Succession Archives - GUJRAT INDIA

The CEO’s Guide To Succession Planning – Managing Risk & Ensuring Business Continuity

Introduction

Once reserved for the upper echelons of senior management, and often viewed as replacement planning should catastrophe strike, today’s succession planning is being redefined. The discipline has broadened in both breadth and scope to become a central component of board-level strategy.

Succession planning focuses on managing risk and ensuring continuity across all levels of the organization – risk of untimely departures of critical personnel, risk of retirees taking their skills and knowledge with them and leaving nothing behind, and risk of losing high value employees to competitors. It does so by helping your business leaders to identify top performers within the organization, create dynamic “talent pools” of this critical talent that other leaders can leverage, and prepare and develop these high performing employees for future roles.

If this was easy, everyone would be doing it. The problem that exists today is that succession planning is barely automated, let alone optimized. This CEO guide provides five key tips for jump starting your succession planning efforts.

1. Automate and Reduce Costs

Today’s succession planning efforts are characterized by fragmented, inconsistent, paper-based processes. Indeed, 67% of companies are still primarily paper-based, according to a global survey conducted by SumTotal.

Conventionally, business and HR leaders will spend weeks or even months manually scouring different parts of the organization for information needed to build lists and pools of nominees and successors for specific job families or positions. The information required to generate the lists often includes self assessments, past performance appraisals (often paper-based), and 360 feedback. After a lengthy period of information gathering and aggregation followed by manual analysis (e.g., nine-box, gap analysis), the results are printed and collated into large three-ring binders for use in executive planning meetings. This time-consuming, inefficient, and costly process is still commonplace today.

To effectively transform succession planning from a manual, paper-based process to one that is systematic and technology-enabled, CEOs must focus on laying a solid foundation supported by strong executive leadership.

Program & Process Foundation

Establish dedicated management function (e.g., program management office) with CEO-sponsored executive leader or council (with senior representation from line-of-business, geography, and corporate HR)
Define core succession process along with key constituents and tasks at each step of the process; Clearly articulate touch points to other business processes (e.g., performance management, career development)
Understand implications of change with emphasis on managers & employees
Align program with broader business strategy
Determine initial scope (e.g., enterprise-wide, divisional)
Define processes independent of technology

Technology Foundation

Must support and enable key processes
Must integrate learning and development
Must link seamlessly to other business processes, especially performance management
Must be flexible and configurable to meet unique needs
Must centralize and consolidate key information and data
Must be easy for managers and employees to use

2. Drive Succession Planning Deeper into Your Organization

Many CEOs still view succession planning as replacement planning to designate successors in the event of a catastrophe befalling senior company leaders. Indeed, succession planning penetrates only the highest levels of the organizational hierarchy, according to survey data. Only 35% of companies currently focus their succession planning efforts on most critical roles within the organization.

Yet a most dramatic transformation is underway: 65% of the organizations surveyed plan to extend succession planning to all critical positions within the two years. Applying succession planning beyond the top layers of management is critical to retaining high performers across all levels of the organization and mitigating the risk of untimely departures of personnel in high-value positions.

The key to extending succession planning into the organization is to provide career development planning to employees. Indeed, fully 97% of business and HR leaders believe that a systematic career development process positively impacts employee retention and engagement. These leaders also believe that providing career advancement opportunities as well as dedicated development planning to employees are the two most important mechanisms for retaining high performers.

Retaining existing employees not only has the potential to minimize the effects of talent shortages, it also provides significant and tangible cost savings (since replacement costs range from 100%-150% of the salary for a departing employee).

3. Establish Dynamic Talent Pools to Improve Pipeline Visibility

Centralized talent pools provide CEOs with global visibility into their talent pipeline and overall organization bench strength. They provide a mechanism for ensuring that the organization’s future staffing plans are adequate, thereby reducing risk and ensuring continuity. To be truly effective, talent pools need to be dynamic in nature. For instance, if an employee is terminated, that person should be automatically removed from existing successor pools. Alternatively, if an employee closes a key skill or certification gap that had previously kept her from being considered as a successor, the pool should be updated appropriately. Talent pools that are inaccessible or not up-to-date are of little use to decision makers.

