Developing High-Potential

Employees In The New

Business Reality
Lisa A. Burke

ohn, a graduate ences, or job rotation, versus formal in-class train-

J of an elite MBA
program, takes
a job in the
finance division of a
Fortune500company.
Anxious to progress in
the corporation, John
is concerned about
career development.
The company assigns
him to treasury for his
first position. Twelve
months pass and John
is moved to a financial
analyst assignment supporting the manufacturing
area for one year. After this, management decides
John should gain experience in another func-
tional area of the company. So he moves again,
this time to a sales assignment for four months.
Upon return from his sales territory, John is as-
signed for ten months as a personnel associate in
research and development at the corporate head-
quarters. With exemplary performance in all of
these assignments, and after about three years
with the firm, John is promoted to manager of
strategic financial planning.
John represents what has been defined as a
high-potential employee (HIPO), someone who
is characterized by a fast rate of lateral movement
through various roles in the firm, a carefully
monitored career, and an elite but usually secre-
ing. In fact, 84 percent of firms in a study by
Derr, Jones, and Toomey (1988) reported job
rotation as the primary strategy used to develop
HIPOs. Specifically, job rotation attempts to pro-
vide these fast-trackers with a “macro-view” of
the firm, its business environment, and its strat-
egy in preparation for top management positions.
In the new business reality, the marketplace
is characterized by hypercompetition and global-
ization, making HIP0 programs more important
now than ever. Upon consideration of the turbu-
lent business climate, along with the nontrivial
replacement costs of company-generated talent, a
case can be made for efficiently identifying and
grooming a firm’s high-potential employees so
that those who best know the business, technol-
ogy, and operations are making the critical deci-
sions.
Designing and managing a program for high-
potential employees, however, is a complex pro-
cess with few guidelines to follow. The objective
here is to: (1) discuss the use of HIP0 programs
in today’s business environment, (2) introduce
key decision points in assessing the need for,
design of, and management of a program to de-
velop HIPOs, and (3) identify what we know
about the consequences of these decisions.
THE USE OF HIP0 PROGRAMS IN TODAY’S
BUSINESS ENVIRONMENT

A
tive status. As future leaders of their firms, HIPOs straightforward case can be made that
move quickly into new positions, receive special today’s businesses actively need to
coaching and mentoring, and are expected to select and prepare high-potential em-
deliver superior performance. As illustrated by ployees to manage in complex environments.
John’s experience, firms prefer to manage HIP0 The efficiency of sponsored mobility systems in
career development through on-the-job experi- meeting this need is apparent: Decisions about

Business Horizons / March-April 1997

who moves up are made as early as possible and
specialized career development follows to ensure
the best and brightest quickly rise to the top. Just
as competitive advantage can be generated by a
speed-to-market product strategy, sustained com-
petitive advantage can also be created with a
firm’s ability to develop leadership talent effi-
ciently. In other words, a pressing need exists to
decrease the cycle time required to identify lead-
ership needs, assess current talent, and develop
high performers. By efficiently developing
HIPOs’ leadership competencies in hopes of
creating a savvy top management team, organiza-
tions can enhance their responsiveness to an
increasingly complex business environment.
Because of concerns about the shortage of
executive-caliber talent at McDonnell-Douglas,
rotational programs were a significant part of an
overall plan designed to identify HIPOs and help
their careers quickly progress. At PepsiCo, tolerat-
ing mediocrity in employee performance demor-
alized their top performers and encouraged the
company to expedite the early identification of
HIPOs to develop top management talent. In
each case, the corporation aggressively selected
HIP0 talent and groomed them through a series
of challenging rotational assignments. Consider
Edgar Woolward, Jr.‘.s ascent to the top spot as
CEO at Du Pont, which took him through 20
different jobs in 32 years. Similar “muscle-build-
ing” programs, designed to ensure that the best
and brightest move to the top, have occurred at
firms such as Greyhound Financial Corporation,
IBM, Hewlett-Packard, Marriott, and AT&T, to
name just a few.
