Being very effective at Succession Planning seems to be more elusive than excelling at any other Talent Management function or process. This is somewhat counter-intuitive given that the other major Talent Management activities – Workforce Planning, Recruiting, Performance Management, Learning and Development, and Total Rewards Management all have major elements in common with Succession Planning.
Citing just two examples to illustrate the previous point -- Recruiting, like Succession Planning, should ideally involve external talent pipeline-building and talent relationship management being practiced ahead of specific resourcing demands. Even Total Rewards Management as a process has similarities with Succession Planning in that both might require a re-evaluation of current practices (against market / industry practices) when there are talent retention issues or attraction challenges in critical roles.
The fact that effective Succession Planning has been shown to materially drive business results and competitive advantage -- coupled with how few organizations claim they practice SP broadly and effectively -- highlights what appears to be a huge missed opportunity to-date for many organizations. Here’s the data …
Missing the opportunity (so far):
- A 2010 study by ASTD and i4cp showed that only 14% of respondents to their survey described their succession planning efforts as effective to a “high” or “very high” extent.
- An analysis of the FTSE 100 (largest co’s on London stock exchange) conducted by global Leadership Risk Management firm Talent Intelligence (November, 2010) found that:
> only 2% of the FTSE 100 stated that key leadership roles were being actively identified and benchmarked against the external market
> only 10% had identified the roles critical to the success of their organization or that had a major impact should a key individual leave
> while 49% of organizations developed individuals internally for succession purposes, this was typically driven by employee-centered training and development purposes as opposed to leadership risk management reasons
> up to 79% of the FTSE 100 rely on internal succession planning alone to replace the most critical roles in the business
- More than half of companies cannot immediately name a successor to their CEO should the need arise, according to a 2010 survey of 140 CEO’s conducted by Heidrick & Struggles and Rock Center for Corporate Governance at Stanford University. Other very telling findings from this study included:
> a full 39% of respondents cited that they have "zero" viable internal candidates
> the majority of firms or 65% have not asked internal candidates whether they would even want the CEO job if offered to them
> on average, boards spend only 2 hours a year on CEO succession planning
- And finally, according to executives participating in a July 2011 Canadian Financial Executives Research Foundation study, only 40% of Canadian private companies surveyed had a clear business ownership succession plan in place.
The opportunity being missed:
In the words of John J. Barry, leader of PwC's Center for Board Governance which advises audit committees and boards of directors: “Proactively approaching management succession can generate real benefits, as effective succession planning typically helps to reduce recruiting costs (e.g., exec search fees), establish stability, promote top talent, and enable quick response to unplanned leadership vacancies.”
It is almost universally believed that a well developed succession planning process promotes higher retention rates across-the-board, likely due to employees and leaders recognizing that time, attention and skill development investments are being made in them.
As for two real-life examples from hugely successful enterprises:
Apple has basically been able to seamlessly transition to new leadership and continued success after Steve Jobs’ passing as their succession plans were put in-place well before his health declined. Jobs in-fact wrote in his resignation letter …“As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.”
Additionally, McDonald's is credited with having a succession plan that served them well when two of their CEOs died in the course of a single year. “And yet, the company proceeded without a hitch" stated Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
And very interestingly noted, with respect to Succession Planning technology … Bersin & Associates’ “High Impact HR Study” in 2010 of over 1,200 HR practitioners revealed that – as an “HR System application area” … Succession Planning drives a higher degree of “HR Department impact” than Compensation, Learning, Performance or Recruiting based on rankings by the respondents.
So what are the underlying reasons or impediments to effective Succession Planning?
Well, let’s start with a terminology / labeling nuance …Succession Planning is much more aptly referred to as Succession Management. The reason -- while Succession Planning has historically looked within internal talent pools to find successor candidates, Succession Management looks at both internal and external talent pools – and ideally in an integrated fashion. Moreover, you likely have a flawed process if you think of succession in terms of just planning.
Other characteristics of a flawed process in this arena include having the same “high potential” individuals in a number of different succession pools; or not reflecting changes in business strategy, context or culture by appropriately re-confirming the most viable successor candidates; or just doing Succession Management at periodic intervals.
And not to leave out what is perhaps the most prevalent and success-limiting mistake found in Succession Management frameworks across the globe ... using a lens of “successor candidates have to be ready now.”