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A CAP study revealed that replacing a C-Suite position can cost a company up to an average of 213% of the position’s annual remuneration!
The cost incurred by an organization varies based on its employee’s seniority. However, it is typically at the higher end of the spectrum.
This expenditure is merely the tip of the iceberg. A company’s more significant challenge is the impairment because of unfulfilled or vacant positions at senior leadership positions. Unstable leadership or other pivotal positions can stall a company’s growth. In some succession planning examples, the absence of a leader can cause severe financial damages.
For instance, Hewlett Packard’s Mark Hurd made an unexpected departure in 2010, causing an 8.3% plunge in its share price.
Various market uncertainties and evolving millennial aspirations often cause abrupt shake-ups in an organization. Therefore, businesses must envisage long-term plans to minimize the risk exposure and safeguard their and stakeholders’ future. But, communicating about a challenge reflects profoundly on a company’s intentions to manage it. Therefore, facilitating a succession plan is an HR professional’s core responsibility.
How does succession planning help an organization?
A succession plan acts as a contingency plan needed to thrive in the present and the future. According to the Canada Business Network, succession planning should begin five years before the CEO plans to retire. It is also strategically important to allocate resources in developing future leaders for every critical role. It is a means to decide who can assume the reins of your organization.
The HR, the board and the senior management must eliminate the guesswork out of succession planning, making it an intentional and thoughtful process that yields reliable results.
It is perceived that most organizations do not undertake succession planning for varying reasons. You must begin visualizing the road ahead as we suggest some time-tested objectives, advantages and disadvantages of doing succession planning for all levels of management. It is a much-needed value proposition that guarantees success in the 21st-century workplace.
The transition of power shouldn’t be taken for granted. You definitely don’t want a ‘Game of Thrones’ saga. There are some goals and objectives of succession planning in HRM that focus on the desired outcomes for all concerned.
One of the main objectives of succession planning in an organization is ensuring all-round business continuity. Building a leadership pipeline by shortlisting or developing the skills needed to maintain a forward-looking trajectory automatically makes your company future-ready. It ensures that you are less likely to make wrong decisions during crises.
A perfect succession plan identifies mission-critical front-line positions that are crucial to a company’s success. C-suites aren’t necessarily the only significant positions in companies. Middle-management and market vulnerable roles, such as sales, are equally important for many organizations. With a succession plan, companies can outline a defined structure with role-specific job descriptions and strategic contributions that offer clarity to the executives and board members. Concurrently, you also identify obsolete or declining positions within the organization.
Implementing competency mapping criteria in an organization is another key objective of succession planning. When you’re eyeing sustenance and growth in a competitive environment, critical competencies help you understand the attributes already possessed by your organization. It offers a detailed understanding of competencies in the talent that is to be recruited, promoted or developed for long-term stability. Competency mapping is a practical and comprehensive matrix for succession planning’s learning objective. Simon Elkjær, the Chief Marketing Officer of avXperten, Denmark states, “The foundation of a strong succession plan takes form in strong workforce assessment, training, and development strategies. Keeping tabs on your employees’ strengths, weaknesses and progress will make it easier for you to determine who your company’s next key players will be.”
Not all employees are leaders. However, their talent can be honed to ensure they have the desired qualities to meet, if not exceed, business demands. By understanding their strengths and vulnerabilities, HR identifies existing employees’ latent talents or untapped potential. They undertake designed employees’ cross-disciplinary training, mentoring and skill development to enhance their existing capabilities. Hence, this succession planning training objective ensures an improved understanding of the talent pipeline available internally while creating awareness of the strengths of the current individuals. It also keeps the company a step ahead of its talent needs.
High-potential identification is an ideal succession planning strategic objective. It is also the first step to any succession planning exercise. HRs must gain valuable insights on a plethora of issues. For example, which employee is nearing retirement? Is an individual donning several hats? Is the employee a perfect asset and, therefore, must be retained? Which employee is a misfit and needs to be given a different role? Whose expertise requires a departmental shift? Several such critical insights must be considered. Hence, gaining valuable insights becomes a goal and objective of succession planning in an organization, that cumulatively enables creating successful transitions without causing intermittence.
