The sticky case of ‘the stickiness of potential ratings’!

In this post, we come back to one of the most amorphous areas in HR – potential assessment, its uses and its implications. As we have seen in  ‘Using assessment centres for evaluating potential – A leap of faith?’ and in ‘The paradox of potential assessment’, there are multiple perspectives on even the most fundamental issue related to potential assessment – ‘potential for what?’ For the purpose of our discussion here, let’s focus on ‘the potential for taking up higher level jobs in the organization’.

Now let’s come to the issue mentioned in the title of this post – stickiness of potential ratings (i.e. the extent to which the potential rating of an employee remains the same as he/she progresses in his/her career in the organization). This is not an ‘academic issue’  as the way define and interpret potential has very significant implications for both the employees and the organization.

In a way, the core issue comes down to the following questions

1. Can the potential of an employee change during his/her tenure in the organization?
2. What are the implications if potential is not a modifiable factor? 
3. Even if potential can’t change, can the potential rating change?

Let’s start with the first question (Can the potential of an employee change during his/her tenure in the organization?). The answer depends on how we view the alchemy of potential. If we consider potential as some sort of stable personality trait then the potential of an employee should remain the same during his/her tenure in the organization. If we consider potential to be a modifiable factor, then the potential of the employee can change if the employee works on it.

Since potential often gets linked to important decisions like promotions, development investment and compensation, this assumption (on the modifiability of potential) has important  implications. For example, if the potential of the employee corresponds to his/her current role/level, and if we assume that potential is not modifiable, the employee can’t get promoted. It also means that the organization can’t put this employee in the succession plan for a higher position. If the employee continues at the current level for a long time, it is possible that the of the employee becomes too costly a resource for the contribution possible at that level. So, in a way, both the employee and the organization are stuck. The only hope for the employee to move to a higher level position is to find another organization that measures potential differently! On the contrary, if we assume that potential is modifiable then both the employee and the organization can take steps to develop the potential and this makes promotions possible.

Now, this brings us to the most important question. Can potential change? While there are differing views on this, most of the current thinking tends to gravitate towards the position that potential is at least partially modifiable. So there is hope for both the employees and the organizations!

Now let us come to the third question (Even if potential can’t change can the potential rating change?). The short answer is that it depends on our definition of potential and the norms we agree on. For example, if we define ‘high potential’ as someone who can go two responsibility levels up in the organization (from the current level he/she is at) and the person gets promoted by one level, then the potential rating can come down by one step (e.g. to something like ‘advancement potential’) unless the person has (or has developed) more potential to still go two levels up (from the new level after promotion). However, this kind of an approach (of reducing potential ratings on promotion) can lead to inconsistent investment in  (and inconsistent engagement with) the people who were rated ‘high potential. Considering that this is usually a very small (and very valuable) population this can lead to significant negative consequences. 

Hence, my opinion is that unless we have a very good reason to do so (e.g. we have a lot of new data to show that we had made a mistake when we rated the person as ‘high-potential’), we shouldn’t down-grade the 'high-potential' ratings. Yes, it will make the high-potential ratings more sticky. Of course, since we are considering potential as a modifiable factor, an employee can work on developing his/her potential with help from the organization and hence move up from  the ‘advancement potential’ category to the ‘high-potential’ category. This can also help the organization to grow more talent internally to take up the senior positions in the organization!

Any comments/suggestions?

Using Assessment Centres for Evaluating Potential – A Leap of Faith?

“She is very bright”, said the first HR Manager. “She is the definition of a tube light - bright on the outside and hollow inside”, said the second HR Manager. Two senior HR professionals, and two very different inferences – about the same employee! I heard this conversation a long time ago. It came back to me recently, when I was thinking about Assessment Centres – the effectiveness of Assessment Centres as a tool to evaluate the ‘potential’ of employees, to be more precise. Usually, comments on 'brightness' of an employee have more to do with the perceived 'potential' of the employee as opposed to his/her performance!

As I had mentioned earlier (See Paradox of Potential Assessment), the basic issue in potential assessment (which sometimes does not get enough attention) is 'potential for what?’ Many answers are possible here. They include

1. Potential to be effective in a particular job/position
2. Potential to be effective in a particular job family
3. Potential to be effective at a particular level (responsibility level)
4. Potential to take up leadership positions in the company
5. Potential to move up the organization ladder/levels very quickly etc.

Logically, the first four answers should lead to the creation of a capability framework that details the requirements (functional and behavioral competencies) to be effective in the job/job family/level/leadership positions that we are talking about. Once this is done, a competency based assessment centre is often used to assess the potential of employees against that framework. This is where the trouble begins (Actually, the problems start earlier than this – with the definition of ‘potential’ and with the creation of capability framework. But that is another story).