Nevertheless, such approaches are not with-
out their share of criticism. It may be difficult to
determine whether an employee actually merits
HIP0 status or fulfills higher expectations simply
because of a self-fulfilling prophecy effect. HIP0
programs can also encourage firms to produce
clones of current top management members who
are not necessarily well-equipped to handle fu-
ture business issues. And when HIP0 programs
are not designed appropriately, such problems as
non-participant resentment and participant dissat-
isfaction have been found to result.
Unfortunately, there is little guidance avail-
able in how better to meet these and a multitude
of other challenges when designing and manag-
ing HIP0 programs. Based on the principal is-
sues identified in prior research, the Figure pre-
sents the key decision points in adopting a HIP0
program. The points are outlined in three steps:
(1) needs assessment, (2) design, and (3) man-
agement of a HIP0 program. What follows is an
initial attempt to identify, consolidate, and exam-
ine these key decision points when implementing
an effective HIP0 program in the new business
reality.
Developing High-Potential Employees In The New Business
Figpre
Key Decision Points In The Needs Assessment,
Design, And Management Of A HIP0 Program
Af+SEMNG~~FORAHIPOPROGIUM
l Identify the specific need&> for the program
* Identify how the program will support the firm’s
business strategy and future leadership needs
l Outline program benefits For the organization,
HIPOs, and the rest of the employees
I
D3SiGNlNG THE PRt3GRAM
l Identify HIP0 selection criteria
l Determine communication strategy
l Decide whether to disclose HIP0 status
* Determine timing of HIP0 identication
l Create a program evaluation mechanism
I
MANAGINGHIPODEVEUBP~
l Determine type d lateral moves
. Select appropriate mix of experiences
l Identify critical skills to develop
l Determine length and timing of lateml moves
l Use frame-breaking experiences
L
ASSESSING THE NEED FOR A HIP0 PROGRAM
T
he first step depicted in the Figure is
relatively straightforward, yet often over-
looked. The organization must determine
the extent to which a business need exists for
creating and managing a HIP0 program, and it
must specifically identify how the program will
meet that need. Again, when considering the
importance of promotion-from-within strategies
and succession planning efforts in creating top
management talent, the business case for a HIP0
program may be fairly apparent. Nevertheless,
the company needs to be very explicit in defining
the program’s objectives, because they may differ
from the firm’s specific business strategy, its ex-
perience with using sophisticated HR practices,
and the goals of senior management.
Specifically, managers must respond to the
following line of questioning: Why do we need a
HIP0 program? How will it support our business
strategy and improve our competitive advantage?
How will it help us fulfill our leadership needs
for the future? How will it benefit the organiza-
tion, the HIPOs, and the rest of our employees?
In short, the central concern is with the stra-
tegic benefit of implementing a HIP0 program.
As with other human resource interventions
(such as training and development programs), if
there is no clear sense of how the program will
Reality
 support the company’s business strategy, the pro-
gram design will be misguided. Consequently,
involving a variety of people in this process will
help ensure that the HIP0 program has a unified
purpose, is designed to meet the business needs
of the firm, and is commonly supported. More-
over, in an era in which human resource prac-
tices are being more closely scrutinized for their
contribution to the organization, performing
some type of need assessment is essential.
DESIGNING A HIP0 PROGRAM
A
fter identifying the need for a HIP0
program and enumerating the high-level
objectives, the corporation enters into
the more complex step of program design. This
step is composed of five key decision points:
identifying the criteria for HIP0 selection, deter-
mining a communication strategy, deciding
whether to disclose HIP0 status, determining the
timing of HIP0 identification, and creating a pro-
gram evaluation mechanism. Each is discussed in
turn.
