Assessing Leadership Potential: How to Identify Future Leaders

• #Staff management
• #Assessment
• #HR

Businesses have long understood that the best individual contributor does not necessarily make the best manager. Yet companies continue to promote employees primarily on the basis of their performance in their current roles.

According to Gallup data published in 2026, 65% of frontline managers were promoted because of their performance or experience in a previous role. Only 30% were selected primarily for their management skills, previous leadership experience, or hired directly into a management position.

This creates a paradox: the problem is well known, yet promotion practices are changing slowly.

Perhaps the issue is no longer that companies fail to understand the difference between a high-performing specialist and an effective manager. The real challenge is assessing leadership potential before making an appointment, rather than inferring it from past achievements.

Why High Performance as an Individual Contributor Does Not Guarantee Success as a Manager

One of the best-known studies of this issue was conducted by Alan Benson, Danielle Li and Kelly Shue. They analysed data from more than 200 companies, over 1,500 employee promotions into management positions, and approximately 156 million sales transactions.

The study found that the better a salesperson performed before promotion, the more likely they were to be appointed as a manager. However, after promotion, the relationship between individual performance and team effectiveness was quite different.

Doubling an employee's sales performance before promotion increased their likelihood of being promoted by approximately 14.3% relative to the baseline probability. At the same time, higher individual performance among newly appointed managers was associated with a decline of approximately 7.5% in their teams' sales performance.

The researchers also identified another indicator that was a better predictor of future managerial effectiveness: experience working in a team. Yet when making promotion decisions, companies placed significantly more emphasis on individual performance.

In a subsequent academic version of the study, the authors estimated that if organisations selected employees based on their predicted managerial effectiveness rather than their sales performance, the average quality of managers could be approximately 30% higher.

The problem is that companies often try to achieve two different objectives with a single career decision: reward an employee for past achievements and select someone capable of successfully leading others.

But these are not necessarily the same person.

Why Companies Continue to Assess Future Managers Based on Past Performance

One might expect promotion practices to evolve over time. However, Gallup's 2026 data show that two out of three frontline managers are still promoted primarily on the basis of their previous performance or experience.

The differences are also evident after promotion. Among managers promoted because of their previous performance or length of service, 31% were engaged. Among those selected for their management skills or relevant leadership experience, the figure was 42%. That is an 11-percentage-point difference.

Meanwhile, a manager's influence extends far beyond their own individual performance. According to Gallup's meta-analysis, managerial capability and engagement account for at least 70% of the variation in team engagement.

This means that a poor decision when appointing a single manager can affect the performance, motivation and engagement of the entire team.

What Companies Value in Leaders and What Employees Expect from Them

Another important insight comes from Hogan Assessments' 2026 study. Hogan compared assessment data from more than 21,000 senior executives with responses from 9,794 employees across 25 markets.

There was no overlap between the five most prominent characteristics of current senior leaders and the five qualities employees considered most important for effective leadership.

Almost 97% of the employees surveyed consider communication, honesty and integrity, accountability, and sound decision-making to be critical to effective leadership.

This gap helps explain the difference between displaying leadership qualities and being an effective manager. The former describes a person's ability to demonstrate leadership behaviours, attract attention, gain influence and advance within an organisation. The latter refers to the ability to fulfil a management role effectively, develop employees and deliver results through a team.

These qualities can coexist, but one does not guarantee the other. Someone who presents themselves convincingly and advances quickly up the career ladder will not necessarily become an effective manager.

Why Formal Potential Assessments Are Not Enough to Make the Right Selection

If performance and potential are two different attributes, it makes sense to assess them separately. However, introducing a separate 'potential' rating into a company's performance management system does not, in itself, solve the problem.

A study published in Management Science in 2025 examined an organisation that moved away from assessing employees solely on current performance and introduced a system with a separate assessment of employee potential.

Following the introduction of the new system, employee performance after promotion declined on average. Potential ratings influenced promotion decisions but did not reliably predict the subsequent performance of newly appointed managers.

One of the reasons was the limited accuracy of expert assessments.

This is an important finding for companies using the nine-box grid or other talent assessment tools. Having a formal assessment framework does not necessarily mean an organisation can accurately predict whether an employee will succeed at the next management level.