Let us begin by looking at a couple of basic issues. An assessment centre is essentially a simulation*. Hence, there are always questions on the extent to which the simulation matches reality (requirements of the job//level). This becomes even more problematic in the case of international assessment centres (for global roles/with participants from different countries) as the cultural differences needs to be factored in when designing the assessment centres and while interpreting/evaluating the behavior/responses of the participants (e.g. what is an effective response/acceptable behavior in one culture might not be so in other cultures).  

Since we need to avoid a situation where the participant was able to give the correct answer/response in the simulation because he/she knew the correct answer/response based on prior experience/knowledge and not because he/she was able to arrive at the correct answer by himself/herself in response to the situation(and hence demonstrating the competency) the simulations often use a context that is different from the immediate job/organization context – while trying to test the same underlying competencies required. This can bring additional complications in ensuring adequate match between simulation and reality. By the way, this is one of the factors (knowledge of the correct answer without knowing how to arrive at the correct answer) that can give to the ‘bright on the outside – hollow inside’ kind of situation mentioned at the beginning of this post. Another factor could be ‘sublimated careers’ (See Career Development & Sublimation).

Each of the tools/exercises in the assessment centre is designed to test a set of competencies. This implies that each of the participants should have sufficient opportunity to fully demonstrate all the relevant behaviors corresponding to all the competencies during the exercise. Assuming that there are 4 competencies (each with 3 relevant behavioral indicators) being tested in the particular exercise, it would mean each participant should have an opportunity to demonstrate 12 behaviors. If the evaluation on the behavior is done using a frequency scale (e.g. always, most of the times, sometimes, rarely etc.) it would imply the need to demonstrate each of the behaviors multiple times during the exercise (e.g. demonstrating the behavior 3 times will get the participant the highest rating) and that would imply a total of 36 behaviors. Of course, if this is a group exercise, this number will get multiplied by the number of participants (e.g. 36*6 = 216 behaviors for a group of 6 participants). This is practically impossible to do in a 45 minutes group exercise! Of course, exercises can be of longer duration and there can be more number of exercises (requiring fewer numbers of competencies/behaviors to be tested per exercise). However, considering the cost and time pressures in most organizations, this becomes difficult. This implies that the very design of the assessment centres might prevent the participants from fully demonstrating their competencies/potential during the centre – leading to artificially lower potential evaluations.

Now, let us come back to problems specific to using assessment centres as a tool to measure potential. Even in a best case scenario, what the assessment centre is measuring is the degree to which the employee/participant demonstrates the behaviors corresponding to requisite competencies during the assessment centre. So, at best it can give a good estimate of the current level of readiness of the employee for a particular role/level. However, this does not really indicate the potential of the employee to take up that role/reach that level in the organization hierarchy in the future. This is because the employee has the opportunity to learn/develop the competencies during the intervening period. Assessment centre can’t give any indication on the extent to which (and the speed at which) the employee will further develop/enhance the competencies.

Assessments centres are based on competency models. As I had mentioned in 'Competency frameworks - An intermediate stage?',  one of the basic assumptions behind developing a competency model is that there is one particular behavioral pattern that would lead to superior results in a particular job(i.e there is 'one best way' to do the job). This might not be a valid assumption, in the case of most of the non-routine jobs. If there are other ways to be effective in the job (say, based on a deep understanding of the context/great relationships with all the stakeholders), it can lead to 'successful on the job  but failed in the assessment centre' kind of scenarios. Of course, it can be argued that such individuals won't be successful if they are moved to a different geography and hence a low rating on their potential coming from the assessment centre is valid. However, it still does not negate the fact that they can be effective in that role/level in that particular context. Yes, this (producing results without possessing the specified competencies) can sometimes resemble the ‘bright on the outside –hollow inside’ kind of situation mentioned earlier. 

Another problem is that the results of the assessment centres are rarely conclusive - in the case of most the participants. What you get as the result of the assessment centre is a score on each of the competencies (say on a 5 point scale). Converting these scores into a ‘Yes or No’ decision on whether the employee has the potential to move into the role/level often involves a many inferential leaps (similar to the ‘leaps of faith’ mentioned in the title of this post). It is easy to string these scores together into some sort of a decision rule/algorithm (e.g.  If a participant has a score of 3 and above on 3 of the 5 competencies, and an average score of 3 overall, the answer is an ‘Yes’ etc.). Of course, we can do tricks like assigning different weights to the individual competencies and specifying minimum scores on some competencies and come up with a decision rule that appears to be very objective (or even profound!) and that gives a clear ‘Yes or No’ decision (on if the participant has the potential or not) . But the design/choice of the algorithm is more of an art than a science and it can be quite subjective and even arbitrary (unless the organization is willing to invest a lot of time and money in full-fledged validation study)!

