Paradox of 'potential assessment'

Many organizations have some sort a process for assessing the 'potential' of its employees. This is very much required as the 'fallacy of promoting an employee to a new job based on performance in the current job' is well known. There won't be many HR professionals (or even managers) who haven't heard many times about the 'tragic story' of the 'star salesman who was promoted to the sales manager position'. So the business case for 'potential appraisal' is quite strong. The problem begins when one asks questions like 'How exactly should organizations go about assessing potential ?' , 'Can potential assessment be done (within the organizational constraints) in an objective/ valid manner?' , and, 'If there are serious doubts regarding the validity of potential appraisal in a particular organization context, is it worth the trouble and effort to put in place a potential appraisal process in that organization?'.

The common methods used for 'potential appraisal' include managerial judgement, 360 degree appraisal, psychometric testing, assessment centres etc. Some times a combination of these methods are also used. In most cases the choice of method(s) is driven mainly by the amount of time and resources that the organization is willing to invest in the process and the 'cultural readiness' of the organization. Some times the choice could also be driven by things like 'casual benchmarking', 'latest seminar attended by the HR Head, 'pet methodology of the consulting firm hired' etc.

I feel that the basic issue in potential assessment (which some times does not get enough attention) is 'potential for what?'. The answers include 'potential to be effective in a particular position', 'potential to be effective in a job family', 'potential to take up leadership positions in the company' etc. Logically, this should lead to the creation of a capability framework that details the requirements to be effective in the job/job family/leadership positions that we are taking about. The potential assessment has to be done with respect to these requisite capabilities. Depending on the nature of the particular capability, the method for assessing it can be chosen keeping in mind the organization constraints/context specific factors. In many cases the employees might not have had an opportunity to demonstrate the requisite capabilities (for the future/target job) in their current/previous jobs. This would call for some sort of simulation, similar to those used in assessment centres. For some aspects of particular capabilities that are close to work styles/ personality attributes some sort of psychometric testing could also be useful. Managerial judgement (especially if it is based on in-depth discussion by a group of managers who have had significant amount work related interaction with the employee) and 360 degree feedback are useful to supplement the data from assessment centres/from other assessment tools particularly from a data interpretation/'reality testing' point of view.


In the choice of methods/process, t is very important to strike the right balance between accuracy of the assessment (from a validity point of view) and the time/resource investment required (from a sustainability point of view). Some capabilities are easier to develop through training/experience in a short period of time while it is not the case for some other capabilities. So if the time/resource constraints do not allow the potential assessment to cover all the capabilities, the capabilities that are difficult to develop through training/experience in a short period of time should get priority. Of course, we need to look at the relative importance of various capabilities for enabling effectiveness on the job. Thus, to achieve a reasonable amount of validity, 'potential assessment' requires a significant amount effort and if the the organization is not willing to use anything other than 'judgement of the immediate manager' for assessing potential, the usefulness of the assessment becomes doubtful.

This brings us to the issue of how would the organization use the results of the potential assessment. Most common practice is to combine the potential assessment with the performance assessment in order to arrive at some sort of 'talent classification' that segments the employees into various categories and to define particular courses of action for each category (e.g. promote, retain, develop, move out etc.). It has to be kept in mind that even if the performance assessment has been done in an objective manner, if the validity of potential assessment is doubtful, the talent classification and the consequent actions become debatable.


There are also other interesting dimensions here such as whether the organization would disclose the results of the potential assessment and talent classification to the employee in question. Not disclosing this could create issues related to transparency and even those related to data privacy/data protection. Disclosing the information might lead to a situation where the employee questions the results/methods, forcing the manager/organization to explain how exactly were the results arrived at and also the steps taken to ensure the validity of the process/ results.


There is also the issue of employees who were assessed to be 'low potential' feeling discouraged/demotivated. Some times, these negative reactions are even worse than those to a 'low' rating on performance. In many organizations, the results of potential assessment for a particular employee tend to remain the same across years (especially for assessment of 'leadership potential'). Thus once employees get a 'low rating' on potential, they might feel that they will never get an opportunity to take up leadership positions. Many employees also feel that they have a better chance of influencing their performance rating as compared to influencing their potential rating, especially when the potential appraisal process is not very transparent.

I have also come across situations where the potential assessment has been misused. Some times potential assessment is positioned/communicated as 'purely for capability development' though the results get used for assessment that feeds into key decisions impacting the employee's career advancement. Of course there could be much worse scenarios. Many years ago, when I was doing a diagnostic study of the HR systems of a company, I was told that though the performance planning and review system of the company provides an option to the employees to disagree with the manager on the performance rating, no one exercises that option. When I tried to investigate the reason for this, I found that the process provides for a 'potential rating' in addition to the performance rating and that the 'potential rating' is not even shared with the employee. It was common practice among the managers in that company to give a 'low' rating on potential for any employee who disagrees with manager on the performance rating. Since a 'low' rating on potential would have ruined the career of an employee in that company, no one wanted to take the risk of disagreeing with the manager on the performance rating. I hope that this extreme scenario is a rare one. However the point is that potential assessment can be misused and this could have serious adverse effects on employee engagement and retention.

Thus the organization needs to think through the entire gamut of issues related to potential assessment in its context (objective, methodology/process, validity, sustainability, using the results, employee communication, initial investment/effort, time/effort required for each cycle, cost benefit analysis etc.) before a potential appraisal system is put in place. While perfect solutions may not be feasible/required, it does require thinking though multiple scenarios, options and implications and making informed decisions/trade offs. This would enable the organization to maximise the implementation effectiveness and to minimize/mange the ripple effects of implementation. This is the requirement for being able to give a positive answer to the question that we started off with (Is it worth the trouble and effort to put in place a potential appraisal process in the organization?').

Related Links : Please see here for a related post and see here for my response to that post (see the second comment).