If assessments still rely primarily on the subjective opinion of the direct manager, a new tool may simply create an illusion of objectivity.

Key Criteria for Assessing Leadership Potential Before Promotion

A robust assessment should be based on several criteria and independent sources of information. It is important to consider not only an employee's track record but also their readiness to take on new responsibilities and more complex challenges.

• Management competencies. The ability to make decisions, influence others, develop employees, resolve conflicts and operate effectively in uncertain situations.

• Learning agility and capacity for development. Willingness to take on more complex roles, adapt to new expectations and change established ways of working.

• Motivation to lead. A genuine desire to manage people, take responsibility for team performance and develop others, rather than simply seek a higher status or title.

• Personality traits and potential risks. Behaviour under stress, responses to feedback, tendencies towards micromanagement and other characteristics that may affect managerial effectiveness.

• Behaviour in management-related situations. The ability to perform in scenarios that reflect the realities of a management role, such as solving business problems, allocating resources or resolving conflicts.

A range of assessment methods can be used, including competency-based interviews, psychometric assessments, business case exercises, assessment centres and 360-degree feedback. Combining these methods provides a more comprehensive picture of an employee than relying on a single performance indicator or one expert's opinion.

It is also important to distinguish between current readiness for a management role and longer-term development potential. High potential does not always mean an employee should be promoted immediately. In some cases, they may need additional experience and development first.

How Objective Leadership Assessments Affect Business Performance

Assessing leadership potential is not just a talent development tool. It is also a way to reduce the risks associated with talent and promotion decisions.

Gallup reports the findings of a meta-analysis covering 136 studies and 14,597 managers. Selecting managers based on leadership talent was associated with an average increase of 21% in sales or revenue per manager and a 32% increase in profit.

These figures do not mean that any assessment tool will automatically deliver the same results. The impact depends on the quality of the methodology, the selection criteria and how an organisation uses the insights it gains.

Nevertheless, the overall pattern is clear: the quality of leadership selection has measurable business implications.

Therefore, the cost of assessment should not be compared with the option of doing nothing, but with the potential cost of a poor appointment: lower team productivity, declining employee engagement, the need to restart the recruitment process and additional costs associated with onboarding a new manager.

How to Evaluate the Effectiveness of Your Company's Leadership Promotion Process

To review the existing approach, it is useful to analyse recent management appointments and consider several questions.

1. What determines who gets promoted?

Is promotion based on strong performance in the current role, or on the competencies and behavioural attributes required at the next management level?

2. How is potential assessed?

Does the company use predefined assessment criteria, or does the decision depend primarily on the direct manager's opinion?

3. What sources of information inform the decision?

Does the company rely solely on performance metrics and interviews, or does it use multiple assessment methods, such as psychometric assessments, business case exercises, assessment centres and 360-degree feedback?

4. Does the company validate the accuracy of its predictions?

If an employee was identified as having high potential and promoted two years ago, how successfully are they performing in their new role? Does their actual performance match the initial assessment?

The last question is particularly important. Without systematically reviewing the outcomes of promotion decisions, a company cannot determine how effective its assessment criteria are or improve them based on real performance data.

Why Leadership Potential Should Be Assessed Before an Appointment

The most expensive leadership assessment is the one conducted only after it becomes clear that a promotion has failed to deliver the expected results.

This is why assessment is particularly important when building a talent pool, planning succession and preparing employees to move into management positions.

ANCOR provides comprehensive assessments of leadership competencies and potential for both current managers and employees being considered for promotion. Depending on the business objectives, the assessment may include competency-based interviews, psychometric assessments, business case exercises, assessment centres and 360-degree feedback.

This approach helps organisations evaluate not only how successful an employee is today, but also how well their competencies, motivation and behavioural characteristics align with the requirements of their future role.

The Key Question When Selecting a Manager Is Not Who Has Earned a Promotion, but Who Can Succeed in the New Role

Research shows that strong performance in a current position, visibility and career success do not always reliably predict managerial effectiveness.

Instead of asking, 'Which employee deserves a promotion?', companies should be asking a different question:

'Who has the competencies and potential required to succeed at the next level of management?'

The higher the stakes of a talent decision, the more important it is to base that decision on objective assessment rather than relying solely on past performance and personal impressions.

Looking to assess your employees' potential and leadership capabilities? Get in touch with us.