So what does this mean? To me, assessment centre is a tool; a tool that has certain capabilities and certain limitations. The tool can be improved (if there is sufficient resource investment) to enhance the capabilities and reduce the limitations to some extent. But, some basic limitations will remain. Hence, if one is aware of the limitations and the capabilities, one can make an informed decision on whether it makes business sense to use this tool in particular context – depending on what one is trying to achieve and the organization constraints/boundary conditions. If you push me for being more specific, the best answer that I am capable of at this point is as follows - ‘It is valuable to use assessment centres as one of the inputs if the objective is just to assess the current level of readiness of the employee for a particular role/level. If the objective is to assess the potential of the employee to take up that role/reach that level in the organization hierarchy in the future, assessment centres are of limited value when the intervening time period is long – say anything above 2 years’!!!

*Note: Assessment Centres need not always be pure simulations. Tools like Behavioral Event Interview (BEI) are often used as part of assessment centres. However, it becomes difficult to use BEI in an assessment centre designed to test the employee’s potential for a higher level role. This is because employee might not have had enough opportunities (till that time in his/her career) to handle situations that require the higher order competencies (required for the higher level/role and hence being tested in the assessment centre). Hence she/he will be at a disadvantage when asked (during the BEI) to provide evidence of having handled situations/tasks that require the higher level competencies.

Any comments/suggestions?

Why pigs have wings (Importance of differentiation in people management)

The more interesting part of the title comes from 'Through the Looking -Glass' (by Lewis Carroll). The other (related !) part - importance of differentiation in people management - is something that I have often thought about. There are many issues here. Is differentiation really important in people management? What types of differentiation are relevant? What are the implications of differentiation ? Is it worth the trouble and effort?

Now, there are many types of 'differentiation' possible in people management . We can look at differentiation in terms of the parameters on which differentiation is based on (i.e. input parameters/criteria) and/or in terms of the ways in which differentiation is implemented (i.e. results/outcomes). For example, differentiation could be based on (inter alia) performance, potential, criticality/ impact of the role, job level, job family, market value of the skill set, tenure, business unit etc. or a combination of them. Again, the differentiation could be made/ implemented in terms of (inter alia) compensation, benefits, recognition, career progression, development opportunities etc. or a combination of them.

If we look at the large number of input parameters and outcomes listed above, it becomes apparent that there are a large number of combinations possible here. The relevance of a particular combination would be context specific. To keep this discussion manageable, let us classify the input parameters into three broad categories - parameters that are related most to the
(a) individual (performance, potential, tenure etc.)
(b) position (criticality/impact of the role, job family, job level, skill set)
(c) part of the organization (business unit/function/geography)

I must say that these catagories are somewhat arbitrary and there could be some amount of overlap among them also. For example 'skill set' is related to both the role and the individual. It also raises some interesting questions like 'if an employee has a skill that is in the list of 'hot skills' (as defined by the organization) and if the employee is currently in a job that does not need that skill, should the employee be given any sort of differentiated rewards? ' OK, OK, let us come back to our discussion.

Based on our classification, the question now becomes whether it makes sense to differentiate based on individual, position or organization/business unit related factors? Different business unit in a company might face different markets (both product and factor markets) - with different dynamics and market practices. Business units might also differ in terms of their performance. Hence there is a strong case for differentiation. However, too much differentiation might lead to a situation where the employees in different business units don't really feel that they are working for the same company ! Thus, the organization culture and philosophy becomes a key factor in determining the extent of differentiation. Similarly, it can be argued that some positions in the organization have a much higher impact on organization performance and that some skillsets carry a greater market a higher market value at a particular point - there by making a case for differentiated treatment. Of course, we should keep in mind the fact that the list of critical positions and the list of key skills could change - sometimes quite quickly.

Now, if we examine differentiation based on individual related parameters a similar argument holds good when it comes to individual 'performance' - higher performance merits higher rewards. The case (if any) for 'tenure' based differentiation usually has more to do with organization culture/values. The case for 'potential' based differentiation (on a stand alone basis) is more complex. Anyway, the most common practice is to use a combination of performance and potential. This also leads to interesting situations and challenges. Please see 'Paradox of potential assessment' for a detailed discussion.

Now let us leave aside all these details and examine the core of the issue. I feel that the most important factor driving differentiation related decisions should be 'contribution/value addition to the organization'. So if there are some business units/positions/individuals that create more value to the organization as compared to other business units/positions/individuals they could be given preferential treatment. By the same logic, the extent of differentiation should mainly be a factor of the variation in the 'contribution/value addition to the organization'.

