Creating Succession at the Higher Levels of the Organization
Years ago, I worked for a large corporation where annually we would implement succession planning exercises that cascaded from the top of the organization to the frontline management level. This was a labor-intensive process for Human Resources (HR), and the management team and managers complained about having to complete these exercises when, particularly at the lower levels of the organization, we never really implemented the plan if a vacancy occurred. After several years of completing the exercises, the HR team decided to only complete succession planning activities at the top level and talent planning exercises for the rest of the organization. These talent planning exercises worked well as they helped the organization focus attention on development activities that would prepare frontline and middle managers for greater responsibility, and position the employees for promotion when opportunities became available. As we were working through this shift in the succession planning process, I realized the organization was crossing the “succession” bridge – moving from conducting succession planning to conducting succession management. In traditional succession planning, the focus is on compiling lists of possible replacements for each individual manager. In succession management, the focus is on identifying and developing internal people to be high-potential leaders capable of filling key business leadership positions. Effective succession management results in building talent pools up and down the entire leadership pipeline, and prepares the organization to respond to a vacancy using an organized and planned method rather than reacting to a vacancy in a knee jerk fashion.
In a 2013 research brief published by AON Hewitt, the authors discuss the need for organizations to implement succession management, particularly at the executive level, and define a best-in-class succession management system. The whitepaper references the results of a study conducted by the organization that found that “100% of global Top Companies and 72 percent of all other companies have a formal process for succession planning. However, only 88 percent of Top Companies and 53 percent of all other companies feel they have a sufficient CEO pipeline to be successful in the future.” It also references a benchmarking survey conducted by the Conference Board in 2011 that indicated some 44 percent of companies responding to the survey reported that “developing top talent to support their organizational goals was the greatest challenge they would face in the next 12 months.” And, although another survey conducted by the Conference Board found that about one-third of responding companies had 31 to 50 percent of their workers within five years of the company’s average retirement age, only 29 percent of them indicated they had a human capital strategy in place to address the impending retirements.
In another article titled, “Succession Planning: What the Research Says,” published in the December 2016 issue of the Harvard Business Review, the authors talk about the importance of succession planning at the higher levels of the organization. In this article, the authors mention that each year 10 to 15 percent of corporations appoint a new CEO and that in 2015 turnover among global CEOs hit a 15-year high. These replacements seem to be based on the organizations being forced into reacting to turnover at the top of the organization instead of planning for them.
According to another report completed by PwC, based on a study of the world’s 2,500 largest public companies, there are quantifiable costs associated with the lack of planning for executive turnover that translates roughly, on average, to $1.8 billion in shareholder value. In addition, PwC, in its report, “The Value of Getting CEO Succession Right,” the author states that “companies are still too often forced into making a change and poorly planned successions tend to lead to a vicious circle.” The authors indicate that over the past 10 years, 27 percent of companies presented with a forced or unplanned succession had a tendency to hire a new CEO from outside the company compared to only 20 percent of those companies who practiced succession management. In addition, outsider CEOs’ were forced out of office more often (36 percent) than insider CEO’s (25 percent). Finally, CEOs hired as a result of a “forced succession” have shorter median tenure (4.2 years) than those hired after a planned succession (5.6 years). The conclusion made by the PwC research team was “that companies without good succession plans are setting themselves up for more frequent turnover.”
The outcome of these collective findings reveal that creating a succession strategy at the highest level of the organization is critical to the long-term survival of an organization. But what does best-in-class succession management system look like? According to AON Hewitt, a company wanting to successfully develop “a robust and reliable pipeline of ‘A’ players” is dependent on four fundamentally important A’s:
- Assessment
- Alignment
- Accessibility
- Advancement.
“Best-in-class organizations are those that overcome the inertia and work intensely on planning, executing and winning these four A’s of succession management.” The best-in-class approach is for the organization to go “beyond the traditional approach and focus on an integrated succession management approach aimed at enhancing current and future capabilities.”
In their research brief, the authors suggest that a best-in-class succession management system is a formal, structured, proactive process through which critical positions are identified, leadership competencies are defined, individuals are evaluated and aligned to potential future roles, and development plans are created and implemented. This systematic process involves developing policies and procedures; clearly stating responsibilities and accountabilities; establishing metrics and measurements; and maintaining accurate records and reports to enable the organization and individual to realize continuous improvement and advancement. The integrated strategy involves the interplay between several aspects of a leader’s performance and includes:
- technical knowledge of the leader;
- leadership style; and
- the activities and time that fill the leader’s calendar.
In addition to these three areas, the succession management system should include an understanding of the organization’s leadership talent and potential along a timed continuum.
To apply the four A’s, the organization would initially begin by implementing the first two; assess and align. This means implementing a process that would identify potential leaders and evaluate their competencies, experiences, and drive or motivation. The process of assessing individual competencies would require a well-designed competency model based on the organizations’ business objectives, needs and strategy. The assessment tool should include core competencies that incorporate both technical and leadership skills. These competency and skills results would be used to align each leader to critical organizational roles based on the individuals’ desires, competencies and experiences. Once a “leadership grid” is developed, each potential leaders’ readiness stage would be identified as either “ready now,” “ready soon” (i.e. 2-3 years) with development or “have potential for the future” (i.e. more than 3 years) for each role to which they have been aligned. A best practice would be having at least one, but more likely two or more individuals, for each critical role and each readiness stage. For each individual in each role, a development plan should be created and implemented to ensure that a strong and effective talent pipeline exists and that the individuals have the opportunity to move through the readiness stages at a suitable pace.
The third “A,” which focuses on accessibility, deals with having “a simple, transparent, flexible, diverse and robust succession management process that eschews administrative hassles for the end user.” Simplicity often means implementing a program that leverages technology to create a less complicated process while ensuring consistency across the organization. Transparency in a good succession management system removes the former concepts of secrecy and confidentiality, and encourages clarity and integrity while minimizing politics. Also, as organizations increase their global reach their stakeholders, including their workforce, become increasingly diverse so building a diverse bench strength will serve as a competitive advantage in the war for talent. Although some organizations focus succession management at the very top of the organization, best-in-class succession planning programs cascade throughout so as to better prepare and build an extensive pipeline for current and future needs. According to AON Hewitt, “organizations need to build leadership capabilities at every level and create a ‘succession culture’ as an integral part of their corporate fabric. Severe talent shortages at frontline or middle-management levels can be equally disastrous for companies as those at executive levels.”
The final component of a successful program is advancement. The end goal for the organization and the individual. According to the article, “long-term bench development and advancement” is the cardinal rule of succession management. Best-in-class companies adopt development as a strategic priority and provide a range of targeted developmental experiences for their rising stars.” These development activities usually provide enterprise-wide exposure to and tie talent development and advancement to managers’ performance and rewards goals to reinforce the program.