June 3rd, 2022 · 6 min read
Why succession planning should be a priority for every business
For many organizations, succession planning falls toward the bottom of the priority list. Research shows that only 35% of organizations have a formal planning process in place. Most boards and CEOs consider this exercise important, but rarely consider it urgent — unless, of course, they’re facing the departure of a key executive or linchpin employee. Then succession becomes a priority or, worse, a full-blown crisis — though at that point, it’s often too late for a seamless transition.
The issue of succession affects every size company and every industry, from start-up to enterprise. It’s not if, but when a CEO or other key player leaves the company, whether by retirement, a better opportunity, termination or other circumstances.
If you haven’t conducted a succession planning exercise prior to a leader’s departure, the transition could be both challenging — and costly — for your organization. The average time to fill positions across all job levels is 36 days, with months more typically required for executive positions. Add to that the average number of days her replacement will need to get up to speed, an exceptional 26 weeks for executives to get up to speed.
But it doesn’t have to be that way.
According to a study, proactive succession planning can increase company valuations and investor returns by 20% to 25%. Yet few companies have viable plans in place for successful transitions across key positions.
To remain competitive and cultivate potential leaders, now’s the time to prioritize succession planning and develop a modern approach to preparing employees for each step forward within the organization.
What is succession planning?
Succession planning is the act of preparing for the inevitable departure of key members of an organization to ensure the quickest, most seamless transition possible, regardless of the circumstances.
Put simply, the process involves HR and people leaders reviewing key roles across the organization, noting those where an employee’s departure could affect or disrupt the company. From there, they identify potential leaders in the ranks and develop a succession pipeline that will proactively prepare these candidates to step into a more advanced role when a vacancy arises.
Building a pipeline of quality candidates is a long-haul, ever-evolving objective. A deliberate and proactive process like this supports the smooth transition of personnel as well as continuous employee development that’s directly aligned with the needs of the business. Departures without several suitable candidates in the pipeline force a reactive decision (and usually a poor one), based on urgency instead of strategic, thoughtful placement.
Taking a long-term approach to succession allows you to proactively build an internal talent pipeline and fill vacant roles more easily. However, that also necessitates having a robust L&D strategy in place for upskilling and developing these employees over time.
Who is succession planning for?
Succession planning isn’t just for those in executive positions. While it’s traditionally thought of in this way, the current skills shortage requires HR leaders to think beyond executives and extend it to other levels of leadership.
An effective succession strategy addresses the needs for leadership roles at all levels, including departmental leaders, as well as team and project leads. Other critical or specialized roles of non-leadership positions may also have a succession plan in place - especially if they demand a niche skill set that is hard to find.
You may also want to address temporary vacancies in your succession plans. Peers and direct reports to vital roles should have basic competency to step in if a leader is taking a vacation, parental leave or extended medical leave.
Advantages of succession planning
Succession planning takes time, but it's worth the investment. Here’s why:
Addresses generational challenges
The number of leaders on the edge of retirement outweighs the number of individuals entering the workforce, forcing the issue of succession and creating holes that will need to be filled by a new wave of talent. Strong L&D programs prepare younger employees in a multigenerational workforce to step in and take the reins when retirees depart.
Supports diversity, equity and inclusion
It’s necessary to craft a succession planning strategy through the lens of diversity, equity and inclusion (DEI). This may require going a level deeper to see if the L&D opportunities that your organization offers are effective at specifically uplifting diverse talent.
Diversity in leadership is still a massive challenge for many organizations as well. Women make up only 20% of senior leadership teams and for racially diverse employees, that figure drops to 13%. The numbers between gender and race and education levels do not correlate, and research shows this disparity negatively affects company success and progress.
Through succession planning, you can take action to identify high-potential, diverse individuals early on and craft a path to leadership — benefiting the employee and your business.
Avoid employee turnover costs
Particularly at the upper level, the time between an executive’s departure and the replacement’s arrival can bring crucial work to a halt. The cost of poor succession planning for public companies rings in at $112 billion for hard costs like executive searches, severance packages, revenue losses from tabled initiatives and growth strategies.
Although the turnover costs may be less for junior and mid-level employees, they are still significant and avoidable.
Whether a company looks outside with a costly executive search or promotes someone from within, the uncertainty of the situation, lack of confidence in the potential replacement or poor performance from the new leader can destabilize an entire organization. This can even create a cascading effect of departures across the board, multiplying the cost of turnover exponentially.
Identify and address skills gaps early on
When identifying potential successors, you’re looking at the hard and soft skills they possess and evaluating their ability to take on a specific role. Through this process, you may be able to notice patterns among colleagues or even entire teams that are indicative of larger skills gaps that may pose a problem down the line.
