Succession planning is a process whereby organizations ensure that employees are recruited and/or developed to fill each key role within the organization. (Source: State of Iowa Workforce Planning). The reasons for succession planning include making sure that the organization continues to operate effectively when individuals occupying critical positions depart.
If you agree with this definition, that’s great news who organizations that have a succession plan because it looks like their competitors will be going of business very soon.
According to two recent surveys about the prevalence and effectiveness of succession planning, management believes good intentions deliver good results.
Heidrick & Struggles and Stanford University
- Over 50% of US and Canadian companies cannot name a successor in their organization’s chief executive officer.
- 39% of the respondents have no viable internal candidates.
- 98 percent of companies believe a CEO succession plan to be important but … only 35 percent currently have one in place.
- 49 percent haven’t had one in place for the last three years.
Even when a company creates a succession plan, the failure rate is high. After much reading and research, I’ve identified 7 common reasons that succession plans fail. While in most cases, the research was based at the CEO level, the same sources of failure occur regardless of the position level in the organization.
- Successors leave. Despite all best efforts to identify successors, new opportunities or personal decisions cause the next-in-line to leave the organization. Once a successor(s) is identified, it is critical that leadership development and retention become the focus. In today’s market where high-potential leaders are in short supply, the prospect of moving up another rung on the ladder may not be enough incentive to keep the successor on your ladder.
- Incumbent doesn’t leave. This is a major problem, one that is growing more common. For many reasons, incumbents aren’t leaving. The most popular reason is that the Baby Boomers aren’t leaving their positions. Some need to keep work to fund their decimated retirement plans. Others just don’t want to stop working. And a few are incentivized to stay to help navigate the company through unchartered waters. Regardless of the reason, experienced managers and employees who linger past their expected departure date disrupt succession plans (see # 1 reason.)
- Successor doesn’t perform. The rate of CEO failures during the first 18 months on the job, as reported by an oft-cited Harvard Business School, is 40 to 60 percent. While released in 2005, few studies point to much improvement. And regardless of the current rate, the unexpected departure is costly and disruptive. The average cost of replacing a CEO after 18 months ranges from $12 million for small-cap firms to $52 million for large-cap firms.
- Succession planning is considered an HR function, not a strategic imperative. Do I need to say more? Selection of the next CEO is generally a function guarded closely by the board or the CEO himself. Unfortunately the importance and funding for all other positions is often delegated to HR, which means it is underfunded and diminished to a voluntary exercise. Succession planning for all key roles is strategic – without the right people in place when an organization needs them, strategic plans won’t get executed. Succession planning should be an HR function but ONLY if HR has a real seat at the executive table.
- Focus on current, not future, skills. Too often management looks in the rearview mirror to understand what the company needs for the road ahead. A good experience with the departing CEO leads other executives to want a clone. The selection committee dusts off the job description used five or 10 years ago (if one actually exists) to commence its search. Though there are lessons to be learned from studying the past, it is clear the real test of a candidate’s future performance is the degree to which he or she is prepared to lead the company tomorrow, not yesterday.
- No measurement. Documenting a succession plan is only the first step on a journey. One reason that so many successions fail so quickly is that new hires often do not fit into the organization’s culture (or powerful subcultures) well enough to do what is needed in ways that will be accepted by the people they have been hired to lead. This “fit criteria” has brought greater credibility to pre employment testing. Assessment tools can be very effective in improving the selection process’s probability of success. Candidates in the succession plan must also be re-assessed as the company’s strategy changes and evolves.
- HR & MGT make it too (bleep) complicated. What more can I say. Politics, bureaucracy, time, and underfunding all lead to Congressional-size documents that take too long to develop, are too complex for most people to understand, and are impossible to implement. KISS.