Potential and performance: assess them validly, don’t confuse them

Today’s possibilities make it possible to assess human resources capital by at least three important criteria: competencies, potential and performance. In addition, valid instruments are available to determine a person’s basic personal disposition and the related effects for the company.

The fact that people also bring attitudes and character traits to the workplace is not the focus of this analysis. These points naturally play a role in hiring. But once people are in the company, their development takes place mainly at the level of competencies, performance and potential.

For this development to succeed, the three have to be assessed separately first. Only in this way can existing strengths and development opportunities be recognised.

Competencies, potential and performance are often lumped together, leading to false conclusions. For example, if you ask managers about their high potentials, most of them name their high performers. Performance and potential are not assessed separately, and in many cases potential is confused with performance. According to the background information, performance is assessed instead of potential in more than 90 per cent of cases.

This has serious consequences. Not infrequently, employees are promoted to their level of incompetence, which benefits neither them nor the company.

For many managers, the question of potential is a black box. They therefore base potential on current performance, which can have fatal consequences when it comes to developing employees.

Competencies are personally acquired abilities and skills that enable employees to deliver a certain level of performance. An ability means being good at something, whether through training or through experience. A skill is acquired dexterity, a particular technique or method that is used in delivering performance.

Competence is therefore neither aptitude nor a particular personality trait. What is meant are abilities and skills that employees have acquired and that are available to them in delivering performance. If performance is not right, it has to be examined whether the competence profile matches the requirements and where development might be needed.

Competencies are divided into six categories: strategic skills, operational skills, courage in management, energy and drive, the ability to position oneself in an organisation, and personal interpersonal skills.

A differentiated assessment requires company-wide uniform definitions of the individual competencies. Everyone in the company has to be clear how to recognise whether a competence is well or poorly developed, or even overused. The key message is: performance arises through competencies.

The background information defines potential as a person’s learning behaviour with regard to job-relevant experience. Studies have shown that successful employees are highly motivated to draw maximum learning from this experience and to use it in the future in a targeted way that improves performance.

Potential is not an assessment of performance. It is the assessment of the extent to which employees are able to develop from their daily work in such a way that they can take on more demanding tasks.

Michael M. Lombardo and Robert W. Eichinger distinguish four factors in measuring potential: mental agility, people agility, change agility and results orientation. The key message is: potential is not performance.

Performance is the measurable output of employees, with competence and potential leading to performance. Determining performance requires clear performance indicators or at least definitions that point to performance.

Performance is assessed according to the following factors: quantity of output, quality of output, adherence to deadlines, cost and benefit management, use of resources, contributions to continuous improvement, change agility, and results such as revenue, contribution margin, sales volume, costs or units. In this sense, performance is an employee’s contribution to the company’s results.

If performance is to change significantly, competencies and potential have to be developed. Developing potential takes more effort than focusing first on targeted competence development.

Ultimately, a company can only differentiate itself in the market through people, because they create, operate and develop the systems in the company. Only companies with competent and motivated employees have first-class systems that help ensure that results meet expectations in the end. The key message is: performance is not potential.