Are Companies Any Good at Picking Stars?

Date: 17-06-2015
Source: The Wall Street Journal

Despite new assessment tools, the hunt for high-potential employees is more art than science

Companies are searching for future stars and they’re stumped.

At a time when firms have more data than ever on employees’ habits and productivity, predicting which employees will excel in bigger jobs remains more art than science. These “high potentials” can help companies ensure they have leaders for the long-term, but managers say their picks don’t always work out.

“People are horrible at predicting the future,” says Tom Rauzi, director of global talent at Dell Inc.

For the moment, algorithms aren’t much better. Some makers of human-resources software say they’re working on developing new ways to predict potential but aren’t quite there yet. And companies like Nokia Corp., American Express Co. and SAP SE are rethinking how to gauge employee potential—focusing on new metrics, using games to identify traits like perseverance or classifying workers’ abilities differently—but have not yet developed a quantitative approach that cracks the code.

Most employers currently rely on managers’ judgment or performance reviews to determine who gets on the high-potential track. Managers said they accurately predicted employee potential just over half of the time, according to a survey of 134 companies by consultancy Talent Strategy Group LLC. That suggests a good chunk of the estimated $70 billion to $75 billion U.S. companies outlay on training is misspent.

At Dell, some managers rate employees’ potential, sending chosen workers to network with leaders or tapping them for special assignments. The approach results in some “false positives and false negatives,” says Mr. Rauzi, partly because Dell has no companywide criteria for high potentials.

“Everybody bats the term around but we’re not really sure what the other person’s talking about,” he says.

This summer he will kick off a research project to analyze data like employees’ education, trajectories and performance feedback in hopes of unearthing telltale markers for people suited to ascend Dell’s ranks.

When managers are in charge of high-potential rosters, they tend to pick protégés who are like them. In a survey of more than 9,500 managers by CEB Inc., nearly a quarter said they rely on gut instinct when picking future stars, a finding that may explain why some companies say they’re struggling to find fresh thinkers and diverse hires.

Employees who feel they’re being tracked for bigger things tend to stay on longer and put in more effort at work, according to research from Christopher Collins, an associate professor at Cornell University’s School of Industrial and Labor Relations and director of its Center for Advanced Human Resource Studies.

Yet those who aren’t tapped for the high-potential, or hi-po, track may grow embittered. At business-software maker SAP, about 8% to 10% of employees were designated hi-pos, but some 70% were thought of as po-pos, “pissed off and passed over,” according to Jewell Parkinson, head of HR for SAP North America. As a result, the company did away with its official high-potential distinction.

At Coca-Cola Co., Carie Davis observed that the soda maker’s high-potential program was filled with Type A employees with similar profiles. Ms. Davis, who until March was the company’s global director of innovation and entrepreneurship, advised some of the group during a session on innovation, but found they spent more time talking and “jostling for power” than executing new ideas.

“It rubbed me the wrong way,” recalls Ms. Davis, who left Coke after about 13 years to start her own consulting firm. She says she worries that employees capable of coming up with new, creative ideas are “squashed.”

A Coke spokeswoman declined to comment.

Companies are bringing in assessments, similar to those used to vet executive-level talent, to evaluate thousands of employees at many levels of the organization, according to Matt Paese, a vice president at assessment company Development Dimensions International Inc.

Later this summer, DDI will begin marketing a new line of tools designed as a cheaper, lighter version of assessments traditionally given to executives.

Some human-resources leaders say the tests currently on offer from assessment companies cost too much to offer them widely, though DDI says its prices have come down in recent years. Others say the assessments stoke employees’ anxieties.

Lori Bradley, a talent management executive who has expanded the use of assessments at PVH Corp., the owner of brands like Calvin Klein, says workers often worry about who sees their answers, and whether those results affect pay or performance ratings.

“We have to do a lot of reassuring,” she says.

Makers of HR software are beginning to develop their own solutions, claiming that algorithms built using an array of metrics—from an individual’s 401(k) contribution to promotions to connections on the corporate social network—can yield information about high potentials.

Ultimate Software Group Inc., for example, says its UltiPro High Performer Predictor tool scores workers on the likelihood that they will excel in the months to come. Steve VanWieren, the company’s principal data scientist, notes that future performance isn’t the same as potential, which he defines as the ability to move up a couple layers in an organization.

The company is currently at work modeling possible predictors of potential. But even that won’t be fail-safe, he says. “There’s always going to be something the data misses.”

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