Identify HIP0 Selection criteria
The ultimate selection criteria to be used in deter-
mining HIP0 status should be chosen with the
program’s goals in mind and should be clearly
defined. There are numerous sources from which
such assessments of HIP0 talent could be gath-
ered. Organizations have considered:
l level of education, university where ad-
vanced degree(s) were obtained, and grades;
l previous work experience (industry, mana-
gerial);
l assessment center performance;
l performance in the organization (using
standard performance evaluations by supervisors,
peers, or subordinates);
l supervisory assessment of leadership po-
tential (qualitative or quantitative assessments>.
Most companies rely heavily on the use of
direct supervisors to identify HIP0 talent based
on actual job performance, rather than using a
list of attributes or assessments of future poten-
tial, Such a performance-based approach, which
incorporates several objective sources in the
evaluation, should help generate valid assess-
ments and enhance employee perceptions of
fairness. This approach, in turn, should increase
the company’s confidence in the HIP0 candi-
dates who are selected and avoid the self-fulfill-
ing prophecy explanation for HIP0 status.
Determine A Communication Strategy
The next key decision point in program design
deals with the communication of program goals
20
in the organization. The company must decide
whether the goals of the HIP0 program are to be
communicated, to whom communication is nec-
essary, and what the content of the message will
be. Several advantages arise from communicating
the goals of a HIP0 program to both current and
prospective employees, helping to ensure that
the process of allocating HIP0 slots is seen as
procedurally fair. Discussing the program with
applicants realistically portrays career develop-
ment practices in the firm and may encourage
useful self-selection. And communicating pro-
gram goals with employees removes the ambigu-
ity, confusion, and frustration associated with
concealed company practices.
Harris and Feild (1992) found in one com-
pany that a lack of understanding of program
objectives was the major barrier to the line man-
agers’ ownership of their HIP0 program. No
effort had been made to explain the rationale for
an MBA selection criterion, so many executives
perceived it as an indictment against their own
qualifications, with resulting controversy. The
organization should instead have announced the
objectives of the program and explained the cri-
teria and procedures to its line management.
In communicating the goals of a HIP0 pro-
gram, a firm should make it clear that all em-
ployees will be involved in the selection of high-
potential candidates. A team-based atmosphere
might be created in which other employees par-
ticipate in identifying high-performing individuals
through peer and subordinate input in the evalu-
ation process. Employees should be told of the
potential benefits of creating a highly competent
top management team in terms of profit-sharing
initiatives, formulation of business strategy, and,
ultimately, job security. The potential down sides
of the program should be discussed as well. By
providing a candid exchange of information, the
program will gain increased credibility.
Decide Whether To Disclose HIP0 Status
Informing HIPOs of their status has been a diffi-
cult issue for firms to handle, and no easy solu-
tions are readily apparent. Most firms report that
they prefer to maintain a secretive status for
HIPOs. This allows more flexibility in taking indi-
viduals on and off “the list” according to their
judged potential. It can also alleviate the “Crown
Prince Syndrome,” whereby HIPOs perceive they
have been anointed as the chosen few. And it
helps avoid the Hawthorne effect, in which the
increased attention accounts for good perfor-
mance.
However, most firms using a HIP0 program
have found that protecting a secret list is difficult.
Employees often discover who is on the list by
the opportunities given to certain employees. Or
Business Horizons / March-April 1997
HIPOs may eventually be told informally by man-
agement. In a study of 225 corporations across 10
major industries, Fresina (1987) reports that 78
percent of the firms interviewed did not inform
HIPOs of their status, but that 90 percent of the
time HIP0 status became apparent anyway. Not
only is a secret list often impossible to maintain,
but it may perpetuate feelings of injustice or in-
valid assumptions about employee development
and advancement practices in the firm.
There are some documented benefits for
informing HIPOs of their status. In Fresina’s study,
the major positive effects included:
l enhanced retention (69 percent);
l improved productivity (57 percent);
l improved relationship with the boss (42
percent); and
l positive impact on the firm (37 percent).
Moreover, in an era characterized by self-man-
agement efforts, informing HIPOs of their status
could allow them to become involved in personal
career planning.