Consider the ongoing pandemic. Having a succession planning strategy has never been more critical. Businesses are overwhelmed with challenges of succession planning that are making them increasingly sustainable to losses and consequential closures. We don’t profess that leaders can predict crises and avert them. However, the right successor will know how to steer the company in times of exigencies.
Uncertainties are expected to challenge businesses for the next few years. Seismic shifts in the way businesses are being operated require a thorough re-evaluation of dormant succession plans. This would ensure a talented pipeline of leaders to withstand current and unforeseen challenges.
People often ask, what are the benefits of formal succession planning for a company, or Why is Succession Planning Important? Well the thing is, the value of succession planning cannot be comprehended easily by many. It has to be a part of every organization’s underlying philosophy, irrespective of its head-count or market-cap, as it provides invaluable perspectives. Here are some benefits of succession planning for a company:
A succession plan upholds the company’s vision and mission, ensuring that owners and executives understand the business’s future direction. The board can often be fixated on the company’s values. The members wish to maintain the company’s culture, and the way values are being implemented. With a well-charted succession plan, the board would have the confidence in new leaders to maintain continuity in the company’s broader intangible succession planning objectives.
A succession plan also creates awareness about the quality and strength of your high-potential employees. High-potentials exhibit high levels of skills in their current role and a high propensity for taking up more significant future responsibilities and challenges. Your awareness about an employee’s ability to take on critical future roles makes your workforce future-ready, providing a distinct business advantage. IBM is an excellent succession planning example of internal succession done right.
Another importance of succession planning is offering excellent incentives to employees. If the employees understand the value accorded to them by their company, they are motivated to work toward the business goal. It improves the company’s retention and employee satisfaction rate. The benefits of succession planning in an organization also attracts quality and dependable candidates.
Amid a fast-transforming business landscape, a thorough succession plan bolsters your chances of managing disruptions. Only able and visionary corporate leaders can embrace the risks and uphold the company’s reputation and long-term growth. This enables them to focus on longer-term business opportunities.
Internal candidates are well-versed with the company’s culture. Hence, they are inclined to proactively take charge and facilitate a smooth transition in the leadership.
Having a succession roadmap is often perceived as an expense by a company. But it is the other way round. One can’t prepare a succession plan overnight. It’s an ongoing process that minimizes time and financial resources in shortlisting, recruiting and grooming leadership from outside when you already, internally, have a qualified pipeline of candidates.
While some businesses have a definite succession plan, others do not have a defined structure. They often want to know what are the challenges of succession planning. Frankly, challenges are only in perception, because the disadvantage companies get by not chalking a succession planning strategy are plenty. As per a study conducted by the Canadian Financial Executives Research Foundation (CFERF), only 40% of Canadian private companies have a clear business ownership succession plan.” Such instances pose grave challenges and disadvantages to the business continuity in case of unforeseen situations. Here’s how:
Not having a succession plan will expose the company and its stakeholders to unnecessary risks. Leaving critical roles vacant for an uncertain period may severely damage the business infrastructure.
Alienating potential successors and promoting the wrong talent due to hasty decisions would create a volatile work environment and a lack of motivation among employees who may not be enthused by the training of their subordinates or outsiders for leadership. P&G is a textbook example. It could not promote a successor from within its ranks. Many experts and insiders have claimed that choosing an outsider may have impacted the employees’ loyalty.
According to the Work Institute’s 2019 Retention Report, 36% of employees quit within the first year due to various reasons. But HR Drive’s report suggests that 75% of causes for employee turnover can be prevented. Employees wish for a growth opportunity in the company. If they don’t see the company investing in their professional development and career advancement, they may choose to leave. Consequently, the company may end up losing a high-performing employee.
