The 7 Most Common Reasons Why Succession Plans Fail
Faced with changing demographics and skilled worker shortages, many companies will be unable to fill job openings from the CEO to the technician. “The Perfect Labor Storm” has already crippled many organizations.
Despite over two decades of warnings about the need to plan succession, many companies have ignored them. In a recent survey by Institute for Executive Development and Stanford Business School almost half of the companies were NOT grooming a specific executive to succeed the current CEO. For companies that did have a plan, 39 percent could not identify a single candidate who was “ready now.”
Other surveys paint a much bleaker picture. According to Korn/Ferry 98 percent of companies believe leadership succession to be important but only 35 percent actually have a plan in place.
As bad as succession management is at the top, it is much worse as you climb down the organizational ladder. In these days of lean-and-mean, each position in many companies plays a vital role. The absence of a single worker can compromise the business. An abrupt absence or even a planned retirement can cripple it.
Even when a company creates a succession plan, the failure rate is high. Based on both years of research and work with my clients, 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.
- Focus on past experience and not future skills. Too often management looks in the rear view mirror to understand what the company needs for the road ahead. An open position should be filled with people capable of performing the new job well, not a reward for success in the old one or 20 years of loyal service. New roles or even the same role in a different company carry different responsibilities. Performance and future potential are distinct and independent variables. It is pragmatic to cite past performance as a good indicator but the link hasn’t been proven. The bottom line is that past performance is no longer a reliable indicator of future success.
- Fixed mindset cripples future success. Potential indicates whether someone will be able to succeed in a bigger role. But it’s a person’s ability to grow, to overcome setbacks, to embrace challenges that really count. Many high-potentials are groomed for the job. The heir-apparent and high-potentials are protected and coddled to avoid injuring their pride and self-esteem. They are not allowed to fail in fear of losing them to the competition. When promoted or hired into a new role, the successor with the fixed mindset works hard to protect his stature as the anointed one. The focus is on his ability, not the goal. When confronted with setbacks, challenges, or ambiguity, he blames others. He passes the buck. Breakthroughs in neurosciences and cognitive-development-and-personality psychology suggest that growth mindset is a more reliable indicator of future success than past performance. That means trashing the resume and focusing on how he will deal with complexity, ambiguity, and volatility. Passion, the ambition to stretch yourself, the willingness to learn, and resiliency (ability to cope with failure) are hallmarks of future peak performance.
- Succession planning is considered an HR function, not a strategic imperative. Do I need to say more? Its importance and funding 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.
- HR & management makes succession planning 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.
First published in Lehigh Valley Business Journal, December 8, 2014