A key element of making talent pools accessible is in-depth searching for talent exploration. A talent pool is not much good if managers cannot easily view, track, update, and search for potential successors. Dynamic talent pools should take the guess work out of succession planning by aligning employee assessments, competencies, development plans, and learning programs. Proactive system monitoring ensures that as employees learn and grow, talent pools are dynamically updated to reflect the changes. It is this element in particular – supported by robust reporting and analytic capabilities – that helps CEOs make more objective staffing decisions and better plan for future staffing needs.

4. Promote Talent Mobility to Retain High Performers

Industry analyst firm Bersin & Associates defines talent mobility as “a dynamic internal process for moving talent from role to role – at the leadership, professional and operational levels.” The company further states that “the ability to move talent to where it is needed and by when it is needed will be essential for building an adaptable and enduring organization.”[1]

Talent mobility is:

A business strategy that facilitates organizational agility and flexibility
A mechanism for acquiring and retaining high performing and potential talent
A recruiting philosophy that favors internal sourcing over costly external hiring
A method for aligning organizational and individual needs through development
A proactive and ongoing approach to succession planning rather than a reactive approach

A systematic talent mobility strategy enables business leaders to more effectively acquire, align, develop, engage, and retain high performing talent by implementing a consistent, repeatable, and global process for talent rotation. Without a cohesive talent mobility strategy, CEOs face several risks:

Focus on costly external recruiting vs. internal sourcing
Wrong hires (cost can be 3-5x person’s salary)
Increased high performer churn
Reduced employee engagement
Reduced flexibility as business conditions change

CEOs should consider the following integrated processes – and a complete technology platform to support them – to promote and enable talent mobility:

Current workforce analysis:Includes detailed talent profiles, employee summaries, organization charts, competencies, and job profiles.
Talent needs assessment: Assess employees on key areas of leadership potential, job performance, and risk of leaving.
Future needs analysis:Development-centric succession planning to create and manage dynamic, fully-populated talent pools.

5. Integrate Succession Planning to Broader Business Processes

Succession planning is not a silo. It implicitly relies on other talent processes and data, especially assessments that provide a performance and competency baseline. Yet unlike a performance management process, which can be executed in a relatively self-contained fashion (assuming it has access to core employee data), the same is not true for succession planning.

Succession planning requires foundational data (e.g., competencies, job profiles, talent profiles, and employee records) and inputs (e.g., appraisals, feedback). Outputs include nominee pools, successor pools, development/learning plans, and reports. To facilitate the level of integration required to get succession planning right, a single, natively-integrated technology platform that centralizes key talent processes and information is required. With this single platform, the time to develop succession plans can easily be reduced from weeks or months to mere hours. The benefits can be significant: reduce costs, reallocate personnel from tactical activities to more strategic endeavors, and mitigate the risk of untimely departures of essential personnel.

Additionally, a single technology platform promotes the linkage of learning and career development to succession planning. By bridging these processes, nominees who are not ready for advancement can be assigned detailed development plans that guide them to improve the competencies and skills required for new job positions. Learning paths and specific courses can be established for employees to facilitate their career growth. By providing learning opportunities and development plans to employees, CEOs can take a more active role in promoting employee growth, retention, and engagement.

Finally, with a single system of record, reporting and analysis is vastly improved, since all relevant talent data resides within a single data structure. Strategic cross-functional metrics can be readily established (e.g., measure the impact of learning and development programs on performance). Reporting and analysis are key to the CEO’s success in managing employee resources and implementing strategies that support corporate objectives and initiatives.

Conclusion

Organizations can realize significant efficiency gains and cost savings by moving from a manual, paper-based succession process to one that is fully technology-enabled. The shift to a single technology platform facilitates extending succession planning deeper into the organization, since a well-architected solution seamlessly links succession to career development and learning. A complete platform improves senior management’s global visibility into the talent pipeline and bench strength, and promoting talent mobility to retain high performers becomes a viable engagement strategy. Succession planning, done correctly, is all about process and supporting technology integration. Without integration, succession planning becomes just another organizational silo.

Endnotes

[1]Lamoureux, Kim. “Talent Mobility: A New Standard of Endurance.” Bersin & Associates, November 30, 2009.

