What are the benefits of succession planning?
Learn about the benefits of succession planning in protecting your business from threats such as the aging workforce, shrinking talent pool and intensified business competition.
Published by Orgvue
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An aging workforce, shrinking talent pool and intensified competition will put businesses under increasing pressure in the years to come. The benefits of succession planning have never been more apparent, yet few organizations have a plan at all, even for senior leadership positions.
Not knowing who in your organization will fill critical positions as they become vacant is like playing Russian roulette with an extra bullet in the barrel every time. Relying on recruitment to plug the gaps will eventually run dry at worst or at best will lower the skills bar and affect your ability to compete.
What is succession planning?
Succession planning is the process an organization uses to ensure every critical position is occupied by an employee with the right skills and experience. It aims to ensure workforce continuity by identifying and preparing suitable candidates so that positions aren’t left vacant.
Organizations often focus on the senior leadership team, but succession planning should take a broader ‘root and branch’ approach that promotes candidates through the ranks, rather than rely on recruitment. This is particularly important today because many of the most in-demand skills are in short supply and expensive to acquire.
Who needs succession planning?
Large or small, every business needs succession planning. In smaller companies, it may be less complex, but the impact of losing a highly valued employee is no less disruptive. In fact, you could argue it’s more disruptive based on the ratio of leavers to employees.
One way to ensure interim support for critical roles is to cross-train employees with the most comparable skills to those needed until the business is able to permanently fill the role. This situation may arise if there are no suitable candidates internally at the time the position becomes vacant. But it’s far from ideal and better to have a plan in place that has contingency built in.
What are the objectives of succession planning?
Succession planning aims to keep your workforce and talent pipeline stable by assessing vulnerabilities and identifying internal candidates that could move into critical positions over time. It begins by establishing which positions would have a noticeable impact on the business if they became vacant for any length of time. The ultimate objective is to ensure all critical positions are occupied continuously and seamlessly.
However, complexity arises from the pattern of many-to-many relationships across employees and positions. You can end up having many employees as succession candidates for the same position or a single employee as succession candidate for many positions. This just emphasizes the need for good succession planning.
6 benefits of succession planning
Having a plan that enables you to regulate and maintain workforce stability and organizational capability brings with it several positive effects. Below we explain 6 benefits of succession planning for your organization to consider.
1. protect the business from a sudden, unexpected change
Perhaps most importantly, succession planning contributes to the resilience of your organization in the face of sudden change. It’s easy for business leaders to be too swept up in the day-to-day to notice patterns affecting the workforce. And it’s easier to replace your employees as positions become vacant. But if you take this road, your talent strategy will always be focused on external resources, which as we explain in our article 8 steps to successful succession planning, we think is unsustainable.
Without succession planning, you’re taking for granted the health and loyalty of your workforce. What would you do if one of your top employees developed a long-term illness or was poached by a competitor? Sure, you might be able to recruit effectively to replace them but how much will that cost you, in terms of fees, increasingly competitive salaries, and loss of intellectual capital?
2. reveal vulnerabilities and highlight skills gaps
Continuing on this theme, succession planning provides a risk assessment that will uncover vulnerabilities and gaps in your workforce and skills base. By reviewing your current organizational structure by department, you can begin to see points of weakness that could impact your business strategy.
With this knowledge, you can take action well in advance to mitigate these risks and motivate your top talent in the process. In essence, succession planning shifts the focus of talent planning from external to internal.
3. promote training and development
It’s worth remembering that succession planning doesn’t have to be about linear career progression. If there isn’t a clear path for your best people to progress, they could end up leaving the organization – unless you’re able to provide alternatives.
Supported by a well-rounded training and development program, succession planning can highlight opportunities for employees to move laterally into positions that have skills in common. This opens up possibilities for a rewarding career that your best people might not have considered.
A good training and development program shouldn’t just provide courses and learning materials, it should also offer opportunities for coaching, mentoring, job shadowing and support for professional certifications.
4. knowledge transfer and process refinement
When experienced employees retire or leave the business after a long tenure, they take with them a font of knowledge that will be hard to replace. One of the aims of succession planning is to stop this drain on the business and smooth the transition of such changes.
By prioritizing succession paths that involve employees whose departure from the business is planned or otherwise anticipated, knowledge can be passed on to those who will take up the reins. Most retiring employees will be happy to help rather than see such an important product of their labor go to waste.
Alongside knowledge transfer comes the opportunity to review processes and procedures, question existing methods and look for opportunities to improve them. Ambitious succession candidates will be open to the recommendations of outgoing colleagues concerning pitfalls and weaknesses, as this presents a chance for them to make an early impact.
5. long-term talent planning and retention
Another important benefit of succession planning is improved retention of your top employees by offering them clear opportunities for growth. By planning longer-term, organizations can reduce their reliance on recruitment, so that talent is only sourced externally as a last resort.
Your succession plan should be closely aligned with the business strategy so that it provides answers to talent questions relating to organizational growth, business expansion, and innovation. You might think this is what strategic workforce planning does, but succession planning differs in that it actively pursues workforce continuity rather than workforce resourcing.
6. preserve brand integrity and reputation
When done badly, succession planning can have an impact on the business beyond its remit, particularly for publicly visible positions. There are many examples of failed c-level succession plans that have caused substantial reputational damage to the organizations concerned.
When a senior executive comes into the organization from outside, it’s vital the leadership team takes steps to ensure the new appointee understands the values that bind its people and business. Rash attempts to impose change and make a mark could undermine the organization’s core purpose and overlook the needs and expectations of both customers and employees. This is a very real concern, as the Disney example below illustrates.
By placing the emphasis on internal succession to senior positions, these threats have less chance of materializing, as senior leaders are more likely to understand what’s right for the business and its people. Microsoft CEO Satya Nadella is an excellent example of this.
When succession planning goes wrong
Disney has a track record of disastrous succession planning but its most notable failure was then-CEO Michael Eisner’s choice of the company’s new president in 1995. Eisner brought in Michael Ovitz from the Creative Arts Agency instead of appointing colleague Jeffrey Katzenberg as expected.
This ill-judged snap decision backfired spectacularly when Katzenberg subsequently sued Disney to enforce his contract terms, resulting in a $270 million lawsuit that he won. 14 months later, Ovitz left Disney having struggled to adapt to the company’s culture, costing Disney a further $140 million in severance. In reaction to this, Disney’s shareholders sued the company and voted to remove Eisner as chairman in 2004, which led to him stepping down as CEO the following year.
Plan a path to success
When it comes to bringing senior leaders through the ranks, advisor Ram Charan thinks cumulative experience across functions and growing responsibility for profit and loss (P&L) is the best preparation. Jim Smith, executive vice president at Thomson Corporation, a business with more than 100 different P&L centers, couldn’t agree more: “it’s the best crucible for formulating leaders that I know of.”
Organizations that look for high-potential candidates early in their careers and chart their path to leadership will differentiate themselves from those that don’t.
Once you’ve identified succession candidates, their managers will play a vital role in making sure their training and on-the-job experience aligns with the company’s changing fortunes. Because a company’s path to sustainable success isn’t set in stone and neither is a succession plan. But it will give your business the best chance it has to realize its ambitions.
8 steps to successful succession planning
What would your business do if a hard-to-replace employee suddenly left the organization? Here are 8 steps to make your succession planning process easier.
Read more about organizational design
Organizational design is growing in prominence with every passing year. In a world derailed by geopolitics, market forces and economic volatility, organizations have to find ways to adapt quickly. Read our essential guide to learn about the foundational concepts of organizational design and how to put theory into practice successfully.