How to Develop, Build and Execute An Effective Succession Plan - Part 1.
Succession management is the process by which potential leaders are identified, assessed, developed, and prepared to assume control of key organizational roles. The process charts a course for an organization’s future and The Economist ranks succession management as one of the most important issues facing organizations today.
Recent Harvard Business Review research notes, that just 54% of companies have a succession plan in mind and 39% of companies had “...no viable internal candidates who could immediately replace the CEO if the need arose.” Adding to the problem is that only 13% of companies with a defined succession management process actually adhere to it when making decisions, according to a Hewitt Associates’ survey of 240 major U.S. corporations.
Effective succession planning is not simply about day-to-day leadership continuity. Succession planning has wider ranging impacts – including revenue, performance and company longevity.
An organization’s top executive is one of the few variables over which boards have total control—and their failure to plan for CEO transitions has a high cost. A study of the world’s 2,500 largest public companies shows that companies that scramble to find replacements for departing CEOs forgo an average of $1.8 billion in shareholder value. A separate study reveals that the longer it takes a company to name a new CEO during a succession crisis, the worse it subsequently performs relative to its peers.
Implementing processes to deliver effective succession and sustain a steady supply of leadership talent is akin to taking out a life insurance policy on the business’s future. But many organizations have abandoned long-term planning in favor of a just-in-time philosophy, in which leadership succession requires a quick visit to the nearest executive staffing firm. One reason companies seek talent from external sources is because directors and boards responsible for succession planning have been asleep at the wheel with respect to leadership development.
Effective planning begins in the here and now, but focuses on the future. Rapidly changing business models, globalization, emerging technologies, industry consolidation and ever-shifting consumer tastes require that successful companies are forward looking in what is required for executive leadership. As programs are built or evaluated, it’s critical to assess whether the candidate pool that materializes has the essential skills and experience to address future business needs.
Doing this means drafting a process built on qualities that future-proof leadership development. So whether starting from scratch, or reimagining what is currently in place, consider these as core elements of the process DNA:
- Dynamic and Strategic. Succession management programs should be designed specifically for each organization. For companies that seek rigid, off-the-shelf solutions, a long journey of uncertainty and stagnation awaits. Succession management must emphasize the specific leadership competencies that matter for a particular company and anticipated trends or shifts within the industry.
- Broadly Supported. Without high-level support, succession planning models will not get traction. The CEO and other senior leaders need to promote the succession management process, gain support, and ensure the process is followed. This begins with soliciting their feedback and allowing collaborative participation in the development process.
- Open & Transparent. Employees of all levels need to be aware of leadership development processes and the existence of a leadership track. Candidates, in particular, need to be aware of their candidacy and expected role or contribution in the process.
- Driven Objectively. Objective assessments are an excellent way to identify high-potential candidates early in their careers. These focus on individual interests, cognitive abilities and personality profile. As well, objective assessments help minimize bias. By applying the same standard to each candidate, the succession process will develop a reputation as being fair and not subject to whims of senior leadership. Companies that use well-validated assessments will make better decisions than companies using intuition and personal judgment.
- Ongoing and Development Centric. Succession plans support structured development programs for high-potential leaders. The plans help candidates focus on skill and knowledge development in an ongoing way, not as an event. While the process can ultimately deliver the next CEO, it can also spur a broader, ongoing leadership pipeline.
Success likelihood improves when the DNA of succession planning efforts have these characteristics. Stay tuned for Part 2, where the fundamental building blocks of a a succession planning model are discussed.
What do you think? Leave a comment, and make sure you check out the rest of our series on Succession Planning!