Plus, succession planning means not only identifying and training who will be stepping into an advanced role, but also preparing for the steps they will need to take to get there. Planning for succession requires that you take a critical eye to evaluate the L&D programs you have in place and ensure that they are robust enough to upskill and/or reskill workers across the organization effectively.
What goes into a succession plan?
At a high-level, your succession plan should include:
- An outline of the critical roles that require succession planning and how those roles (or new roles) might evolve in the future
- An understanding of the day-to-day responsibilities of those positions
- An understanding of the technical and soft skills needed to be successful in these roles
- Multiple methods for identifying high-potential talent, including recommendations, professional assessments and conversations with employees
- L&D tailored for a succession pipeline that nurtures the development of interested high-potential candidates
- A transition strategy for role takeover, including a succession plan for the role vacated by the incoming replacement
These steps are just a starting point. The specifics of a succession plan will be unique to the role in question, as well as the current skills, competencies and work experience of the candidate. There will also be differences depending on whether the plan addresses permanent replacement or temporary filling.
Internal vs. external succession planning
Internal and external hires each come with a unique set of challenges and benefits.
Internal promotion is significantly cheaper than external hiring, requires far less ramp-up time, promotes higher retention and allows you to provide hyper-specific training to your candidates. Most importantly, employees promoted from within tend to outperform external hires.
Even so, external hiring has its place, allowing you to fill highly specialized roles and supporting the inflow of new perspectives and culture additions. You will likely want to pursue a hybrid approach, and take deliberate steps to recruit high-potential candidates to join the company prior to the vacancy.
Here’s how to approach succession planning for both internal and external hires.
Internal succession: Prioritize learning and development
The first step in succession planning is to identify your high-potential employees (HiPo). These individuals are innovative, agile learners with the greatest capacity for success in a leadership position. As managers, they cultivate rising stars within their team. As individual contributors, they take initiative and invest in their own growth.
However, identifying the right talent is just the beginning. The next phase in the planning process is to ensure that you have the right workforce education, training and mentorship programs in place to develop your high-potential employees effectively. Every individual brings a unique set a skills to the table, and each position has its own specific requirements.
External succession: Finding the right people
When looking externally, it’s necessary to define the exact qualities you’re looking for in a candidate early on. These may relate to cultural values and identities, specific experience, technical skills or niche expertise. These qualities should reflect gaps in your current workforce or critical requirements of the role that’s being filled — sometimes even both.
After an individual has been hired, you can continue to cultivate your external hire using the same approach you would for an internal candidate. Providing access to ongoing training, mentorship and education opportunities will enable your new hire to ramp up quickly and underscore a culture of learning within your organization.
Interim leaders are individuals with the right competencies and experience to temporarily fill a role in the event of a long-term absence or to assist with the transition of an internal or external successor.
Interims can also be critical in discovering and understanding what changes might need to be made to a vacant position. Their perspective may be instrumental in creating parameters for responsibility and behavior for the incoming leader, whether internal or external.
Succession planning process and best practices
As you begin to create or revise your succession plans, consider these best practices for the planning process.
- Look inside. Your strongest candidates most likely work for you already.
- Start preparing years ahead. Look lower on the ladder than you might think. Potential leaders need time to grow.
- Don’t think of this as planning for a single person. Give yourself a succession pool with multiple candidates to consider, with an eye on future needs of the company, not just current needs
- Push your people. For curious, high-potential employees, give them challenges outside of their training and experience — maybe a 6-month assignment to solve a difficult problem or a transfer to a wholly unrelated department. With support from more experienced leaders, a dive into the deep end builds agility and courage. When it’s time to step up to the next level, they’ll have the skills and foresight to do so.
- Provide learning opportunities. Beyond experiential learning, offer workforce education as a continuous resource throughout an employee’s career. This nurtures a culture of learning that will propel your best candidates forward and help fill your succession pool with workers that are ready to hit the ground running.
- Update your succession plan regularly. This is a rolling project, not a static one. Look forward to help define what sorts of roles, people and skills the future may require. Review and adjust as needed and schedule action items throughout the year to keep your plan at the ready.
Future-proof your organization with strategic succession planning
However you go about it, succession planning can support your organization in keeping critical roles filled so that everything continues to run smoothly when a vacancy arises. By assessing skills needs proactively and developing robust L&D programs that encourage development, you’re building a succession strategy that future-proofs your business, while simultaneously helping your people advance their careers.
Keep reading: Having the right upskilling and reskilling initiatives in place allows for easier succession planning. Download this skill building guide for step-by-step instructions on what you need to take your L&D to the next level.
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