As leaders, part of your mission is to create sustainability within your organizations. The talent of your future leaders is critical to your organization’s future success. The question is, how do you create a sustainable pipeline of internal talent so you don’t always have to hire from the outside?
Although many firms believe that the best way to achieve strong leadership within their organizations is to hire it in from the outside, there are times when that isn’t the best option. Research shows that the failure rate of external candidates at all levels of management is significantly higher than internal candidates. For example:
• Organizations that fill more than 25% of their middle-management positions with external hires have double the turnover of those who rely on internal promotions (Benthal and Willis 2001).
• Senior executives hired from the outside fail at a rate of 34% compared to a failure rate of 22% of internally promoted executives (Kelly-Radford 2001).
When you consider what is at risk, these findings are even more compelling. Consider that the “Corporate Leadership Council 2003 Succession Management Survey” showed that top-tier leadership organizations are much more likely to outperform their peers in the marketplace, which translates into substantial financial gains. Market capitalization relative to peers was $384 million higher for top-tier leadership organizations compared with bottom-tier leadership organizations.
Creating a sustainable pipeline of promotable internal talent that provides top-tier leadership talent needs an integrated, systemic approach to talent management. Current leaders in the organization need to be accountable for creating a talent management culture and developing the next wave of talent for the firm. Seven core principles make the difference in creating sustainable pipelines of internal talent.
The Seven Core Principles
Core Principle #1: It starts with the business strategy. Talent pipelines should support the strategy. Start by looking at the drivers of you business—is it sales? Research and development? Manufacturing? How are you creating a sustained talent pipeline in those parts of the business? Next, identify linchpin roles to assure you are developing leadership talent for those roles that have significant impact on the organization's ability to achieve short- and long-term results. The necessary leadership qualities and the identification, development and review of key talent should be linked to the strategy to assure that the bench strength meets the organization’s needs. Base the pipelines on where the business is currently and also prepare for future scenarios.
Core Principle #2: Hire for now and the future. As Marshall Goldsmith said, "What got you here, won't get you there." Leadership needs will vary based on the strategic needs of the organization. If you are looking at your current talent pool and don’t see enough people with the potential to lead, you need to look at your hiring practices. You should have a clear picture of the types of skills and abilities your leaders need and hire to those at all levels in the organization. Leadership doesn’t just happen at the top. People don’t suddenly develop the potential to lead. Talent should be assessed not just on current needs but on future potential. Talent and the organizational needs for talent should be reevaluated regularly. Your business changes. So does the talent. Sustainable systems identify and proactively address the dynamics of change and the impact on talent needs.
Core Principle #3: Recognize talent management as a core business process with impact on overall business and financial success for the enterprise. Actively engage leadership throughout the organization on an ongoing basis to assure that a nimble, functioning, and robust process is in place. Make leaders accountable for talent management, just as they are for the financial and operational success of the organization. To drive talent management into the culture of your business, integrate it with critical processes like selection, performance management, rewards, and compensation. At the individual level, let people know where they stand (e.g., A, B, C talent) and the implications. These components can be facilitated through human resources, leadership development, or consultants. They need to be owned by the executive team and leaders/managers across the organization.
Core Principle #4: Make talent management a part of the business culture. This is a corollary to # 3. The internal talent conversation should be ongoing among your senior leadership teams. Until they take root in the culture, overt processes should be put in place to cause these conversations to occur. Talent management should be the topic of a strategic-level meeting in its entirety at least once a year and an agenda item on at least a quarterly basis. In sustainable talent management processes, development comes from a variety of sources—coaching, new assignments within the organization, mentoring, training programs, and so forth. With the application of each type of development, there needs to be clarity about what the individual is supposed to be developing from each experience or assignment. Frequent conversations about the development experience provide feedback to the individual about his progress, allowing him to make course corrections and accelerate growth. It also helps the organization learn more about the potential leadership talent and make course corrections.
Create communication mechanisms to ensure a resilient information-sharing process about internal talent. Web-based tools with the ability to allow varying levels of access to critical information are vital. They allow for the dynamic management of the information. Without these tools, the process of tracking talent and sharing information buckles under its own weight.
Core Principle #5: Measure it and know if it's making a difference. Knowing what will create success now and in the future and focusing resources on those areas creates sustainability. Put performance measures in place to assess the return on the resources you are committing to development. As stated in principle #3, make it a key accountability for the executive team and for managers within the firm. Firms that successfully promote from within, hold leaders accountable for identifying and developing their talent and, in turn, reward those who do. As the saying goes… you get what you measure.
Core Principle #6: Identify, develop, and promote “high-potential” talent. All high performers in their current role are not high potentials for the next level. However, high potentials are, by definition, almost universally high performers in their current role. Sustainable talent management systems identify the difference. High potential performers have the capability to continue to take on larger, more complex levels of responsibility and often do it quickly. High potential employees are often voracious learners. They take on new tasks and are able to master them quickly. In addition to capability, high potential performers are engaged on an emotional and rational level with the organization. They aspire to rise into and succeed in more senior, critical positions. They want to be leaders.
Your high-potentials should be the first place you look for promotable talent. If every senior executive in your business can’t name at least three high potentials in their own organization, then you don’t have a viable pipeline. If you look hard, and can’t find many, the firm needs to assess its hiring and development practices and focus on improving them.
Core Principle #7: Address talent gaps with aggressive internal development. Hiring from the outside shouldn’t be your initial reaction when an opening occurs. There are times when an infusion of outside talent can provide new skills and drive innovation. However, developing your internal talent should take precedence. Sometimes, promoting internally can feel risky. You may feel no one is totally ready. But internal talent with potential can have a shorter learning curve than external hires. The internal candidate already knows the business, the culture, and the products, and has internal networks that can support a more rapid path to success.
When talking about development, don’t forget to look at all of your talent. You shouldn’t assume that Baby Boomers don’t want to lead or don’t want continued development. Many of them plan on contributing in new and different ways in their organizations. Make your high performing Baby Boomers a part of the conversation. Tapping that experience may cause you to think differently about how to address your talent needs.
These seven principles and related processes don’t need to be complex. The easier it is for leaders to engage in talent management, the more likely it is to succeed. Keeping your eye on the talent will allow you to survive, and even thrive in a changing environment.
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