He is the man who shot off a letter on how one should assess the next Pope. That is not so far-fetched if you consider that Claudio Fernandez-Araoz, who is Senior Adviser to Egon Zehnder, is credited for establishing the firm's management appraisal practice.
Rated as one of the most influential executive talent search consultants in the world, he was in Delhi late last year and spoke at length to Shamni Pande of Business Today about why merely evaluating competence is not enough to judge future leaders. Some excerpts from the interview:
Q. Why do you think reliance on measuring competence of an individual is an overrated metric to judge the fit of talent for specific roles?
A. To use a military expression, in this VUCA world - where things are volatile, uncertain, complex and ambiguous - it is difficult to predict things. The best practice to either hire talent or to move someone from within is to use the competency model where you look at the competence required and then you try and find candidates with those competencies. We have spoken to many CEOs and HR heads and they all acknowledge that this is their best practice. Of course, you have many who are more primitive, but we are talking of people who do follow the best practice. This is fine.
But the problem is if you 'only' look at competencies, then that performance will quite likely be short-lived. Because in a world that changes so much, the job itself changes and someone who used to be a good fit, may no longer be a good fit. So, we need to check for competence, but it has become essential to check for 'potential' as well, as people who are good at certain roles, jobs and conditions, may not be as good in a new business environment. Also, this checking for potential is essential as we will face the toughest battle for talent for leadership.
Q What are the factors that will make the battle for talent very fierce?
A. The average tenure of CEOs even two decades ago was 15 years, now it is five years. As we go forward there will be a war for talent. Of the various factors, I think the interplay of three will be critical. I call it the 'other GDP'- and it is not gross domestic product! First is globalisation, and that is today working both ways. So, the global companies are anyway out seeking talent, but also from the emerging economies new global giants such as Tata, Samsung, and Huawei also seek that talent.
The second fact is demographic, and here clearly India has an advantage over other countries where you have ageing population. The third aspect is pipelines, which represents the reserves of qualified successors for companies. It is the combination of these three major forces, which is making talent scarce. In fact, if you look at the sweet spot for leadership talent in the age bracket of 35-44 years, talent is shrinking. It is an unprecedented phenomenon.
We did a study with Nitin Nohria, Dean of Harvard Business School some seven years ago on CEO talent and found that only 15 per cent of the companies in North America and Asia have the right number of qualified successors. That is indeed dramatic. In Europe the number was a bit better. We updated this study recently, but the results remain as dramatic as that. And the survey we did in end-2014 revealed a terrible rate of depletion in the level of successors - worse than we have seen in many years. Now, each of these three factors will double the demand for talent. But if you want to find the right talent, in a certain market in the right market, then the demand will increase by 800 per cent. You cannot solve this problem by hiring people, because talent is not perfectly portable. Hence, the solution is to be good at spotting talent and potential, so you can develop them further and faster.
Q. Is there anything peculiar, or interesting, about Indian talent?
A I am fascinated by India for many reasons. Indians have been blessed with a wonderful combination of Anglo-Saxon mind, meaning a logical mind, and a Latin heart. And by that, I mean a warm heart. It would be terrible if it were the other way round. On the other hand, India has been a factory exporting talent to the whole world. I think, outside of the United States, there has been no other country that has exported that much talent. Also, the second peculiarity is that by a series of circumstances, Indian talent is getting prepared for VUCA world, where i am told even tax laws were changed and that makes even the past unpredictable! India has been outstanding at managing diversity and inclusion where there is diversity of region, caste, races…so it has practice for what is required today. And high level of regulation that are challenging and plus lots of well educated people that have a command of English language. Given a combination of these factors, talent here gets automatically trained for leadership roles.
Q. So, how do you assess potential?
A. At Egon Zehnder we have been developing a proprietary model to assess competence and potential for three decades. We go back to the client and check to assess if our model and assessment is accurate. In simple terms, we assess people in three categories. A low potential person is someone who is not expected to be promoted in the next five years. This does not mean that the person cannot be most strategic resource; someone, for instance, who is working in research and development, has unique knowledge and is good. But the person has no interest in being promoted. This person does not want to be bothered managing people.
