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High Potentials in Multinational Companies…an Investor’s Dilemma

By Elmar Kronz

Elmar Kronz

Many of you have probably come across this popular excerpt from a discussion between a CFO and his CEO on social networks.

CFO asks CEO: "What happens if we invest in developing our people and then they leave us?" CEO: “What happens if we don't, and they stay?"

I am always amazed at the number of likes or retweets these posts achieve. The reason why this quote is so compelling is the fact that it is a truism, and nobody in their right mind would suggest that modern companies, or any multinational company facing intense competition, should not invest in people. Intuitively, most of us know that not investing in people will ultimately lead to mediocrity, a lack of competitiveness, and financial decline.

Consequently, the important question is not if but how companies should invest in people, and especially in high potentials (HiPos) given the high costs often associated with high-potential development. But while this is a question for any company, our research found that MNCs are confronted with a unique dilemma when it comes to reaping maximum benefits from high-potential programs.

Four in five multinationals have high-potential programs in place with more than one in three talent initiatives focused specifically on high potentials, compared to only one in four for domestic companies. Given this larger investment and focus, the question is whether MNCs are also more successful?

Unfortunately, the answer to the question is both YES and NO, a classic dilemma.

The table below shows that MNCs have a larger percentage of high potentials than domestic companies and a higher success rate for high-potential leaders, but their turnover rate for these valued performers is 30 percent worse, generating high replacement costs and partially squandering the outsized investments MNCs make in high-potential identification and development.

High Potentials

Assuming that not investing in high potentials is not a reasonable option, which investment strategies should MNCs then deploy to maximize the return on their portfolio of high-potential talent?

To answer this question we can take some lessons from investment strategies used to maximize the performance of stock portfolios.

One of the most important rules of investing is: Don’t buy stocks in companies you don’t understand.

Applying this rule to high potentials means that companies need to ensure they have the right people in the high-potential pool. The decision about who to invest in should be guided by clear criteria indicating the likelihood of higher return (i.e., performance and growth) on these high potentials.

Another rule of investing is: Constantly monitor the performance of individual stocks and your total portfolio.

Unfortunately, MNC’s do a lackluster job of measuring the return on their investment of high-potential programs. Considering that investment levels into high potentials in MNCs far exceed those of domestic companies, it is a paradox that domestic companies are 1.4 times more likely to measure the effectiveness of high-potential programs.

Measuring progress and return on investment should involve both lead and lag indicators of high-potential program success, including measures of retention risk. High potentials in MNCs who perceive weak support for development are almost twice as likely to consider leaving the organization. Without measurement, including data about HiPo perception, some of your most promising talents might leave before you even detect there’s a problem.

Another rule for investors states: Don’t go all in on investing into any one asset class.

This has two implications for an MNC’s investment strategy in high potentials. First, stay away from investing in too many high potentials, and secondly, don’t forget about the rest of your talent portfolio—other leaders and associates in the company:

  1. Invest in the right quantity of high potentials: our research indicates that engagement and retention is highest for companies with 15-35 percent of high potentials as a portion of their leadership population. Higher percentages increase turnover by 13 percent or more. And as outlined above, higher turnover rates for high potentials are a significant issue for MNCs, most likely because resources in MNCs with higher numbers of these individuals are spread too thin.
  2. If an MNC’s investment into high potentials, including the share of time HR professionals spend on high-potential programs, is at the cost of having little or no investment left for broader leadership development, companies will increase their risk and decrease bench strength. This is especially true if more of your high potentials are leaving—as is the case in many MNCs.

Bottom line: Determining the right investment strategy in high potentials for MNCs is a complex dilemma. However, this significant investment can be optimized by focusing on the right number of high potentials, addressing retention risks early, monitoring effectiveness, and managing your risk with a more balanced investment in different assets, i.e., leaders.

Our new Multinational Leadership Report outlines the unique challenges for talent management and leadership growth facing multinational organizations. In addition to findings previously covered in DDI’s Global Leadership Forecast 2014|2015

Elmar Kronz is DDI's VP, Global Business Development, Global Services Group.

Posted: 14 Aug, 2015,
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