The Importance of Succession Planning

Business Continuity Planning

The Disaster Recovery Journal (DRJ) defines Business Continuity Management (BCM) as “A holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience with the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities. The management of recovery or continuity in the event of a disaster. Also the management of the overall program through training, rehearsals, and reviews, to ensure the plan stays current and up to date.” (n.d.) Within the scope of BCM comes succession planning, defined by DRJ as “A predetermined plan for ensuring the continuity of authority, decision-making, and communication in the event that key members of executive management unexpectedly become incapacitated.” (n.d.)

The Importance of Planning

Why are these planning aspects critical to businesses and governments? Planning to do business during a crisis is critical to being able to perform essential functions during and after the crisis. The prognosis for those without a plan is certain business death:

Of businesses without a disaster recovery plan:

> 80% will fail in just over a year,

> 43% will not even reopen,

> 93 percent that experience a significant data loss are out of business within five years according to the U.S. Bureau of Labor. (Hatter, 2004)

Clearly, the evidence supports the need for a business to be prepared for disasters. The question then becomes, “What is a disaster?” DRI International offers the following as the definition of a disaster: “A disaster is a sudden, unplanned calamitous event that creates an inability on an organizations part to provide the critical business functions for some predetermined period of time and which results in great damage or loss.” (2006)

Implied in the DRI definition is the loss being to an “unacceptable” level. If a sudden, unplanned event occurred that prevented the business from performing critical business functions and was going to result in a loss of fifty million dollars due to law suits, but the company carries insurance for one hundred million dollars, the loss may not be “unacceptable”. The loss has been mitigated with the insurance; however, the company may now be battling a public relations issue related to the law suit. As pointed out in a Harvard Business Review, “Companies sometimes misclassify a problem, focusing on the technical aspects and ignoring the issues of perception.” (Augustine, 2000)

Utilizing this definition of disaster opens the planning paradigm to many different scenarios outside the traditionally defined natural, manmade, technological, and terrorism events. Suddenly the definition of disaster allows for more varies considerations, including product recall; class action and individual law suits; and executive defection, resignation, termination, arrest, contract expiration, or death. All of these items can create “an inability on an organizations part to provide critical business functions…which results in great damage or loss.”

Denial

The definition of disaster also helps mitigate another phenomenon in crisis response: denial. As Augustine points out, “This stage of crisis management is often the most challenging: recognizing that, in fact, there is a crisis.” (Augustine, 2000) Setting a quantifiable threshold for “unacceptable” loss allows executives to discern that there is a crisis situation that requires a response. It is only when the crisis is acknowledged that the inevitable effects can be mitigated.

Succession Planning

Wikipedia defines succession planning “as the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players such as the chief executive officer (CEO) within an organization as their terms expire.” As explained in this statement by Brent Filson, “It’s a common occurrence, a CEO leads a company to record earnings, retires and in just a couple of years, those once high-flying earnings are dropping like shot ducks. Observers blame the new leadership team. But most likely the observers are wrong. It’s not just the new leaders who are screwing up. Instead, it was most likely the former CEO… So when a decline follows the departure of great leaders, the safe bet is that those “great” leaders haven’t hired and developed leaders – and so really weren’t great at all, no matter what results they got.” (Filson, n.d.) A trait of excellent military leadership requires the leader to develop the personnel below him to ascend in to the position the leader occupies so the leader is free to move up the ranks, or so the subordinates are capable of handling battlefield situations if the leader is incapacitated. A military unit should not have the survivability of a snake, where cutting off the tail is not a problem, but cutting off the head (leader) results in the death of the unit.

Development of the next generation of leader is a paramount task. “It is instructive here to recall that Noah started building the ark before it began to rain.” (Augustine, 2000) Prior planning prevents poor performance. Without the proper methodology being utilized to prepare for personnel turn-over or unavailability, the corporation can be sent into panic hiring, can fail to continue to implement strategic plans because of the loss of a key individual, and multiple other pitfalls because they were not ready.

Short Term Needs

Planning must account for short time frame notification items. What does the company do when two executive VPs are killed in a plane crash? Who has been groomed and is ready to be “acting” in their place until they can be either ramped up to the permanent replacement or until an executive search reveals the best candidate? When a top executive resigns and moves to a competitor, has the company already instituted a program to ensure that individuals know that strategic plans, customer accounts, and other vital critical business information is in fact the exclusive property of the company and had these key individuals sign off on non-disclosure agreements? If they had not done this prior to hiring the defecting manager, are they prepared to ensure that incoming key personnel are required to affirm their loyalty in exchange for the position?

