Succession planning grooms firms for success
While the demand for effective managers continues to grow, the retirement of baby boomers is producing a sharp decline in the ranks of available personnel. In addition, the executives of the future are expected to be more sophisticated in order to develop and lead new global and technological initiatives. For these reasons, careful planning for the eventual replacement of managers at all levels in organizations has gained strategic importance.
This is true for small firms as well as large ones. It’s not just succession to the top – It’s getting the right person in place for every job. Some of tomorrow’s key jobs may not even exist now. If a firm plans to double in size in five years, they will need more talented managers.
The larger issue is leadership development, tracking, and developmental opportunities. The real key in succession management is to create a match between the organization’s future needs and the aspirations of individuals. The only way to keep talented people is to provide them with growth opportunities that keep them stretching and finding more promising opportunities they might find elsewhere. The average college graduate will change jobs five times in his or her career. Within the next decade, this norm will probably increase to seven job changes. Recruiting and retaining leaders becomes an economic and strategic challenge.
Succession management serves as an interface between the human resource function and the strategic direction of an organization. In this role, it is a vital resource in anticipating the future needs of the organization and helps find, assess, develop, and monitor the human capital required by the organization’s strategy. While serving as trusted adviser and confidant of the CEO, the succession management function may also reflect the concerns and needs of line executives throughout the business units.
To discover what leading practitioners of this complex art have learned, 16 firms sponsored an investigation with the American Productivity and Quality Center into the succession management practices of companies who had been identified by published reports or nominated by the study team as potential “best practice partners.” The study sponsors voted to choose Dell Computer, Dow Chemical Company, Eli Lilly and Company, PanCanadian Petroleum, and Sonoco Global Products as firms they would like to visit and study their approaches to management succession.
In this investigation, we found that succession management is a continuous annual process. It requires an ongoing commitment of top executives, divisional HR Staff, and succession management specialists. At Dell Computer, committed top executives were able to assemble a succession management program very rapidly, and they have used it to manage an incredible rate of growth without major discontinuities. Collaboration between the CEO and succession management teams can create a virtual cycle of success.
All best-practice partners felt fortunate to have the enthusiastic support of the top management. But this support was not gratuitous and was earned by providing an essential service. At Dow, the process was designed with the active involvement of the CEO, the vice president of human resources, and the workforce planning strategic center. At PanCanadian, the CEO is the key sponsor for succession management, and a senior management committee of vice presidents steward the process at the corporate level.
One of the clearest insights discovered is that effective succession management is a journey, not a destination. The best-practice partners in this study did not succeed in their first efforts at succession management. Similarly, none have rested on their laurels since having their process up and running. They continually see and adjust their systems as they receive feedback from line executives, monitor developments in technology, and learn from other leading organizations. For example, Dell reduced the degree of computerization for succession management data in response to feedback from the field. Conversely, Lilly focused on providing a single integrated, centralized, and synchronized database of succession information.
Monitoring Future Needs
Succession management identifies and monitors various talent pools within the organization to match the future needs of the organization with the bench strength of available talent. Not having the right talent in place is often a growth-limiting factor in achieving business potential. With the impending retirement of baby boomers and increased demands for diversity, leading organizations are building systems that provide talented, high performers opportunities to grow. For example, Sonoco identifies eight separate pools that are sorted by division or business unit. PanCanadian focuses on “bright lights” and critical skills but also looks across the organization, especially for high potential young managers reporting to senior executives.
Talent assessment is a semi-transparent process in best-practice organizations. Most managers receive feedback and information about their developmental needs and suggested activities for further growth. Individuals who have been designated as high potential are seldom told of this designation to avoid raising expectations. At Lilly, an eight-page talent identification questionnaire is used to evaluate the assumed potential of 15,000 associates on performance, potential derailment factors, and learning agility. Similarly, Dell uses scaling calls to determine an individual’s level of talent.
Best-practice partners use a core set of competencies or behaviors to establish a standard of comparison for assessment. Most organizations use a subset of leadership competencies that are aligned with the core set. All use these competencies as a basis for performance management and four out five use these for identification of high- potential employees. Furthermore, best-practice partners used fewer competencies than study sponsors, feeling that simplicity and focus were stronger advantages than comprehensive efforts. Dow has moved from having different competencies for each global business to a common set of seven used throughout the corporation. Dell focuses on “global corporate talent,” which consists of individuals who have the capability to “run significant portions of a …. Business…on a global basis.” They also track “functional high potentials.”
Technology Used to Integrate Data
The use of technology in succession management varies widely within the best-practice organizations. Yet, web-based systems seem to offer great potential for worldwide access and large-scale integration of data. As suggested previously, Dell has moved from more extensive global software applications to a much simpler MS Excel workbook to organize data. Sonoco moved to integrate four commercial applications (PeopleSoft, HRCharter, Lotus Notes, and ExecuTRACK) into a seamless system that can be globally accessed and updated daily.