We agree it is difficult to foresee business challenges. But in the absence of a formal succession plan, it is difficult to survive an evolving business landscape. For example, It’s not prudent to announce someone’s retirement and not name a replacement. Microsoft was similarly placed when Steve Balmer abruptly announced his retirement in 2013, without naming a successor. With a plan, neither the company’s structure is exposed to such developments, nor does it reflect poorly on its fundamental responsibilities. Hence, the benefits of effective succession planning cannot be stresses enough.
A succession plan lays down the fundamentals for new hires by matching them with the existing pool. But what happens when the metrics to evaluate the hires are missing? We don’t blame them, but hiring managers do end up missing the red flags, taking missteps in the hiring process and hiring bad fits. It leads to a talent shortage and various other issues that exacerbate problems.
A classic succession planning example of an intuitive decision:
Sir Alex Ferguson, the legendary Manchester United coach, recommended David Moyes as his potential successor. Even though he had never managed a big club or won a trophy, he was considered competent enough to run a professional football club. However, the team’s subsequent results reflected Moyes’ inexperience and a misguided decision by Sir Alex Ferguson.
Not anyone at any level can undertake succession planning. A successor can’t be shortlisted by merely adding excessive and complex assessment criteria. It must be simple and clear enough for even a junior manager to comprehend. Hence, significant planning and consideration go into devising the right succession planning strategy. One should understand succession plannings strength and weakness. It must work best for the company’s goals and stakeholders. So, how can succession planning be improved if you’ve already devised one?
Mercer | Mettl, the largest and fastest-growing assessment and skill measurement company in India, offers various sophisticated data-backed tests to help companies identify ideal successors. With evidence-based assessments, companies can seek in-depth measurement of critical, work-relevant personality traits and behavioral tendencies. These tests are designed to be used across various levels, from personnel selection for succession to training and development of potentials for better impact.
Mercer | Mettl’s tests are designed by an in-house team of industrial-organizational psychologists. They have normed their standardized tools across different geographies globally to find stable results of succession planning across gender, age, language and ethnicity. Their experiences, validation methodology and development of psychometric assessments offer detailed analytics and insights.
Personality traits are the determining characteristics that are exhibited consistently despite changing circumstances. In succession planning, it is vital to gain a more comprehensive understanding of personality at work, especially at the mid and senior level. Hence, Mercer | Mettl’s Mettl Personality Map (MPM) measures personality via a unique and innovative 28 facet and a 4-factor structure of personality that goes beyond the traditional ‘Big Five’ personality framework. It is a contemporary, evidence-based personality assessment that seeks in-depth measurement of critical, work-relevant personality traits and behavioral tendencies. It determines the overall role-fitment and evaluates the likelihood of handling integral work-related activities.
Cognitive tests assess critical thinking and reasoning logic related to on-the-job performance. Whether succession planning for top management or middle management, cognitive tests help measure the aptitude required by leaders to achieve excellence in working in alignment with achieving business goals. It also measures the ability to comprehend, understand and go beyond the existing job knowledge and make sound judgments. Effective cognitive tools enable organizations to quickly and effectively differentiate the great from the good.
Behavioral assessment tools are advanced tools that measure behavioral competencies in a simulated work environment. With a combination of an individual’s skills, knowledge and traits, behavioral assessment tools require candidates to demonstrate chosen behavioral competencies in one or multiple exercises that mirror actual workplace situations. Different types of behavioral assessments can be used independently, or in combination, for a holistic overview of an individual.
Our ready-to-use technical competency framework handbook provides profound insights to identify stellar technical skills sets. Our specialized tests detail job-relevant behavior and the technical knowledge required to be successful on-the-job.
These types of assessments can come together as comprehensive assessment batteries or full-fledged assessment or development centers. Each of these tools can be administered online and, or in-person, factoring in the myriad demands of today’s business environment. They are scalable, robust, reliable and secure. They even generate instant and automated reports in 20+ languages.
