Indicators of Behavior)

Samples(Actual Behaviors)

• What a personality inventory described: • What we observed in the Assessment Center:

EXECUTIVE is insightful concerning how others feel and think. He is quick to respond to social nuances, and is likely viewed by others as reasonably perceptive and observant. He is pleasant to be with and usually easy to have around.

EXECUTIVE displayed rather weak interpersonal sensitivity…On the positive side, he occasionally complimented others…On a less positive note… he frequently interrupted others; at times he disagreed with others’ ideas and redirected the conversation without regard for their opinions…he usually disagreed in an abrupt, brash manner… using a harsh, rather arrogant tone…Taken together the data suggest that while he can be personable, his assertive, competitive, task-oriented demeanor may prevent such behavior from consistently showing (e.g., he may come across as impatient toward others)…The data further suggest that EXECUTIVE may lack “emotional intelligence” (e.g., he demonstrated limited empathy toward others’ feelings/needs and appeared to lack self-monitoring skills when interacting with others).

Importance of Using Multiple Tools

*Note: 360-feedback measures current performance as assessed by novice raters. In contrast, Assessment centers assess leadership potential for higher organization levels using expert raters.

Importance of Diagnosing “Potential” via Multiple Assessment Tools

General Manager Function Head23% 23%

46% 62%

27% 12%

Key= Very Good to High (READY NOW)

= Slightly Below Average to Above Average

= Low to Below Average (NOT READY)

Overall Probability of Success in General Manager &

Function Head Positions

Note: N=25; Does not take into consideration technical skills, only

leadership competencies

Creating a Performance vs Potential Grid (i.e., 9-block): Food for Thought• Provides leaders with a visual depiction of

an organization’s bench strength – a “snapshot of talent”– Springboard for individual development

discussions

• Potential Pitfalls– Misunderstanding high-potentials: All top talent

vs. potential to become leaders– Being too subjective when classifying talent– Reflecting quotas vs. reality– Failing to differentiate between employees

when it comes to development opportunities; where to show “the love”

3

Potential Gem

2

Inconsistent Performer

1

Termination Risk

6

Rising Star

5

Core Employee

4

Solid Performer

9

Star

8

Agile High Performer

7

Professional Subject Expert

See Tyler, K. (2011, August). On the grid. HR Magazine, pp. 67-69.

Potential/Promotability

Perf

orm

ance

• Job Rotations• Special Assignments (i.e., position on a task force; event organizer)

• Action-learning projects (i.e., talent showcases) • Training/Education (i.e., Six Sigma black belts)

• Mentoring• Professional executive coaching

Phase 3: Prescribing Solutions to Development

Keys to Success: 1. Leverage a broad variety of experiences/techniques2. Pair classroom training with real-life exposure to a variety of jobs

and increased access to senior leadership! 3. Remember ASSESSMENT, CHALLENGE & SUPPORT1

1 Van Velsor, McCauley, & Moxley (1998). Our view of leadership development. In McCauley et al., Handbook of Leadership Development. San Francisco: Jossey-Bass. Also see Lombardo, M. M., & Eichinger, R. W. (1989). Eighty-eight assignments for development in place. Greensboro, NC: Center for Creative Leadership.

How are Top U.S. Companies Developing High Potentials?

See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.

90%

51%

20%

40%

60%

0%

What practices are regularly used to

develop high potential leaders?

Top 20 CompaniesAll Other Companies

80%

100%

InternalLeadership

Training

Developmental Assignments

89%

58%

43%

24%

58%

22%

37%

18%

MentoringProgram

Coaching – Internal Provider

RotationalAssignments

• Review and measure progress regularly• Executive Resource Board; at least every six months• Frequent checks reveal potential problems (e.g., restlessness)

• Remember - don’t assume that High Potentials are engaged

• Identify appropriate opportunities• New assignments or maintain current one• Special training events• 1-on-1 Executive coaching

• Monitor and maintain accountability• Colgate-Palmolive: all senior managers have to retain 90% of their

high potentials or bonuses reduced. Also, CEO, COO & President are alerted within 24 hours of a HiPo’s resignation

• P&G: all managers & executives are evaluated & compensated on their contributions to building organizational competence as part of their job performance

Phases 4 & 5:Reviewing Progress & Act Accordingly

Accountability for Success or Failure of Leadership Programs

See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.

85%

51%

20%

40%

60%

0%

Who is held accountable, through

performance management, for the success or failure of

leadership programs?

Top 20 CompaniesAll Other Companies

80%

100%

Human Resources

Leadership/OrganizationalDevelopment

SeniorManagement

75%

39%35%

80%

Accountability for Personal Development

58%

20%

40%

60%

0%

Percentage of companies that both measure on

leadership competencies and monitor progress

against those competencies (i.e., link

compensation to a leader’s performance and

potential to advance)

Top 25 North America CompaniesAll Other Companies

80%

100%96%

See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.