Mid-Range Needs

Personnel will retire. The text gives the example of GM and their planning process. Any company that is not preparing a like plan for grooming and testing the capabilities of personnel who may be tapped to be the top executive must seriously consider how prepared they really are to do business. Failing to plan is, in effect, planning to fail.

Retirements with long lead windows give companies ample time to try people in the proposed position, to be more closely mentored, or to be given charge of substantially more responsibility to see how they are able to handle the situations that they will be confronted with when they are given the nod.

Long Term Needs

The United States is entering an era where the baby-boomer generation population will begin to affect balance in the worker availability pool. Starting in 2010, the demographic growth-rate balance starts to shift, and by 2015, the 65-and-over age group starts to grow at a faster rate than the 20-to-64 age group.” (Allier, J.J. and Kolosh, Keneth, 2005)

“Organizations that understand the immediacy of the baby boom exit and thoughtfully prepare for it will be in the best position to achieve unmatched success.” (Allier, J.J. and Kolosh, Keneth, 2005) The authors offer questions businesses should be asking themselves to prepare for the coming demographic change. Some of them are:

> What are your company’s demographics (age, gender, position, years in position and anniversary date)?

> What are your company’s retirement policies? Is early retirement encouraged or discouraged?

> What mechanisms and programs must be put in place now to capture key competencies and critical work knowledge of employees who will be retiring?

> Will your organization need to increase its reliance on new immigrants?

> If your organization is offshoring, what is the age breakdown of your overseas partners?

> Will your offshoring partners face a labor shortage that may impact their ability to provide services?

(Allier, J.J. and Kolosh, Keneth, 2005)

Allier and Kolosh also point out that businesses need to position themselves to deal with the needs of an aging population. There may be a need for unique skill sets and competencies, as well as a need for new or modified product designs to be marketed to the aging population. These issues tie back into business continuity planning. To continue to be competitive in the future, businesses have to prepare for the shifting change in the average age.

Not Just for Executive

When developing succession plans, it is important to remember that the scope should not be narrowly focused to just the executives of the corporation. Steve Nelson, the MSPB’s policy director, said, “Succession planning is often focused on top leadership when we need to be looking at critical skill areas at all levels.” (Welles, 2006) Marta Brito Perez, associate director of human capital leadership and merit system accountability at OPM, said, “Succession planning has nothing to do with age. Succession planning is just identifying high-risk jobs and how to fill them.” (Welles, 2006)

The Process

The process of succession planning entails assessing what positions are critical to have a succession contingency plan. The positions are assessed, and then the skill sets of the candidates that could fill these positions are assessed, factoring in the time frame that would be required to get them up to speed for the position. A training program must then be implemented to ensure that there is progress in bringing these individuals closer to a more immediate insertion rate in case a planned position turns over. This will ensure a more seamless transfer for the person in waiting and provide a measure of corporate stability in a challenging time.

Summary

Succession planning is one piece of the overall business continuity planning process. It is a piece that cannot be over looked. Ignoring succession planning will leave the company without properly developed managers and key personnel to fill the shoes of those who leave for whatever reason.

References

(2006). BCP 501: Business continuity planning review 2006. Washington, DC: DRI International.

(n.d). Business continuity glossary. Retrieved May 1, 2007, from Disaster Recovery Journal Web site:

Allier, J.J. and Kolosh, Keneth (2005, June). Preparing for baby boomer retirement. Retrieved May 13, 2007, from Web site clomedia

Augustine, Norman (2000). Harvard business review on crisis management. Boston, MA: Harvard Business School Publishing.

Filson, Brent (n.d). A different leadership yardstick. Retrieved May 1, 2007, from emergingleader

Hatter, Dave (2004, August 6). Without a disaster recovery plan, your business at risk. Retrieved May 12, 2007, from Cincinnati business courier Web site:

Welles, Judy (2006, May 22). Welles: Successful succession planning: Be prepared by matching talented employees to leaders before those leaders depart. Retrieved May 3, 2007,