Meet Organizational Needs Best-practice partners employ a wide range of developmental activities to engage leaders and extend their capabilities. These firms spend considerable time creating stretch developmental opportunities that are consistent with the organization’s needs, as well as with those of the individual. Several firms reported that they would give people a temporary assignment as a part of, or tied in with, an action learning assignment.
Dow Chemical offers mentoring, coaching, and action Iearning along with university-based programs. Dow’s internal research indicates that graduates of their internal executive education program showed improvements in strategic thinking, external focus customer orientation, and global view. Dow also offers an extensive array of training courses on-line. They report 14,000 on line courses were completed online in one week. Eli Lilly uses individualized developmental plans, 360-degree feedback, job rotation and a formal mentoring program as part of their developmental arsenal.
Subject Firms Measure Performance
All best-practice partners use some variety of a nine-box matrix for classifying the performance of their managers. In most instances, this matrix (originally popularized by General Electric) assesses individuals on the basis of performance, corporate values, and perceived potential. An individual who is performing well may not be judged as highly as someone who has not gotten comparable results but has persevered in a real stretch assignment. A popular competency was “learning agility.” This refers to the ability and willingness to learn new material and adapt to new situations.
The major metric by which succession systems are evaluated is the percentage of openings filled from within the firm. Sonoco finds that the performance/promotability matrix is 80 percent to 90 percent accurate in identifying candidates for key positions. At Dow, the hit rate of the succession plan is the key measure. If the person elected for an open position was on the list of potential successors, the system is believed to be working. The current hit rate of 75 to 80 percent shows considerable improvement from the past and is viewed as a reasonable target. Other key metrics include diversity and cross-functional assignments. Lilly has a measurement system that ensures its senior management cadre includes diversity in gender, ethnicity, and geographic origin. Finally, a unified approach to succession management can help to maintain consistency between different business units and geographic areas, and can contribute to objectivity in an organization’s strategic human resources. For many firms, the first step in realizing these benefits will be to place succession management on the strategic radar. Then, an organization is prepared to benefit from the following best-practice principles.
KEY BEST-PRACTICE INSIGHTS
Deploying a Succession Management Process
- Best-practice organizations make succession planning an integral corporate process by exhibiting a link between succession planning and overall business strategy. This link gives succession planning the opportunity to affect the corporation’s long-term goals and objectives.
- Human resources is typically responsible for the tools and processes associated with successful succession planning. Business or line units are generally responsible for the “deliverables” -i.e., they use the system to manage their own staffing needs. Together, these two groups produce a comprehensive process.
- Technology plays an essential role in the succession planning process. Ideally, technology serves to facilitate the process (make it shorter, simpler, or more flexible) rather than becoming the focus of the process or inhibiting it in any way.
Identifying the Talent Pool
- Best-practice organizations use a cyclical, continuous identification process to focus on future leaders.
- Best-practice organizations use a core set of leadership and succession management competencies.
Engaging Future Leaders
- Best-practice organizations emphasize the importance of specific, individualized development plans for each employee.
- Individual development plans identify which developmental activities are needed, and the “best practice” firms typically have a mechanism in place to make it simple for the employee to conduct the developmental activities. Typically, divisional human resource leaders will monitor employee follow-up in developmental activities.
- Best-practice partners rely on the fundamental developmental activities of coaching, training, and development most frequently and utilize all developmental activities to a much greater extent than the sponsor organizations.
- In addition to traditional executive education programs, best-practice partners increasingly use special assignments, action learning, and web-based development activities.
Monitoring and Assessing the Program
- Best-practice organizations develop methods of assessment to monitor the succession planning process. These methods vary according to business goals and company culture.
Recommendations for Success
When the firms who had been recognized as “best-practice organizations” were asked for any insights that might be helpful to other firms interested in improving their succession management, they responded with the following recommendations.
- Keep the process simple. Most refinements to succession management systems involved making the process more logical and simple so that busy line executives would not feel that bureaucracy was burdensome.
- Engage technology to support the process. Information technology makes it possible for managers throughout the world to monitor and update developmental needs and activities on a timely basis. Making information timely and reducing the time required to manage the system are major contributions of technology.
- Align succession management within overall business strategy. Line executives are much more likely to support a system that clearly reinforces corporate goals and objectives.
- Secure senior level support for the process. None of the best practice firms would have been as successful without top management endorsement and support.
The last two recommendations suggest that there is a “virtuous cycle” when the succession system supports corporate strategy in a tangible way. Obviously, senior executives are much more supportive when the system gives the achievement of their strategies a higher probability of success.