Such benefits may be more easily reaped
when the company culture supports open com-
munication. For example, where discussion and
feedback between supervisors and employees are
commonplace, disclosing HIP0 status will be
consistent with everyday practices. On the other
hand, in a firm in which career discussions only
rarely occur, or in which low employee involve-
ment exists, such an approach may fail miserably.
Even if the culture is supportive, the question
remains as to what HIPOs should be told in or-
der to clarify their expectations. No guidance has
been provided in this area, but some examples
include what specific job the person is targeted
for, the level and type of the job (general man-
ager, functional head), and the size of the HIP0
pool. Process-oriented issues to be shared could
include how HIPOs are selected and de-selected,
what role the firm will play in their career man-
agement, and what role they should play in their
own career planning. Again, the degree to which
these types of information are shared with HIPOs
should be congruent with the nature of the com-
munication strategy the firm chooses to adopt.
Determine The Timing Of HIP0 Identification
An egalitarian approach to determining when to
identify HIPOs would be to allow all employees
an unlimited amount of time in which to demon-
strate they should advance in the firm. However,
the new business reality calls for a more active
and aggressive approach for HIP0 identification.
Derr, Jones, and Toomey (1988) found that
most companies identify HIP0 talent after three
to eight years. Evans (1986) claims that identifica-
tion should be done as soon as possible and after
no more than five to six years of actual work
Developing High-Potential Employees In The New Business Reality
experience. In actuality, this time frame will de-
pend on the company’s supply and demand for
executive-caliber talent, the type of business en-
vironment in which it
operates, and its phi-
losophy of career man-
agement.
If the need for top
management talent in
the company is readily
apparent and the com-
pany values sponsored
mobility career systems,
HIPOs can be identified
fairly early. Regardless
of what time frame is
agreed upon, though, it
should be consistently
applied throughout the
organization. Further-
more, both human resources and line managers
should be involved in the identification process
so as to derive consistent and valid HIP0 assess-
ments.
Create A Program Evaluation Mechanism
The final key decision point is instituting an ap-
propriate evaluation mechanism to ensure that
the program is meeting corporate objectives.
Without it, the firm will have no formalized way
of assessing program contribution. The organiza-
tion needs to specify:
l what criteria will be used to monitor and
evaluate program effectiveness in terms of ben-
efits for the firm (productivity, employee reten-
tion) and for HIPOs and other employees (job/
career satisfaction, organizational commitment,
productivity, turnover, absenteeism);
l how often the HIP0 program will be
evaluated;
l who (or what group) will oversee the on-
going implementation, evaluation, and modifica-
tion of the HIP0 program.
A regular feedback mechanism will help
ensure that the desired outcomes of the HIP0
program outlined in the needs assessment phase
are achieved. It will also ensure that any neces-
sary modifications to program design are pursued
regularly. Finally, employees responsible for sup-
porting and managing the HIP0 program should
be held accountable for program outcomes and
appropriately rewarded throughout the company.
MANAGING HIP0 DEVELOPMENT
T
he third step in the Figure addresses how
firms can use job rotation strategies as
the primary mechanism for managing
HIP0 development. In this step, a company must
21
 determine the type of lateral moves to use in Select The Appropriate Mix Of Experiences
HIP0 development, decide upon the appropriate
functional experience mix, identify the critical In grooming top management talent, a corpora-
skills to be developed, determine the length and tion must decide on the appropriate mix of func-
timing of lateral assignments, and consider the tional experiences to provide its HIPOs. The most
use of frame-breaking experiences. Each point is beneficial mix of work experiences across the
discussed below. various functional areas in a firm will depend on
the environment and business strategy. For ex-
Determine The Types Of Lateral Moves ample, more complex strategy-making processes
are needed in dynamic environments and when
Research has consistently shown that the number the organization is growing and maturing. In
of different positions held by an employee is volatile or unstable environments, a diverse mix
related to career attainment. Lateral moves are of assignments is necessary to develop a breadth
not only critical for HIP0 development and ad- of knowledge, insights, and skills for the solution
vancement, but in an era of flatter organizational to organizational issues stemming from environ-
structures they are also more congruent with mental change.