While this sounds quite neat/logical, there are a few important prerequisites to make this work. For example, everyone should understand and agree upon what exactly is meant by 'contribution/value addition to the organization' at the business units/position/individual levels. In addition to this we might need to include probable 'contribution/value addition to the organization' in the future, apart from the current ''contribution/value addition to the organization' (e.g. in the case of differentiation based on 'potential'). Also, it should be possible to track/ measure/ assess this relative 'contribution/value addition to the organization' (to the satisfaction of everyone involved) at all these levels . Again, there should clear norms in staffing the positions/business units to answer the question 'how can I move to that position/unit that gets better treatment'. As we can see all this could get quite complex.

As I see it, what really matters most here is the dynamic interplay of the factors (as opposed to a particular factor per se) in a particular context. For example, it is worth it to have a 'key talent program' ( that aggressively differentiates 'high performance - high potential' employees in critical job families) if we are in a context
(a) some positions (say critical positions) have a much higher business impact as compared to other positions &
(b) in critical positions, a high performer in creates much more value as compared to an average performer &
(c) it is very important that senior positions are filled by developing talent from within (say because of the nature of work and organization culture)
In such a context, the business case for the key talent program is clear even if the program could have possible side effects in terms of annoying a large section of the employees who are not part of the program. However, if one or more of the conditions mentioned in (a), (b) and (c) above do not hold good (or if they hold good only to a limited degree/extent), the business case becomes less compelling.

While this does not negate the existence of the complexity that we were discussing earlier, it can be seen that some patterns can be found amidst the complexity that can lead to actionable inferences in the area of differentiation in people management. Also, while we are caught up in all this talk about differentiation, we should not forget the importance of 'individualization' (managing each employee as a unique individual - please see previous posts like 'Paradox of HR systems' and 'Feasibility of mass career customization')- though it is not really 'differentiation' - in the sense we are using the term here.

Paradox of 'potential assessment'

Most 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 high performance in the current job' is well known. There won't be many HR professionals (or even business managers) who haven't heard about the 'tragic story' of the 'star salesman who was promoted to the sales manager position and failed miserably'. So the business case for 'potential appraisal' is quite strong.

The problem begins when one asks questions like

a. How exactly should organizations go about assessing potential?

b. Can potential assessment be done (within the organizational constraints) in a reasonably valid manner?

c. 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?

There are different points of view when it comes to the answers to these questions and that is what makes potential assessment paradoxical. A paradox occurs when there are multiple perspectives/opinions (doxa) that exist alongside (para)- each of which is true - but they appear to contradict/to be in conflict with one another.

The common methods used for 'potential appraisal' include managerial judgment, 360 degree appraisal, psychometric testing, assessment centres etc. Sometimes, 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. Sometimes 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 sometimes does not get enough attention) is 'potential for what?'. Many answers are possible here. They include

1. potential to be effective in a particular position
2. potential to be effective in a particular job family
3. potential to be effective at a particular level
4. potential to take up leadership positions in the company
5. potential to move up the organization ladder/levels in an accelerated timeframe etc.

Logically, the first four answers should lead to the creation of a capability framework that details the requirements to be effective in the job/job family/level/leadership positions that we are taking about. Similarly, the fifth answer should lead to identification of attributes/capabilities that enable an employee to quickly climb up the organization ladder.

It is interesting to note that since these capability requirements can be different for different organizations a person who is rated as 'high potential' in one organization might not necessarily be rated so in another organization (and vice versa) - even if we rule out any errors in measurement. However, the capability frameworks (especially the 'behavioral competency frameworks') tend to be quite similar across organizations (for a variety of reasons including the generic nature of the frameworks, attempt to include all possible 'good' behaviors in the framework, casual benchmarking of competency frameworks, hiring the same consultant to develop the framework etc.). Hence, assuming reasonable consistency of measurement, the potential ratings for the same person might not vary too much across organizations - unless the underlying definitions of potential (i.e. answer to the question - 'potential for what?' mentioned above) are different across the organizations.

The potential assessment has to be done with respect to the requisite capabilities mentioned above. 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. Psychometric testing also becomes useful if the fit between ‘certain dimensions of the organization culture and the employee’s personality’ gets identified as a key factor for potential. Managerial judgment (especially if it is calibrated through an 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, it 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 organization is not willing to use anything other than 'judgment 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, invest, 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 the 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. Sometimes, 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. Sometimes potential assessment is positioned/communicated to the employees as 'purely for capability development' though the potential ratings get used for making key decisions that impact 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 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, initial investment/effort required to put the process in place, time/effort required for each cycle, sustainability, use of the results, employee communication, 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 maximize the implementation effectiveness and to minimize/mange the possible adverse side 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?)!!!