The objective of Succession Planning is to provide continuity of management to ensure that the organization has the right leaders in the right places at the right time. Essentially, it is about how to plan and align human resources with the overall business planning process. Succession Planning (or Management Continuity Planning), as part of HR Planning, is about preparing successors to assume key roles within the business, particularly during critical points of a business’s growth and development cycles. At its most fundamental level, succession planning is a highly strategic undertaking because the time horizon associated with managing the development of talent typically is long.
Why is Succession Planning an important undertaking? The tracking of personnel development and career potential should be no less important to an organization than any other type of asset management. Boards frequently review corporate assets and investments to make sure the organization is on sound financial footing and the financial future is, to the extent possible, determinable. The management of human capital is no less important to the long-term viability of the enterprise. Yet, only a small percentage of companies give this the attention it deserves. For example, a 2002 study conducted by Hewitt Associates found that 73% of the 240 major U.S. companies reported that they had a defined succession-planning process in place; yet, only 13% said that their organizations always follow their succession plans when making selection decisions.
The business case for having a well developed and managed succession plan and process has been articulated in numerous articles and books. Here are a few examples:
- To accelerate the development and improve the retention of talented people;
- To design appropriate training and employee development programs;
- To increase the pool of talented employees to fill key positions;
- To add value to the organization’s strategic plan and contribute to ongoing business strategies;
- To link developmental opportunities with career goals;
- To fully access the intellectual capital of employees;
- To improve employee morale and commitment to the organization;
- To encourage the development and advancement of a diverse group of employees;
- Board/stakeholder requirements for management continuity (Sarbanes/Oxley);
- Demographic changes in the workforce;
- Reducing organization uncertainty;
- Cataloging career pathways; and,
- Strengthening the role of the professional manager.There are many approaches and models used in the development of succession planning programs. Each model has its own pros and cons. Some models advocate broad based involvement of staff at all levels of the organization, while others are targeted to senior management’s selection of “high potential” talent. Whatever model is selected, it should be congruent with the stated values and culture of the organization and with the resources available to effectively manage this initiative.
Succession planning is a relatively simple and straightforward management tool to implement, but like all things related to management practice, the devil is in the details, and success is attributed to a highly disciplined implementation and ongoing review of the succession planning process. Likewise, strong and active senior management support is key, because it is about welding the capability of individuals with defined organization needs, and implementing appropriate developmental plans to optimize individual strengths and address deficiencies.
For many organizations, the succession planning process begins with the Board evaluation of the CEO. Part of a Board’s duties is to ensure that the organization has managerial talent on hand to effectively lead and manage the organization’s resources to address current and future needs. The Board should require, as an integral part of the CEO review, a presentation of a Management Succession (Continuity) report. The Succession report should contain the following:
- An Organization Review: Covers positions that report directly to theCEO or Business Unit head and 1 level of management below. This report would include:
- Current organization structure by position and incumbent;
- Planned/Proposed changes to organization structure, if any; and,
- Organization change and staffing discussion – Current openings and any anticipated turnover within the next 12 to 18 months.
- Performance and Promotability Opportunity Discussions: Covers direct reports to CEO or Business Unit head and employees considered “High Potential”. Often, this can be displayed in a matrix with the “vertical” axis highlighting levels of performance and the “horizontal” axis displaying promotability potential. Additionally, specific development opportunities should be discussed for high potential employees.
- The Succession Plan: Covers positions that are direct reports to the CEO or Business Unit head and other key positions as needed for the next 12-18 months. Using color keys to designate position and person, this graphic representation is very helpful in giving the board an overview of the organization anticipated staffing as well as tracking and monitoring succession pathways within each business unit.Position Key:
- Key Developmental Position: Identified by Title in Red
Normal Developmental Position: Identified by Title in Black
- At Risk or Reached Potential: Identified by
Name in Green
Develop Within Present Level: Identified by Name in Black
Promotable: Identified by
Name in Blue
Too New: Identified by Name in Purple
- Key Developmental Position: Identified by Title in Red
- Individual Development Reviews: Covers positions that are direct reports to the CEO or Business Unit heads. Each individual will receive an assessment that will link the incumbent’s managerial and leadership competence assessment with self-evaluations. Strengths and areas for development are identified along with specific actions and timing associated with length of time appropriate for the incumbents next assignment.
This report should be updated and reviewed by the Board annually. CEO succession is a Board responsibility and the Board should be the primary sponsor of the succession initiative. The CEO takes responsibility for developing key direct reports and is responsible for ensuring management continuity. The Chief Human Resources Officer should develop the succession-planning model, administer the succession-planning program, and provide business unit updates for CEO Review.
James T. Rude and Kenneth R. Cohen, PhD