corporate opportunities. Certain functional experiences appear to be
Different types of lateral moves can be used especially desirable for HIPOs in the new busi-
when managing a HIPO’s career. An intra-finc- ness reality. Specifically, these assignments in-
tional move occurs when an employee is rotated clude exposure to the international arena as well
among several as- as sales, finance, and human resources. Interna-
signments within a tional experience is especially critical for those
given functional area. aspiring to top management positions so that
In the opening sce- they can better understand foreign markets, how
nario, John had three to motivate foreign workers, and how to form
intra-functional as- alliances abroad.
signments: treasury,
manufacturing-finan- Identify The Critical Skills To Develop
cial, and strategic-
financial planning. An organization must keep an eye toward the
He also had two interfunctional moves: sales-and future to avoid developing mere clones of its
personnel. Interfunctional moves, or cross-func- current leaders. But the ambiguity and complex-
tional assignments, provide experience in a func- ity of the business environment can complicate
tional area that does not represent the employee’s the identification of specific skills needed by top
primary realm of expertise. managers. Some firms have chosen to identify a
Each type of lateral move should be used in few competency criteria that are reliable indica-
HIP0 career management to serve one of two tors of management talent. Some have opted to
purposes: to enhance discipline-specific knowl- decentralize the responsibility of managing the
edge, or to increase the breadth of knowledge. process.
Intra-functional moves should be used when Research dealing with organizational capa-
trying to deepen a HIPO’s understanding of a bilities as sources of strategic advantage can pro-
certain business unit or function. John’s manage- vide some guidance for identifying the manage-
rial position in strategic-financial planning would rial competencies necessary in today’s business
help him develop supervisory skills while en- environment. In a competency-based, learning-
hancing his knowledge of the financial area’s systems approach, for example, Arthur, Claman,
processes and technologies. His cross-functional and DeFillippi (1995) call attention to three criti-
moves would help him develop a breadth of cal competencies of “knowing”: knowing why,
knowledge about the company’s mission, prod- knowing how, and knowing whom. In terms of
ucts, and culture. specific competencies for leaders, Lade and Wil-
Given the need for this broad-based under- son (1994) broadly report two managerial compe-
standing of the firm, interfunctional moves should tencies that are potentially important for sus-
be used strategically because they provide a vast tained competitive advantage: the ability of lead-
array of corporate experience and can better ers to articulate a strategic vision, and the unique
prepare HIPOs for a top management position. ability to enact a beneficial company-environment
Line-staff rotations, for example, can offer early relationship.
leadership experiences that are important in Regardless of the specific competencies iden-
HIP0 development. Most companies rated high tified, it is important that managers understand
in management talent, such as PepsiCo, Citicorp, how job rotation (in addition to other human
and Hewlett-Packard, rely heavily on cross-func- resource subsystems) facilitates the development
tional assignments to develop their employees. of such critical skills. In the past, many busi-

22 Business Horizons / March-April 1997

nesses have reported interpersonal and leader-
ship skills to be among the most important skills
they have attempted to develop with lateral
moves. On the other hand, Campion, Cheraskin,
and Stevens (1994) found in a study of 255 finan-
cial employees in a large Midwestern firm that
employees perceived job rotation as improving
business skills-knowledge of business issues, of
other functions, and of how the firm operates-
more than administrative skills, such as leader-
ship and communication. Given that the purpose
of job rotation is to improve an employee’s un-
derstanding of the total business, this finding has
a great deal of face validity.
However, Campion and his colleagues also
found that employees judged rotation as improv-
ing technical skills more than either business or
administrative skills. It may be that in a special-
ized function such as finance, rotation is useful in
developing technical expertise and skills. Never-
theless, an important implication from these em-
pirical findings for practitioners is that they must
ensure the actual skills being developed by lat-
eral moves are those being targeted by the corpo-
ration.
