Next in line

by HCA15 Jul 2009

Anyone who doubts the importance of succession planning need only cast a look at the political arena. Dominating headlines in 2005 was the ongoing succession tension between Prime Minister John Howard and Treasurer Peter Costello. Would Howard retire? Who would replace him? Had Costello been promised the top job? Since losing the 2007 election, the Liberal Party has struggled to find a suitable leader. The debate continues as to whether this is the fallout from a long period in power or is - perhaps more feasibly - due to poor succession planning.

In the corporate world, recent resignations of the chief executives of Telstra and Suncorp-Metway, as well as Rupert Murdoch's right hand man at News Corporation have been met with much hand wringing from company boards as to who the permanent replacements will be. It begs the question: just how seriously are company boards taking succession planning?

Talent management
A 2006 study conducted by management consultants Booz Allen Hamilton found average CEO tenure in Australia remains lower (5.9 years) than the global average (7.2 years), while the trend for Boards to appoint replacement CEOs from inside the company is increasing. In 2006, 57% of new CEO appointments in Australia were hired internally. Furthermore, internal hires generated on average a 21% shareholder return compared to 17% for 'outsiders'. The benefits of best practice succession planning for executive roles has never been clearer.

However, Jane Adams, operations director at Randstad, notes that ideally a succession plan should operate business wide if the organisational structure allows for it. "To retain talent in today's sophisticated and increasingly global market, people want access to a wide variety of career opportunities and the scope to be inspired by a wide variety of roles," she says.

Succession planning is an important tool for a business both in good times and in bad. It is viewed as a vital component in talent management as it helps to develop employees from within, it identifies potential areas of risk, and is also an effective retention tool. 

Simon Moylan, general manager, talent management at Hudson, notes that the two factors consistently quoted in the retention of top talent are career development and relationship with direct manager.

"On career development, it's not necessarily about moving laterally into the next role in the business; it's about feeling that your career has momentum. This is achieved through on-the-job development, learning new skills and taking on special projects, all of which are valuable pursuits in the current market," he explains.

Top organisations are developing leadership capability for two reasons. The first is to show a commitment to and investment in the individual. So, while there may not be an immediate promotional opportunity, they at least know that they have been identified as having potential. The second is to decrease the organisation's risk, by preparing the future leaders for their next role, rather than waiting until they are in it to develop them.

Moving with the times
The economic downturn presents new challenges for succession planning. David Reynolds, executive general manager, Chandler Macleod Group Consulting, says that success now relies on being smarter and thinking laterally about the skillsets and competencies that organisations should be focusing on. "In an environment where the world has changed so significantly, some skillsets that weren't so prevalent or needed before are ones that are needed now," he says.

Reynolds highlights resilience and coaching skills as essential. "Typically looking at these skills and traits was not a succession planning issue but it's looking at future leaders and planning for the future so these are the sorts of qualities you would want to embed and accentuate in terms of employee development," he explains.

In addition, the recent de-layering of organisations has increased the complexity of leadership roles, and at the same time has increased the 'distance' between roles in organisations. Moylan notes that this has resulted in a difficult situation for succession plans, where the gap between identified successors and the roles they are expected to fill are greater than they ever have been. "This places a huge reliance on talent management strategies to bridge a wider development gap between successors' current capabilities and where they need to be," he says.

Another element to be wary of is the fact that employees are hanging onto their roles for longer, either for fear of jumping ship in this environment, or in the case of many Baby Boomers, because they are delaying retirement due to superannuation concerns. This presents challenges for succession planning, particularly when the pipeline becomes 'clogged' with too many successors and not enough roles. Reynolds does not view this as a major problem.

"At the end of the day it will come down to the basic rules you put in place about who qualifies and who doesn't in terms of future leadership roles. If it clogs up the pipeline it just means organisations need to be more definitive and objective about who gets developed and who's put in line for future roles across the organisation," he says.

It's also important to consider that succession planning is not necessarily about climbing a corporate ladder, but rather about filling gaps for critical roles and providing employees with the opportunity to gain exposure to other areas of the business. Secondments and stretch assignments can be used, while project work might relate directly to the current environment - for example, if organisations are looking to take advantage of growing market share it might be something around cost efficiencies, or it be a project to realign certain business units to move them closer to the customer.

"This current crisis has forced us to look at what's important and what's not important. There is a silver lining if you can see beyond the clouds," says Reynolds.

Role or person?
This internal analysis makes succession planning a valuable risk mitigation tool, and in that regard it should focus not just on leaders but also on pivotal roles. This is problematic if the organisation has taken a blunt approach to redundancies.

"Business continuity is a huge risk that some organisations overlook in downsizing. They haven't looked at what the pivotal areas or roles are, where they can and can't cut, and where they can actually borrow from other parts of the organisation to back-fill. You've got to look at it from the organisational perspective and not a siloed perspective. There could be key skillsets in other areas that you could transfer to fill the gaps," says Reynolds.