Here are a few suitable tools offered by Mercer | Mettl for succession planning, being leveraged by several Fortune 500 companies to evaluate and understand the pipeline’s potential:
A readymade set of assessments is mapped to pre-defined competencies listed by the organization for the employees via primary or secondary research. Ranging from necessary tests to those that are highly specific to job roles, the pre-build tests will enable you to select the best possible candidate, relevant to a particular role/function.
If you’re seeking a new test, build according to your requirements, our subject matter experts also quickly help create a customized version. A comprehensive group of assessments is mapped to either the organization’s competency framework or a specific role. Organizations can even get customized reports for the candidates taking the assessments – for example, highlighting the most critical competency in the result.
When a company seeks a more holistic evaluation, multiple tools are set in motion by creating Assessment and development centers. For leadership and succession planning, ACDC highlights whether a person can handle challenges with a higher position. Such centers can comprise roleplays, caselets, inbox exercises, situational judgment tests, group discussions, case study presentations, competency-based interviews and similar activities to help make crucial succession decisions. These multiple lenses eliminate assessors’ biases while giving the employees various opportunities to showcase their abilities. A detailed evaluation also highlights an individual’s role fitment on numerous aspects required to be successful on the job.
Investment in succession planning must not be undertaken as a perfunctory measure. Succession is a culture that needs to be ingrained into a company’s fabric. The longer-term viability and business outlook must be considered when onboarding or planning. Succession charts are not promises but offer a baseline with realistic expectations from high-performing leaders. They delineate opportunities before companies and apprises the HRs on means of tackling the perennial challenges in ensuring continuity. Obviously, there are benefits and drawbacks to succession planning but the pro’s undoubtedly outweigh the cons. Take any benefits of succession planning example, they will each state that passing the baton can never be done hastily or under coercion. One cannot opt for the next available person rather than deciding on the best fit for a position. This would invariably lead to disappointment. Diversity, performance, results and other such suitable criteria must take precedence to enhance the chances of selecting the best successor.
Before you move on, we’ve listed down the answers to some common questions one has around succession planning meaning and importance.
Succession planning isn’t a one person decision or job. The HR initiates the process while the board and the senior management is responsible for taking it through.
Benefits of succession planning in family business are many as long as it is initiated well in time. From ensuring there is no family feud, eliminating unwarranted perception of nepotism and ascertaining that only a potential successor is given the reigns of the company; business succession planning importance is multifold.
There are many advantages of succession planning in an organization. It includes:
A succession plan is put into action when a long serving C-suite executive retires or moves on or when a key employee suddenly leaves the organization.
The goal and objectives of succession planning in HRM is to ensure that the company and its stakeholders are not left in a lurch when a key position is left vacant due to unforseen circumstances.
A good succession plan is one, which takes into consideration the best interest of the company as well as its stakeholders.
Succession planning and talent review is important because it gives the organization an improved understanding of the talent pipeline available internally when looking for successors.
Yes, there are various benefits of succession planning. No matter the type of succession planning you undertake and irrespective of the purpose you map it for, enabling a succession planning strategy will always bear fruitful benefits.
There are rarely any challenges to having a succession plan if done aptly.
When creating a succession plan ensure that it is a well-documented plan for succession at all levels in the organization. It should fill in leadership roles, mission-critical positions as well as niche roles. After shortlisting the roles identify the behavioral requirements of that role to find the perfect fit. Assess your candidates in as many ways as you can to ascertain and validate whether they are capable of being successors or not.
Succession planning is not only important in healthcare but in every industry.
Originally published July 22 2020, Updated December 17 2020
Shirisha has been helping countless brands gain traction with her content. Her deep understanding of the education sector and sound knowledge of technical skills have helped her structure the most creative solutions for key stakeholders. Shirisha has also ghosted pieces for several industry honcho’s successfully published both online and offline. When she's not keeping up with the world, you're sure to find her catching up on bollywood stories or gramming for fun.
Succession planning is a systematic process through which organizations build a leadership pipeline to preserve its future. The process involves identifying and developing potential successors for a seamless transition.