Determine The Length And Timing Of Lateral
Assignments
The length of lateral assignments must be man-
aged carefully so that HIPOs maximize their de-
velopment and contribution in each assignment
yet continue to progress in their fast-paced ca-
reers. If rotated too quickly, accountability be-
comes a problem and the HIPO’s credibility may
be questioned. Clearly, shorter-term assignments
may benefit HIPOs but not necessarily the orga-
nization. Therefore, a balance must be struck
between expediting HIP0 development and
achieving organizational productivity.
At McDonnell-Douglas (at least prior to the
recent merger with Boeing), HIPOs change re-
sponsibilities every three years; at PepsiCo, it is
about every year. However, research has yet to
examine and/or recommend a specific length of
time HIPOs should spend in their rotational as-
signments. According to Campion, Cheraskin, and
Stevens, rotation rates should be managed ac-
cording to the time required to achieve develop-
mental needs. In other words, firms should ulti-
mately focus on the quality of the HIPOs’ work
experiences, not just the quantity of assignments
they rotate through.
Although rotation should not be implemented
as a lockstep system, companies may want to
establish some “window” of time-say, two to
three years-as a guide in determining the length
of lateral assignments. That way, it is hoped, they
can avoid shortchanging both HIP0 development
and organizational effectiveness.
Developing High-Potential Employees In The New Business
Use Frame-Breaking Experiences
Managers respond to and learn from challenges.
Certain assignments, referred to as frame-break-
ing experiences, demand the attainment of nu-
merous skills without much initial preparation
and require a substantial amount of individual
investment. The potential return from this is a
high degree of learning as well as a high risk of
failure. HIP0 work assignments often represent
frame-breaking experiences, especially in down-
sizing scenarios, where managers are already
doing the work of many people.
There are several implications of using frame-
breaking experiences in HIP0 programs. Compa-
nies must consider the frequency with which the
experiences will be used throughout a HIPO’s
career development, the challenges the HIP0 will
face as a result, and ways to support the fast
tracker during these periods. Some firms have
found mentoring opportunities to be useful HIP0
support mechanisms. Mentors provide necessary
guidance and counsel to support HIPOs in their
career progression, enhance their understanding
of the firm’s culture and politics, and provide
direction for how best to maneuver within the
organizational context.
G
iven today’s new reality and the stormy
future promised in the business world,
companies must actively pursue the
identification and development of high-potential
talent. By preparing a select group of employees
to ultimately fill its top-tier jobs, a company can
build a strong management team with the skills
needed to maneuver in a hypercompetitive mar-
ket.
But a HIP0 program can be controversial
and tricky to implement and maintain. The key
decision points identified and examined here can
increase understanding of how to assess the need
for, design, and manage a HIP0 program in such
a tough business environment. A clear business
case must exist for incorporating the program
into the company’s succession planning efforts.
Criteria for identifying and selecting HIPOs, justi-
lying and explaining the program to employees,
timing and evaluation mechanisms-all must be
weighed and considered carefully.
Broad-based lateral moves throughout the
firm, along with just the right mix of functional
and international experiences, are crucial for
learning the knowledge and skills essential for
future leadership talent. Mentors and other sup-
port mechanisms should be established to help
HIPOs cope with demanding assignments. And
perhaps most important, managers must work to
strike a balance between meeting the individuals’
career needs and achieving long-term corporate
objectives.
Reality 23
 It all makes for a very ambitious and de-
manding plan. And, of course, there is no guar-
antee of success. But if carefully and properly
designed and managed, a program for grooming
the employees with the highest potential can go
a long way toward creating the best possible
leadership-and future-a firm can produce. Cl
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Lisa A. Burke is an assistant professor of
management at Miami University in Ox-
ford, Ohio. The author would like to thank
the BH editorial staff, Tim Baldwin, Lisa
Cheraskin, and Jo Ellen Moore for their
helpful comments on earlier drafts of this
manuscript.
Business Horizons / March-April 1997