Successful Succession Planning

Article Overview

Succession planning helps your organisation to identify its most talented employees and provide education and guidance to develop them for bigger and brighter things. Succession planning enables organisations to "build bench strength" by identifying the roles existing staff could fill in the future, and then providing them with the resources to step-up to these roles. This article discusses best practice in succession planning.

Takeouts

Succession planning is a disciplined and structured process to identify, nurture and retain the best and most important staff for the long-term sustainability of an organisation.
The real cost of replacing high-performing staff should be a compelling enough reason to make succession planning an integral part of an organisation’s human resource strategy.
A robust succession plan focuses on three levels: competency management, career development and role handover.

“Nothing succeeds like success” - Alexandre Dumas

While Dumas may have written these words many centuries before ours, his world of kings and courts was one where succession to the throne (or control of whoever sat there) was a prize highly sought after. And despite the passing of time, in the 21st century little has changed. The importance of ensuring the orderly transfer of power from one generation of business leaders to the next is still as vital today as it was in Dumas’ time.

Yet companies are too often investing millions of dollars each year to find the right people to fill key roles, and throwing their net wide to attract people from outside the organisation, only to watch the new hire leave long before their tenure is up with sizeable pay packets and in many cases a trail of destruction left in their wake. Indeed the average CEO tenure in Australia is 4.4 years – less than half the tenure of their global counterparts.^[1]

The need to develop and retain talent from within Australian businesses has never been more pressing. Consider this: one in five Australian executives are now eligible for retirement, and more than 25 per cent of the Australian population will be over age 65 within 40 years (more than double today’s proportion).^[2] The shrinking talent pool has meant organisations are increasingly giving more thought to how they can make the most of their existing staff. One answer: succession planning. But with a desire to hire from within is often accompanied by a misunderstanding of what succession planning is, what it can and can’t ‘cure’ and how you go about developing a successful succession plan.

So What is Succession Planning?

In its simplest form, succession is “the act or process of following an order or sequence.”^[3] Historically, ‘succession’ was most frequently used to discuss royalty and political parties, then the term was widened and applied to family businesses in defining the issues surrounding parents passing on their family asset to the next generation.^[4] With the notion of planned ‘succession’ becoming a part of corporate language and practice only relatively recently, the term describes the order in and conditions under which one person after another succeeds to a higher position or title within the organisation.

As we all know, the ‘planning’ side of the equation is “the act of formulating a program for a definite course of action”.^[5] So taken together in a corporate context, succession planning is defined as a program developed to define the process that enables a person or persons to “succeed” to a higher position or title. This may seem like common sense. However, the evidence of recent corporate history clearly reveals that the complexity of succession planning means common sense rarely translates into common practice.

Why Succession Plan?

Here are five good reasons why succession planning is worth the effort:

1) History’s On Your Side: History provides us with a sobering lesson when it comes to succession planning. The 1990’s business classic “Built to Last” researched the habits of the World’s most successful companies. The authors made a startling discovery. Across seventeen hundred years of combined corporate history, only four individual cases were found of an outsider coming directly into one of the successful companies as chief executive.6 The researchers concluded it is extremely difficult to successfully bring in persons from the outside who can effectively manage a company and suggested companies should have clear succession plans in place to ensure smooth transitions and consistent direction as the company ages.

2) Business Continuity: When a staff member leaves a pivotal role within an organisation or project team, succession planning ensures that someone from within the existing team is able to competently take over. This helps reduce the potential for the project to be held up while a new person is found to perform the role, and can also provide a settling influence in a time of change.

3) Sustainability: With good succession planning, staff are trained and ready to take on the new challenge as the need arises, with the need for hasty hiring decisions significantly reduced.

4) Employee Trust: A process that clearly defines how staff are developed and promoted within an organisation helps build employee confidence and trust, reinforcing that people’s efforts are being monitored and their career path is directly linked to their contribution.

5) Good Talent Is Always Hard To Find: The talent pool is slowly decreasing, and the cost and time involved with external recruitment can be high for many management roles, therefore it makes logical sense to focus on developing the people you already have access to first.

Strategies and Steps for Succession

Succession planning does not exist in a vacuum. Three distinct but interdependent systems must be developed before successful succession planning from within your existing talent pool can occur. These are: a competency management system, a career development system and a role handover system. Briefly, the elements and process required for each are outlined below:

1. Competency Management System (CMS)

Determine essential core competencies for each position (these must be aligned with organisational goals, KPI’s and KRA’s).
Draft a job task analysis that is linked to core competencies, required skill-sets and performance standards to be measured.
Identify the skills gaps and required learning resources.
Implement pre-emptive training and education at three levels: individual, departmental and organisational.
Observe and measure KPI changes across all levels.

With competencies now measurable and skills growth manageable, focus next on putting in place a career development system.

2. Career Development System

Conduct regular performance reviews (monthly for first quarter, then quarterly) to determine if a staff member’s career track is technical or management.
Discuss and offer professional development opportunities based on each employee’s competency alignment.
Identify opportunities for involvement in special projects.
Base promotion on measurable outcomes and results-sustained success in both the employee’s core role and special projects.
Tailor benefits and bonuses based on performance.

Over time, this will create a greater pool of talent from which the most loyal, as well as the best and brightest, can be identified as potential successors.

3. Role Handover System

For senior appointments, a change of personnel should be well telegraphed.
The more senior the role, the longer the handover period required.
Ideally, senior executive roles should have a minimum handover of 3-6 months, with CEO’s between 1-2 years.
The incumbent should be closely involved in the process to ensure that their successor knows the lay of the land thoroughly, and allow for a gradual transfer of power that enables the successor to grow into the role being sponsored by their predecessor. This will not only minimise surprises, but clearly demonstrate the strongest possible endorsement of the incoming executive.

Conclusion

Great companies groom their best talent from inside the organisation. They invest in the right staff and then provide them with the knowledge, skill, resources and benefits required to earn their loyalty.

As Jim Collin’s business classic ‘Built to Last’ clearly showed, a strong focus on succession planning dramatically increases the odds of your business succeeding over the long term.

Written by Victoria Small and Edited by Paul Quinn, Quinntessential Marketing Consulting Pty Ltd.

Disclaimer:

The views and opinions expressed in this document are those of the authors and do not necessarily reflect the view of Norwest Recruitment.

The views and opinions expressed in this document are those of the author and do not necessarily reflect the view of Norwest Recruitment. This information is a general summary of the subject matter and should not be relied upon. You should not use this information as the sole basis for decisions or in place of professional advice.

References

http://www.bca.com.au/content.asp?newsID=92327 (Business Council of Australia)
http://www.abs.gov.au
http://dictionary.reference.com/search?q=succession
http://www.familybusinessmagazine.com/
http://dictionary.reference.com/search?q=planning
Collins, James C. and Porras, Jerry I.: “Built to Last – Successful Habits of Visionary Companies”. Harper Business, 1994 Other sources:
http://www.bca.com.au/content.asp?newsID=92327 (Business Council of Australia)
http://www.ceoforum.com.au/200207_leadership.cfm (Is becoming a CEO a bad career move?)
See http://www.avilar.com/solutions/case_studies/ImpactOfCompetencyManagment.pdf ; http://www.ihr3.com/p-sp3-1.shtml ; or http://www.talint.net/main.html for samples and case studies