On the cusp of a new year, it’s exciting to think about the potential for transformation ahead. We lay out our goals, create a plan to reach them, and set out on day one with a smile and determination. A month later, we’ve been swept up in the craziness of life, and ideas of transformation are firmly forgotten. We’re already back to our old habits.

This is the common cycle for New Year’s resolutions, but it’s also the pattern for most performance management programs.

In theory, performance management is the perfect alignment of people and skill sets with the company’s strategic direction. It usually starts with big ideas about what the company wants to accomplish in the upcoming fiscal year, then cascades down the organization to ensure that each individual is doing his or her part to move toward those same goals. Managers plan conversations with their direct reports, reviewing the past year’s performance and planning personal goals for the upcoming year. Assuming the conversation goes well, both managers and their direct reports start out with great intentions and high energy.

But work gets busy. Conditions change, priorities shift and motivation drops. When the performance plan is pulled out six months or a year later, little progress has been made.

The solution is two-fold: Have performance management discussions more often, and focus them more on potential than performance. Having performance management discussions continually, rather than yearly, results in a 24-percent increase in effectiveness of the performance management program. Furthermore, focusing the discussion on developing potential results in a 25-percent jump in effectiveness. It’s not about filling out a form; it’s about having a conversation.

While it’s easy to increase frequency, it’s more difficult to focus on potential, especially leadership potential. Leadership potential is a much talked-about and poorly understood concept. However, it’s increasingly important as organizations need more people to step up to leadership, both in formal and informal roles. To effectively bring a valuable focus on leadership potential into the performance management discussion, you need two main ingredients: objective data about the individual and a well-informed perspective from the manager of the individual.

Gathering objective data starts with using assessments for leadership potential. There are several well-constructed assessments that help measure characteristics that predict someone’s capacity to rapidly develop as a leader. Typically, they focus on factors such as someone’s motivation to coach and develop others, his or her ability to seek and take feedback, and a focus on the values of the company and results. Ideally, assessments should also include measures of the skills on the job that relate to leadership capability. These types of measures come together to give the manager a sense of someone’s raw potential to grow and develop as a leader.

The second step, obtaining a well-informed perspective of the manager, can be more difficult. Managers are often asked to rate someone’s leadership potential (i.e., predict the future), but few are trained on how to look for, discuss or develop potential. Managers need to understand how to think about potential separately from performance, which requires them to think about who exhibits the specific skills and behaviors that make for great leaders. It’s important that they make this distinction, especially since high performers do not necessarily make great leaders, while moderate performers may show great leadership skills.

Additionally, managers need to understand their unconscious biases. For example, a manager may not be aware that he’s not picturing a woman as a leader because he’s never had a woman boss. Another manager may not realize that the real reason she have a gut feeling that someone has leadership potential is because she see herself in that person (i.e., they have the same personal style or come from similar backgrounds). Training managers to have greater awareness of these biases can have a dramatic impact on the diversity of the high-potential talent they identify.

For companies that increase the frequency of conversations, use assessments and train managers to focus on potential, the benefits are three-fold:

  1. They develop a culture that is thinking about and talking about leadership potential on a much more frequent basis. This environment contrasts with the once-a-year talent review system, in which managers guess who will be ready in two or three years.
  2. Managers have a much clearer sense of who they should be developing as leaders. This knowledge leads to more confident delegation and developmental assignments.
  3. People who have the potential and desire to be leaders receive more opportunities and are aware that their managers are actively thinking about how to grow them. This situation ultimately results in less turnover, which is critical in today’s employment market.

Any time there is a performance management discussion, there is an opportunity for a discussion about leadership potential. By equipping managers with the right data and the right skills, you can transform your performance management program from a failed annual ambition to an engine of growth. This growth engine will, in turn, result in happier direct reports, greater awareness of leadership potential, increased retention and, ultimately, more available leaders for the future.