Accountability for Others’ Development

84%

31%

20%

40%

60%

0%

Percentage of companies that hold leaders

accountable, through compensation, for

developing their direct reports

Top 25 North America CompaniesAll Other Companies

80%

100%

See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.

Linking Accountability for Others’ Development to Pay

See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.

18%

49%

20%

40%

60%

0%

What percentage of average annual

incentive is tied to leaders’ development

of others?

Top 20 CompaniesAll Other Companies

80%

100%

0 – 5% 6 – 10% 11 – 20% Over 20%

24%35%

24%19%

24%

8%

HR Dashboards for Tracking Performance1

1 See Ready & Conger (2007, June). Make your company a talent factory. Harvard Business Review, pp. 68-77.

Other SP Metrics/ScorecardsRetention rate of pool members/“A” players (voluntary and involuntary turnover)Percentage of nominated people selected for the poolOverall quantity of in the pool (against the goal)Advancement of pool members (number moved upward each year)Number of plans where there are 2 or more “ready now” candidatesNumber of “ready now” candidates for company’s top 500 positionsRatio of employees with potential to reach a certain level to incumbents at that level Consider goal ratios for each level of management (e.g., 3:1 for director level)

Number of “diverse” candidates who are identified as ready/“high potential” Percentage of times (against the goal) that senior positions are filled by non-pool members from within the organizationPercentage of times (against the goal) that senior positions are filled by non-pool members from outside the organizationAverage length of time to fill an open “A” position with an “A” player% improvement in satisfaction or engagement ratings by employees who respond to attitude surveysBench strength-related ratings from 360-degree feedback system (changes over time)% training for “A” players; % of employee development plans completedLong-term performance of those selected from the pool (relative to others)

Adapted from Byham, Smith, & Paese (2002); Conger & Fulmer (2003, December). Developing your leadership pipeline. Harvard Business Review, 76-84; Huselid, Becker, & Beatty (2005). The Workforce Scorecard. Boston, MA: Harvard Business School Press.

Closing Thoughts…• The essential ingredients for building and

sustaining an effective talent factory include:– Top management commitment and support

• Leaders model the behavior they expect of others

– Integrated and innovative HRM practices• Aligned with firm strategy• Sound methodologies based on

science/research• Clear focus on accountability (e.g., links to PA

and pay)– An organizational culture that:

• Values and institutionalizes the mindset of growing its own leaders; has an unrelenting focus on talent

• Values meritocracy - encourages candor and the willingness to differentiate and unleash high-potential talent

“The question of tomorrow’s management is, above all, a concern for our society. Let me put it bluntly - we have reached a point where we simply will not be able to tolerate as a country, as a society, as a government, the danger that any one of our major companies will decline or collapse because it has not made adequate provisions for management succession.”

Peter Drucker

Questions orComments?

Thank You!

Feedback and follow-up is most welcome: [email protected]; 301.405.9540.

Supplemental Slides

Quality of LeadershipDevelopment & Total Shareholder Return1

1 See Hewitt Associates (2005). Research highlights: How the top 20 companies grow great leaders, Technical Report.

61%

31%

20%

40%

60%

0%

Percentage of companies that believe their

organizations are more effective in developing

leaders

Top-Quartile PerformersBottom-Quartile Performers

80%

100%

Note: TSR was based on industry-adjusted, five- year averages of TSR

Global Companies Committed to Growing Tomorrow’s Leaders

1. IBM2. Procter & Gamble3. General Mills 4. McKinsey & Company5. ICIC Bank Ltd.6. McDonald’s7. General Electric8. Titan Cement Co. S.A.9. China Mobile Communications

Corporation – Shanghai Ltd.10. Hindustan Unilever11. Natura Cosméticos S.A12. Colgate Palmolive

13. TNT N.V.14. Deere & Company15. Whirlpool Corporation16. 3M Company17. Cargill Incorporated18. Olam International19. Eli Lilly and Company20. PepsiCo21. American Express22. Lockheed Martin23. Intel Corporation24. Infosys Technology25. FedEx

See Fortune Magazine (2009, November). Based on research by Hewitt & Associates and partners Fortune and the RBL Group.

U.S. Companies Committed to Growing Tomorrow’s Leaders1

1. IBM (6)2. Procter & Gamble (4)3. General Mills (4) 4. McKinsey & Company (6)5. McDonald’s (11)6. General Electric (1) 7. Colgate-Palmolive (16) 8. Deere & Company9. Whirlpool Corp. (12)10. 3M Company (18)11. Cargill12. Target

13. Eli Lilly (9)14. PepsiCo15. American Express (19)16. Lockheed Martin (13)17. Intel Corp.18. DaVita19. FedEx20. Sonoco Products (20) 21. Cummins (14) 22. VF23. Capital One Financial (2)24. Hewlett-Packard25. Raytheon

1 See Kowitt & Thai (2009, November). 25 top companies for leaders. Fortune. Based on research by Hewitt & Associates and partners Fortune and the RBL Group. Numbers in parentheses denote 2007 rankings. 100 Best logo denotes company was listed among Fortune’s 100 Best Companies to Work for (February, 2010).

