An electronics retailer hires a CEO who seems to possess the ideal credentials and skills, only to find him ill-prepared to handle changing market dynamics.
A small brewery, in contrast, picks a project manager lacking in relevant industry experience, based on a hiring consultant’s feeling that the man will succeed. The new hire quickly ascends to a key role in a strong management team that turns the company into a conglomerate.
What’s the difference in the two hires?
Potential—specifically, “the ability to adapt to and grow into increasingly complex roles and environments”—says executive search adviser Claudio Fernández-Aráoz, who was involved with both scenarios. This type of potential is the hallmark of likely success, he says in a recent Harvard Business Review article based on his book, It’s Not the How or the What but the Who.
“Having spent 30 years evaluating and tracking executives and studying the factors in their performance, I now consider potential to be the most important predictor of success at all levels, from junior management to the C-suite and the board,” Fernández-Aráoz writes.
“As business becomes more volatile and complex, and the global market for top professionals gets tighter, I am convinced that organizations and their leaders must transition to what I think of as a new era of talent spotting—one in which our evaluations of one another are based not on brawn, brains, experience, or competencies, but on potential,” he says.
For the past few decades, employers have focused on competence, breaking down jobs into “competencies” and seeking candidates with the right blend of them, according to Fernández-Aráoz, senior adviser at executive search firm Egon Zehnder. Competency-based hiring, however, is becoming insufficient in “a volatile, uncertain, complex, and ambiguous environment,” he says.
“The question is not whether your company’s employees and leaders have the right skills; it’s whether they have the potential to learn new ones.”
THE NEED FOR MORE LEADERS
The ability to choose such employees will be more critical in coming years, as globalization, demographics, and underdeveloped pipelines of future company leaders will make senior talent more scarce, the executive search consultant predicts. He cites a Boston Consulting Group survey showing that 56% of executives see “critical gaps” in their ability to fill senior management roles in coming years.
“When choosing a CEO or board member, as opposed to a young manager, you’ll often find that several candidates have the right credentials, experience, and competencies. That’s why an accurate assessment of their motivation, curiosity, insight, engagement, and determination is all the more important,” Fernández-Aráoz writes.
Most corporate “high potential” programs that fast-track promising managers really are populated with employees who’ve performed well in the past and are assumed to have the best chance of doing well in the future, he says. But, he says “that is no longer a safe prediction.”
HOW TO HIRE FOR POTENTIAL
While it’s easier to measure past performance, it’s also possible to evaluate potential, he says. Zehnder looks for indicators such as the right kind of motivation: great ambition to leave a mark in the pursuit of greater, unselfish goals. “High potentials … show deep personal humility and invest in getting better at everything they do,” he says.
Four other hallmarks of potential, he adds, are curiosity, insight, engagement, and determination.
Other human resources experts see merit in Fernández-Aráoz’s approach—to a point.
“We’ve had that. We’ve had the person with all those right things, was the perfect fit for the job, but the motivation wasn’t there. The motivation wasn’t there for the person to succeed for the company,” rather than primarily for himself, recalls Doug Seville, cofounder and director of DSML Executive Search.
Businesses may focus on hiring someone with eight to 10 years of experience, Seville says, but sometimes that’s really “one year’s experience times eight.”
Seville once asked a bank credit risk manager how long it would take someone to learn his job, with 85% of the capabilities. The answer? Two months.
HR consultant William Tincup, CEO of Tincup & Co., says the potential-oriented strategy will work with some firms in some instances, but isn’t a magic bullet.
“I think Claudio is on to something. At the center of this discussion is what can and cannot be taught,” Tincup says. Adaptability would be useful in an environment where it was valued and supported, in alignment with firm values and objectives, he says.
“When hiring I tend to look for passion, intelligence, and ambition. After I solve for cultural fit … I then care deeply about competence,” Tincup says.
Seville suggests that those making hiring decisions may make incorrect assumptions based on what they see on paper. When young, he decided that a particular job candidate who had worked at a major discount retailer lacked the credentials for a certain position. When the person he was interested in hiring instead recommended that same candidate, Seville hired her and found out that she was “phenomenal.”
Seville also mentions a friend in the produce business who doesn’t look for employees with produce experience. The friend told Seville he can teach employees how to handle produce, but can’t teach them how to be nice to a customer.
Hiring for potential, though, depends on the industry, Seville says. “To be a dentist, you have to be well trained,” Seville notes.
Companies that don’t recognize employee potential can lose out.
“I think sometimes the management of the company really stands in the way of the individual,” Seville says, recalling one creative sales employee. “Management stifled her all along until she finally left.”