A few years ago, I was asked to help find a new CEO for a family-owned electronics retailer that wanted to professionalize its management and expand its operations. I worked closely with the outgoing chief executive and the board to pinpoint the relevant competencies for the job and then seek out and assess candidates. The man we hired had all the right credentials: He’d attended top professional schools and worked for some of the best organizations in the industry, and he was a successful country manager in one of the world’s most admired companies. Even more important, he’d scored above the target level for each of the competencies we’d identified. But none of that mattered. Despite his impressive background and great fit, he could not adjust to the massive technological, competitive, and regulatory changes occurring in the market at the time. Following three years of lackluster performance, he was asked to leave.
Compare that story with one from the start of my executive search career. My task was to fill a project manager role at a small brewery owned by Quinsa, which then dominated the beer market in the southern cone of Latin America. In those days, I hadn’t yet heard the term “competency.” I was working in a new office without research support (in the pre-internet era), and Quinsa was the only serious beverage industry player in the region, so I was simply unable to identify a large pool of people with the right industry and functional background. Ultimately, I contacted Pedro Algorta, an executive I’d met in 1981, while we were both studying at Stanford University. A survivor of the infamous 1972 plane crash in the Andes, which has been chronicled in several books and the movieAlive, Algorta was certainly an interesting choice. But he had no experience in the consumer goods business; was unfamiliar with Corrientes, the province where the brewery was located; and had never worked in marketing or sales, key areas of expertise. Still, I had a feeling he would be successful, and Quinsa agreed to hire him. That decision proved to be a smart one. Algorta was rapidly promoted to general manager of the Corrientes brewery and then CEO of Quinsa’s flagship Quilmes brewery. He also became a key member of the team that transformed Quinsa from a family-owned enterprise to a large, respected conglomerate with a management team considered at the time to be among the best in Latin America.
Why did the CEO of the electronics business, who seemed so right for the position, fail so miserably? And why did Algorta, so clearly unqualified, succeed so spectacularly? The answer ispotential: the ability to adapt to and grow into increasingly complex roles and environments. Algorta had it; the first CEO did not.
Having spent 30 years evaluating and tracking executives and studying the factors in their performance, I now consider potential to be the most important predictor of success at all levels, from junior management to the C-suite and the board. I’ve learned how to identify people who have it and to help companies develop and deploy them. With this article, I share those lessons. As business becomes more volatile and complex, and the global market for top professionals gets tighter, I am convinced that organizations and their leaders must transition to what I think of as a new era of talent spotting—one in which our evaluations of one another are based not on brawn, brains, experience, or competencies, but on potential.
A New Era
The first era of talent spotting lasted millennia. For thousands of years, humans made choices about one another on the basis of physical attributes. If you wanted to erect a pyramid, dig a canal, fight a war, or harvest a crop, you chose the fittest, healthiest, strongest people you could find. Those attributes were easy to assess, and, despite their growing irrelevance, we still unconsciously look for them: Fortune 500 CEOs are on average 2.5 inches taller than the average American, and the statistics on military leaders and country presidents are similar.
I was born and raised during the second era, which emphasized intelligence, experience, and past performance. Throughout much of the 20th century, IQ—verbal, analytical, mathematical, and logical cleverness—was justifiably seen as an important factor in hiring processes (particularly for white-collar roles), with educational pedigrees and tests used as proxies. Much work also became standardized and professionalized. Many kinds of workers could be certified with reliability and transparency, and since most roles were relatively similar across companies and industries, and from year to year, past performance was considered a fine indicator. If you were looking for an engineer, accountant, lawyer, designer, or CEO, you would scout out, interview, and hire the smartest, most experienced engineer, accountant, lawyer, designer, or CEO.
I joined the executive search profession in the 1980s, at the beginning of the third era of talent spotting, which was driven by the competency movement still prevalent today. David McClelland’s 1973 paper “Testing for Competence Rather than for ‘Intelligence’” proposed that workers, especially managers, be evaluated on specific characteristics and skills that helped predict outstanding performance in the roles for which they were being hired. The time was right for such thinking, because technological evolution and industry convergence had made jobs much more complex, often rendering experience and performance in previous positions irrelevant. So, instead, we decomposed jobs into competencies and looked for candidates with the right combination of them. For leadership roles, we also began to rely on research showing that emotional intelligence was even more important than IQ.
Now we’re at the dawn of a fourth era, in which the focus must shift to potential. In a volatile, uncertain, complex, and ambiguous environment (VUCA is the military-acronym-turned-corporate-buzzword), competency-based appraisals and appointments are increasingly insufficient. What makes someone successful in a particular role today might not tomorrow if the competitive environment shifts, the company’s strategy changes, or he or she must collaborate with or manage a different group of colleagues. So the question is not whether your company’s employees and leaders have the right skills; it’s whether they have the potential to learn new ones.
By Claudio Fernández-Aráoz