Succession Planning: Why Organizations Cannot Afford to Get It Wrong
Strategic HR Consulting
Many organizations have been struggling to find the talent and skillsets needed to fill open roles. These challenges are not going away anytime soon, with workers aged 55 and older steadily exiting the Canadian workforce and a lack of younger workers to replace them (CBC News). This shortage of required experience, combined with higher turnover, highlights the importance of succession planning.
Succession planning is vital to organizational success. It helps businesses prepare for future leadership vacancies and talent needs by developing a qualified pool of talent to fill critical positions, all while growing institutional knowledge. This practice helps business continuity and enables businesses to grow their workforce from within, building leadership skills, knowledge, and values that are important to their organization.
To ensure knowledge is not lost when people leave your organization, leaders need to plan ahead and plan now. Without a plan, vacancies and lapses in service can be very costly. When looking at the market at large, “the amount of market value wiped out by badly managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion a year” (Claudio Fernández-Aráoz, Gregory Nagel, & Carrie Green, Harvard Business Review.) Factors that contribute to the financial impact include:
- Underperformance at companies that hired ill-suited external CEOs,
- Loss of intellectual capital in the top levels of the organizations that executives are coming from, and
- The lower performance of ill-prepared successors for companies that promote from within (Fernández-Aráoz, Nagel, & Green, Harvard Business Review)
“The amount of market value wiped out by badly managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion a year”
Claudio Fernández-Aráoz, Gregory Nagel, & Carrie Green
Poorly managed succession planning can also cause employee turnover, which brings added costs from lost productivity and recruitment. Turnover costs can range from 20% of the annual salary for mid-level employees to 213% for C-suite employees (Psychometrics).
Succession Planning 101:
How to disaster-proof your organization
With the risks of having no succession plan being so costly, creating one should be a priority for every organization. But where to start?
Why create a succession plan?
First, let’s recap the benefits of succession planning:
- Minimizes disruption created by change, expected or otherwise
- Minimizes the impact of cultural misfits
- Ensures organizational talent is identified on an ongoing basis
- Places a spotlight on skill gap vulnerabilities to take corrective action
- Maintains and grows institutional knowledge
- Inspires engagement and retention through talent development
- Builds leadership capacity within the organization
- Provides a significant competitive advantage for organizations that are doing it
Who needs to do it?
Every business should consider its succession plans. This practice may be even more critical in smaller organizations where every team member is vital to success, and losing valued talent may be more disruptive.
How to start succession planning?
Assessing workforce needs
The first step in succession planning is to assess the workforce needs. This process includes reviewing the corporate strategic plan, current and future goals and objectives, and any planned changes to existing programs and services. The information you gather will enable leaders to identify key positions and skill sets critical to success. It helps paint the picture of all the roles to include in the succession planning process.
Often CEO and executive leadership positions are identified as part of this process. Looking beyond the top level of the organization will help you determine if any highly specialized or critical positions would pose a risk to the organization if left vacant.
Also, keep in mind that filling positions from within often creates a domino effect, leaving vacancies where staff have moved from. You will need to consider those areas and roles as well.
Other data you should review when assessing current and future vacancy risks include workforce demographics, retirement forecasts and turnover rates.
Identify role/position requirements
The next step is to outline what success looks like for the critical positions you have identified.
This includes aspects such as the key competencies, leadership style, and experience required. It is important to note that requirements may differ going forward, and it is a good idea to review what changes in position expectations should be considered. For example, since the pandemic, leading virtual teams is a skill set that has emerged for many leaders.
Talent Assessment
Many organizations use tools to assess high-potential talent and identify strengths and development needs.
Assessments often used in this process focus on identified leadership competencies, including psychometric assessments that assess aspects important to leadership effectiveness, such as emotional intelligence.
Organizations will commonly use 360-degree formats to gain a full circle view of how a leader sees themselves while gathering feedback from their manager, peers, direct reports, or others they work with. 360s help an individual understand how people they interact with see them.
When it comes to succession planning, these assessments can help candidates identify where they need to focus in order to prepare to be a potential successor for a particular position.
Understanding the strengths and development needs of your organization’s talent is also helpful in focusing development efforts.
Career Conversations
Career conversations are a valuable tool to incorporate into the succession planning process.
According to research by Gallup, 61% of workers surveyed said that upskilling opportunities are a reason to stay at their job (SHRM).
Career conversations are a way for leaders to identify their employees’ career aspirations and then create development plans to support individuals who wish to advance their career goals. These honest conversations and the support that follows help to retain and engage employees by showing them they are valued members of the team.
Holding an effective career conversation can take some practice. If leaders are unfamiliar with career conversations, consider providing them training or support to do this effectively.
Development
Development plans can help turn feedback into action by outlining the key actions individuals will take, as well as identifying any support or resources required to progress on their development goals.
Providing opportunities for people to develop will help prepare candidates for succession opportunities. Leadership development programs and leadership coaching are common development methods. Cross-training and lateral movements can also be effective in developing needed skill sets and on-the-job learning. You can also use mentorship opportunities for more seasoned employees to transfer knowledge.
Succession planning and action plans
Looking at your main succession planning roles, you need to assess how many potential candidates there are for each position and how prepared everyone is to move into those roles. This process enables leaders to understand where there are talent gaps that they need to address.
It is also good to examine whether any risks have been identified as part of this process. For example, if you have a candidate rated as ‘ready now’, how do you keep them engaged and retain them until they could potentially fill a vacant position?
Your organization should review succession plans on an ongoing basis to assess whether there are any changes to consider. Questions to consider include:
- Are there any changes to strategy?
- Are there any potential new roles or opportunities?
- Have employees changed their career preferences?
- Are the action plans on track?
Key factors for successful implementation
For a successful succession plan, the leadership team should own the planning process – not HR. There needs to be support from the top and clear accountabilities of participants and leaders in the process.
Other key factors include:
- Succession planning should be aligned with the overall talent management strategy and other HR programs and processes, such as using performance management ratings to identify talent and tying it into career development programs and learning and development opportunities.
- Organizations should focus on developing leadership competencies in all employees to build organizational capacity.
- Talent at all levels of the organization should be identified to see who can be developed and funnelled into the succession planning program.
- Don’t just say it, do it – Execute succession plans and highlight success stories to motivate your workforce.
Regardless of size, all organizations should focus on identifying and preparing talent to address their current and future needs. Succession planning is vital to ensure that you are planning for the workforce of tomorrow, today.
Start your succession plan today
With the high costs associated with a lack of a plan and the increasing retirement numbers, now is the time to invest in a succession strategy. Contact People First for support getting started.
About the author
Shannan Gradt
Senior HR Consultant – Strategic HR Consulting
Shannan is a senior consultant, focused in the areas of organizational development, assessment, and culture.
Shannan has a proven track record for delivering effective solutions for an array of organizational challenges. She has a passion for developing strategies, programs, training, and tools that help enhance understanding, develop skillsets, facilitate change, and improve the effectiveness of organizations.
Subscribe to HResource for monthly HR insights from People First HR consultants.