To that end, business leaders should be asking how well placed a role is in terms of the direct reports. Do they have the knowledge, confidence and ability to take over? "That's part and parcel of good organisational design, to make sure the roles of the direct reports to some degree overlap," Reynolds adds.

Taking into account the changing demands made on future leaders, it is no longer possible or appropriate to groom people for specific roles. Organisations have to equip successors with the necessary experience, knowledge and techniques to assume a certain future 'role'. However, just as it is important to identify critical positions in the organisation, so it is important to identify crucial employees with the potential to lead in the future.

This is a key point, as Moylan explains: "Where succession planning is concerned with mapping of critical roles and potential candidates for them, succession management is focused on managing the readiness of a successor to take on his or her next role," he says.

Succession management is concerned with guaranteeing continuity of the organisation in the long term. Initially, this continuity was seen merely in terms or replacement planning with specific people being identified who could assume specific posts when senior managers retired. The principal reason for the implementation of these systems was to mitigate the risk of losing someone, and is of a reactive rather than proactive nature.

"Succession management as HR practice has meant a further step forward. In addition to mapping critical positions and possible successors, progressive organisations have put in place distinct development programs which enable successors to grow toward their future roles," Moylan says.

Beyond a replacement tool
It has been suggested that a succession plan should no longer be seen as a replacement tool but rather a development and leadership capability tool, a sentiment that Adams agrees with.

"I believe that people who view a succession plan as purely a way to protect the business and have a seamless handover are very short sighted. The effects of good succession planning can have far more wide reaching and profitable benefits. It's all about retaining high potential employees and achieving greater productivity from them whilst they are on their development journey.

"In my experience, an employee who believes their organisation is investing in their future and showing an active interest in their career is more engaged, becomes motivated to higher achievement, works harder and becomes a positive cultural role model. All of this translates to greater productivity from the individual and the teams they work in. Imagine what could be achieved if every organisation had pools of high performing talent working for them," she says.

High performing individuals need to see a career path ahead of them and organisations need to ensure they are helping these employees develop further in order to be successful in their new role. It is a joint responsibility to identify skills gaps, risks, on-boarding, developing and any additional requirements.

Succession planning needs to involve sourcing, assessing, developing, retaining and deploying the right talent. "Senior management should regularly look at their leadership pipeline and recognise individuals three to four levels down in the organisation, and then focus on their succession plans. It's about looking at your human capital as talent pools," says Adams.

Traits to look for
Personal motivation is the key to choosing who to develop as a successor as there's little point in investing in someone if they have no desire to take on more responsibility. Reynolds adds that the person must also have the intellectual horsepower and resilience to move up - "that's why you need to assess the potential more than past performance", he says.

However, past performance can provide a guide. Adams looks for proven success in the roles the individual has held within the organisation and elsewhere. "To be viewed as a high potential, quality successor they must have the credibility and the ability to be inspirational to those working their way up. I'm a firm believer this can only come from a visual track record of high achievement. I also look for demonstrated passion, self belief and work ethic," she says.

Organisations also need to set out the competencies and traits required for the role and by the individual in order to succeed. These competencies are based on three key areas: the job itself (ie specific capabilities to take on this role); the team they would be leading; and cultural competencies (ie how well does this individual fit in to the organisational culture?)

HR's role
Reynolds believes the CEO should be driving succession planning, and the HR director should be enabling and providing the framework for selection, the process for communication, the manner in which people are developed and monitored and ensuring the feedback loops are developed back into development needs, training and coaching.

"HR must contribute but more in an advisory role, working with the CEO and executive team," he says.

It's also fair to suggest that one of the first tasks for an incoming CEO should be to assess successors, not just for his or her own role but for other critical roles in the organisation. "If I were coming into an organisation at that level I'd want to assess my direct reports and look at their capabilities and understand what the risks would be if they left. One would hope they've done their due diligence prior to coming in, and if they are an internal candidate they would probably know that already," says Reynolds.

Getting it wrong
Succession planning is a long-term investment. It requires ongoing consultation within the business by the HR department and senior management and it needs to be communicated effectively to avoid promising the world and then not delivering.

"It's about managing the communication and the expectations right from the word go and having a very transparent process to identify those you want to develop. The danger is you alienate people if it's not handled appropriately. There's additional risk if you make this huge investment in development and you don't get any return on it," says Reynolds.

Another key risk is the derailment of successors. Generally, with each transition of an employee with potential to a new role or job level, the chance of derailment is real. "The challenge of learning a new role, combined with the pressure of maintaining high performance, can often lead to derailment if insufficient support, guidance and mentoring is provided," says Moylan.