Medium potential, is expected to be promoted just once in five years. High potential, on the other hand, expects to be promoted at least twice in next five years. We go back to companies after five years and check if were right. We found that we are right 85 per cent of the time.
Q. So, promotion is also dependent on one's own desire to be promoted?
A. No, no. This has nothing to do with one's desire. Everyone wants to be the boss!
Q. So, how do you define a high potential talent?
A. The problem I found is that companies do not use a valid and reliable model to identify and assess potentials. Also, everyone has their own definition of potential talent: Some people say high potential is a creative problem solver. Some people say high potential is a high achiever. But few have done their homework to check their predicting potential and validating their decision after some years.
Other problem is that people are not properly trained in assessment. Curiosity is a major indicator of potential. Again, you need a proper definition of curiosity. Not someone who's interested in funny facts and figures. Our definition, for instance, is someone who proactively seeks feedback and acts on the consequences. For instance, children are curious and they ask questions and learn from their experience. Of course, everyone will tell you they are curious. But references are important.
Here I would like to share an anecdote where we invited Jack Welch and his wife Suzy for dinner at our home in Argentina. This is after he had retired. We also invited our friends and they were naturally expecting to learn from the manager of the century. I could see their frustration as they were planning to ask questions, but could not ask any as Welch was asking them all. He quizzed them about inflation, about regulation and why action had not been taken on some issue.Finally, at the end my friend pointed out that the biggest thing he learnt from Welch was how this man had insatiable curiosity. He did not have a need, had retired, and was a millionaire many times over…So, to come back to my point, you need to assess this kind of curiosity. And this has to be done by asking the right questions that allow you to assess them. For instance, what does someone do to get feedback? And if someone says they have monthly lunches with the bosses, then prod them more…what type of feedback did they receive? What was the situation, what were the circumstance, what has the person done? You need to keep digging deeper to get to the real story. Here, one also has to check the references, as everyone will naturally present the best profile.
Of course, this curiosity is key and this is combined with motivation, engagement and the right determination. Unfortunately, most organisations do not have the right model and they do not also train people who can take accurate assessments.
Q. Indians tend to go after academic excellence and achievement. Is this the right fit?
A Globally too this is true, we place too much importance to IQ. But there is wonderful work done by Daniel Goleman on Emotional Intelligence. And I contacted him and we worked for seven years on learning how this is an important indicator to success. We place too much importance on IQ and on academic achievements, but not on the soft skills. However, all research tell us that IQ gets someone hired, but lack of emotional intelligence gets them fired. IQ measures verbal, analytical, spatial, logical…that are all filtered in our educational process and are easy to measure. We have no equivalent on soft skills, self awareness, self management, flexibility and adaptability, social awareness, political awareness... The other aspect of this is in how relationship is managed, how vision is influenced with integrity and the team work.
Coming to your questions, I feel Indians are creative, very flexible and do things in parallel. The environment forces you to do that for survival. I think they are better than average in terms of emotional competence and also in terms of potential. We have a global database from several thousands of people and I have looked for this. For instance, in Japan, a young executive has more potential than the global average. However, the senior executive in Japan has, paradoxically, lower competence than the global average database. This is because in Japan there is vertical growth in the same division with little or no exposure to new challenges. The other reason is the wonderful value of veneration of old age and they tend to promote on the basis of tenure.
The key to develop talent is job rotation. If merger and acquisition is the key to growth, then a company needs genius at top for strategy, marketing orientation, etc. However, if the company desires organic growth, then it needs competence to nurture talent. The managers need to be appraised on how they have nurtured talent and the quality of that talent. Take Hindustan Unilever that stands out on this parameter. At least half of the bonus of managers is dependent on the quality of managers under him. Many do not focus, but those who do and provide incentives, get extraordinary results.
The war footing with which companies try to suck up talent at the starting levels in colleges. I met the head of Tata Consultancy Services or TCS - India's most valuable company by market capitalisation - and learnt that it has evolved a method of assessing talent productivity against their cost to the company. The company then makes blanket offers to certain colleges from where talent has shown consistent good results in the past. I find wonderful innovations at play here in India. That is why I am optimistic about the potential of talent in India.