Talent as a Corporate Asset

See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.

92%

60%

20%

40%

60%

0%

Percentage of companies that

leverage and develop talent as a Corporate

Asset

North American Top 25 CompaniesAll Other North American Companies

80%

100%

• Selects a different set of 20-25 leaders every year with C-level/top function head potential

• Tandem assessment: HiPo spends 3-4 hours with 2 HR heads from other outside his/her business unit

• HR traces progress and conducts exhaustive “fact-finding mission”; focus = observed, measurable performance

• A 15-20 page document detailing work and development over the long period

Identifying HiPo’s at GE: Session C Process1

1 See Charan (2005, February) and GE’s talent machine: The making of a CEO (HBR 9-304-049)

Talent Assessment Best Practices

a As cited in Hewitt Associates (2007). Best-in-Class Talent Sourcing and Acquisition.

Team of Industrial Psychologists has developed a series of cognitive (IQ) and noncognitive (EQ) tests, as well as business case scenarios and structured behavioral interviewsa

• Stage 1 hiring: Web-based test (“managerial situation analysis”) based on biographical and noncognitive factors

• Stage 2: “Power day” at Cap One facility where a team of business leaders (not HR staff) conducts structured interviews and 1-2 business cases analyses

Recognized that strong academic qualifications were not necessarily the best predictors of job success; now uses an online battery of tools that assesses attitudes, behavior, personality, and biodataa

Leverages a variety of assessment tools:• Job Preference Program – online test battery includes situational judgment,

cognitive ability, personality, and biodata measures• Store Leadership program uses structured interviews (fit & leadership),

critical thinking tests, and leaderless group discussion (case analysis & presentation)

So What’s the Best Assessment Tool?

• There is no “one best” technique!• Depends on the competencies of interest• Depends on how you define “success”:

–Administration: consistency of implementation & scoring, total cost and/or cost per individual

–Validity: e.g., correlation between test score and job performance–Legality: potential for discrimination (disparate treatment and/or

impact)–Feedback: extent to which results provide meaningful data that can be

used to facilitate individuals’ career development–User Reactions: extent that individuals find the tool to be fair and/or

job relevant

TestScores

Job Perform

ance

Report Card on Assessment ToolsTool Admin Validity Legal Feedbac

kUser

ReactionsTraditionalInterviews

C C C F B

Structured, Behavioral Interviews

B A A C B+

Cognitive Ability A A B D B-

Personality(Integrity, Big 5)

A B A B B/D

Multisource/360-

Degree Feedback

B+ B- ???(can of

worms?)

A- to B(depends

on purpose)

A

AssessmentCenters

C A- A A A-

Strengths & Drawbacks of Assessments• Assessment Centers/performance data

– Offer strong insight into client behavior, though “snapshot” of capabilities– Solid predictor of job performance, leadership potential & career advancement, r = .28 to .451

– If exercises are representative of job demands, performance cannot be “faked”– Costly development tool relative to other assessments

• Cognitive Ability tests – Excellent predictors of job performance as rated by supervisors, r = .512

– Provides insight into problem solving, decision making & reasoning skills (limited in scope)– Caveats: cognitive ability tests show evidence of adverse impact on protected groups; users often show

mixed reactions & resist negative feedback • Personality and Interest/Values inventories

– Self-report nature influences accuracy (e.g., “faking”) & personality is only moderately related to performance, depending on job type (e.g., sales, managers, semi-skilled workers; r = .06 to .24)3

– Provide insight into typical behavior, motivation & likely challenges re: needed competencies• 360/Multi-Source Feedback

– Look for patterns of under & over-estimation in self & others’ ratings to assess self-awareness– Look for convergence across raters in identifying strengths & development needs– Mixed evidence regarding how well results predict job performance as rated by managers (r = .08 for self-

ratings, .23 for subordinate ratings & .31 for peer ratings)4

1Meriac et al., (2008). Further evidence for the validity of assessment center dimensions: A meta-analysis of the incremental criterion-related validity dimensions. Journal of Applied Psychology, 93, 1042-1052; also see Hermelin et al., 2007. The validity of assessment centers for the prediction of supervisory performance ratings: A meta-analysis. International Journal of Selection and Assessment, 15, 405-411.

2Schmidt & Hunter (1998). The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 85 years of research findings. Psychological Bulletin, 124, 262-274.

3Hurtz & Donovan, (2000). Personality and job performance: The Big Five revisited. Journal of Applied Psychology, 85, 869-879.4Atwater et al., (2005). Self-other agreement: Comparing its relationship with performance in the U.S. and Europe. International Journal of Selection and

Assessment, 13, 25-40.

Rigor in Developing the Next Generation of Leaders

88%

64%

20%

40%

60%

0%

Percentage of companies where high potential

talent is likely to receive developmental

assignments matched to specific development

needs

Global Top 25 CompaniesAll Other Companies

80%

100%

See Hewitt Associates (2009). Research highlights - North America: Top companies for leaders, Technical Report.