The Keys to Management Succession Planning and Saving Billions!
The Keys to Management Succession Planning and Saving Billions!
By Victor Assad
Your organization can’t afford a stumble with leadership at the CEO level and in middle management. Yet 39% of companies today have no viable candidate to replace the current CEO, and only 54% of company Board of Directors are grooming a specific CEO successor.[i]
The labor market in the US is exceptionally tight at only 4.4% unemployment, as is the available talent for CEOs. So why aren’t more companies spending the necessary time and resources to continually build internal and external pipelines to replace their CEOs, other top talent, and middle managers?
Getting the replacement decision correct is vitally important. Companies that must fire their CEO forgo an average of $1.8 billion in shareholder value compared with companies that plan, regardless of whether the replacement is an insider or outsider.[ii] Estimates suggest that up to 40% of new CEOs fail to meet performance expectations in the first 18 months.[iii] There is a far greater payoff to getting CEO succession right than current succession practices and investments would imply.
I define succession planning as the process of selecting future leaders and critical technical talent from among the enterprise’s high-performance and high-potential employees and key outsiders, including all the way to the CEO. Well thought out succession plans identify the high-performance employee’s next roles, lateral rotations or promotions, including the optimal timing of such moves, and key learning events.
Succession planning works best when it is an integral part of the company’s integrated talent strategy.
The succession planning process begins with recruiting and attracting the talent to the organization that can perform well for the current job openings but also can move up the leadership or technical career paths. Career development doesn’t occur without an ongoing individual and organizational learning strategy that is accessible to all employees and helps develop those with high potential. Succession planning begins with who a company selects as its first level of leaders.
Companies need a dynamic performance management system that provides employees with the performance and development feedback they need to grow and ongoing coaching. The performance management system also needs to collect the workforce analytics on individual and team performance and who is ready for development and promotion. It also needs to inform the business on performance against current and future key job family competencies and the need for future development by the company.
Finally, you don’t keep your best and highest potential employees without aligning their values and primary interests to the purpose, strategies and desired outcomes of the company. You will not grow your organization unless you allow your workforce to participate in the exciting business opportunities and innovation of your business. This requires operating a transparent, collaborative and performance-based culture of innovation. You will not keep your best without paying them higher pay and providing them extraordinary career development opportunities.
Succession planning does not exist as an island in talent management or a committee of the Board of Directors that is only interested in picking the next CEO. It is a long-term and continual process. Succession planning is an integral part of an integrated talent strategy.
Vitally important for succession planning is to understand that it is not only about promoting high-performance employees. That is not enough. Many of your high-performance employees do not have the skills to rise two or more levels in your organization. Or if you are a small organization, with a relatively flat hierarchy, to learn the skills required to grow your business innovatively. You need to be able to differentiate among your high performers to identify the employees with high potential—at each level of the organization.
Research by Rob Silzer and Allen H. Church has identified the three components of potential.[iv] They are the foundational dimensions, the growth dimensions, and the career dimensions. Let’s go through them:
Foundational Dimension. It consists of two stable, consistent components. The first is Cognitive. That is, conceptional or strategic thinking and cognitive abilities, often measured as IQ. While it is essential to have a high IQ, having too high of an IQ can be a detriment to business performance and innovation. Employees with high Cognitive skills are often able to deal with complexity and ambiguity. The second component is Personality dimensions. Sometimes referred to today as Emotional Intelligence. Employees that score high on this dimension are usually very sociable, have excellent interpersonal skills, have learned to control their dominance in team meetings and are emotionally stable. They also display resiliency in the face of set-back and failure.
Growth Dimensions. The ability of high performers to grow is critical to learning and being able to move into new industries and to move up the career ladder. The first of two component is Learning. It includes an individual’s ongoing learning orientation, adaptability, and openness to feedback. If an employee wants to stay with the “tried and true” and is not able to adapt to new situations and be open to learning what he or she does not know—they are not high potential. The second component of the Growth Dimension is Motivation. First, do they want to be a leader? Some very skilled people do not want leadership roles, or they cannot take a current leadership role now. Other qualities include drive, energy, achievement orientation, and career ambition. In addition, great leaders and innovators need to be willing to take risks and are committed to achieving excellent results.
Career Dimension. These are the early indicators of later career skills and success. There are three components. The first is Leadership. Have they learned to manage people, set up operating and decision-making norms, delegate effectively, inspire and develop others? Have they learned how to influence their staffs, peers, and superiors? Can they challenge the status quo effectively and continually lead change? Performance is the second component. Do they have a continued strong performance record in diverse situations? For example, turnarounds and growth opportunities? In different industries and geographical regions? The third component is Knowledge and Values. Are they technically component in one or more fields? Do they have the values and norms to lead today? Are they trustworthy? Do they respect people of the other sex? Workers from different backgrounds? Wells Fargo, Uber, Fox News, Volkswagen, and The Weinstein Company have suffered market and financial loss due to executives with bad values.
How do I get started and make succession planning relevant to my company? You begin with your company’s business plan. Does your company need future leaders with new skills to grow the business? Integrate Artificial Intelligence or other new technologies? Restructure? Innovate? Move into new global markets? Whatever the business strategy and opportunities facing your company, you will need to put in place an integrated talent strategy to achieve it—and with it a succession planning system.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, global talent strategies, developing agile leaders and teams, and other strategic initiatives. Questions? Please email Victor at email@example.com. Visit http://www.victorhrconsultant.com for valuable free reports. For innovation visit http://www.InnovationOne.io.
[i] David F Larker and Stephan A. Miles (June 2010), “2010 CEO Succession Planning Survey,” Heidrick and Struggles and Stanford University. Found at https://www.gsb.stanford.edu/faculty-research/publications/2010-ceo-succession-planning-survey.
[ii] Ken Favaro, Per-Ola Karlsson and Gary L. Neilson, (May 4, 2015), “The $112 Billion CEO Succession Problem,” Strategy and Business, Columbia Business School, Summer 2015, Issue 79. Found at https://www.strategy-business.com/article/00327#succession.
[iii] Eban Harrell (Dec. 2016), Succession Planning: What the Research Says,” Harvard Business Review
[iv] Rob Silzer and Allan H. Church, “The Pearls and Perils of Identifying Potential,” Industrial and Organizational Psychology, 2 (2009), pp. 377-412.