1 Succession Management: A Strategic Linchpin for Talent Management
2 Today s businesses must have the right people in the right jobs at the right times. They cannot afford to be without either enough people or the right people who can quickly fill a key role that could become vacant. It sounds like common sense. Yet it still isn t happening as effectively as it must.
3 Many factors have a hand in making this a must. First, there s the faster-than-ever pace of change in the world and in business. International expansion is creating more jobs, or opportunities for job changes. Mergers and acquisitions popular once again are creating situations in which job realignments are common. Then there is outsourcing, moving jobs out of headquarters but placing them in different organizations and different locations. Generally speaking, more key positions may become vacant for reasons that we cannot anticipate or avoid. We must be ready for this. Then there is the mobility among the workforce unto itself: the loss of the sense of loyalty to a job and the fact that roughly a third of managers change jobs every year. According to the Bureau of Labor Statistics, annual rates of turnover (both voluntary and involuntary), in all industry plus government, are now just shy of 38%. Furthermore, there s the changing global workforce demographics. Over the next 15 years there will be a 15% decline in year old workers, accompanied, naturally, by a continued increase in the percentage of Baby Boomers (potentially able to retire). The kinds of people who are in the workforce and who are ready to take over are becoming different. Predications are that there will be a labor shortage by 2010 of approximately 10,000,000 workers. From this added perspective, business is not only more complex, but there also may be fewer people let alone high caliber employees available to manage/lead these changing businesses. It would seem, then, that there has never been a time when holding onto key talent and having processes to retain and place talent in the key positions within the organization, is more important. All this impacts the timeliness of looking at succession management. The projected labor shortages (or, if you take the contrarian view, the skill shortages) tell us that talent will be harder to find. If so, keeping that talent in place and developing it in order to ensure that leadership capability exists, becomes more and more important. Additionally, the more mobile workforce -- by virtue of technology, differing views of careers, and the loss of loyalty to a company (generational views) -- reinforces the organizational need to retain top talent in order to ensure leadership. At the same time, companies are being forced to become more accountable, thanks to Sarbanes-Oxley and other initiatives. Being accountable includes being ready for all the people changes, in order to maintain and sustain the business. Succession is finally an aspect of accountability. We are in the most important time for succession management. Yet we aren t behaving that way yet. In 2004 Heidrick & Struggles surveyed approximately 120 CEOs and board members about their succession management. Our bench strength is sufficient for running the business with minimal interruption was the statement they tested. At that time, only 53% of respondents felt that their practices were yielding the kind of bench strength needed. It is unlikely that the percentage response would be better, were the statement presented to business leaders, today. Even more telling, though, was the lack of confidence in the processes their companies are using to develop that bench strength. Less than half of the respondents felt that their processes allowed them to effectively manage the peopledependent risks in their businesses. DDI s 2005 Leadership Forecast supports that disturbing finding: Nearly half of succession plans fail to support the development of future leaders. And it doesn t seem to be getting better. While about half of those surveyed have succession plans, there is no evidence of increased use over the past two years. These findings are significant since virtually all research over the past few years that look at key issues to business leaders place leadership and succession among the top ten. It s the people issues that are keeping CEOs and boards up at night, yet it is these same people issues that need tremendous improvement. Is the tension between the need to have the right people ready to fill potential openings which requires a long term view of both business needs and individual readiness -- vs. the short term or quarterly focus on results making effective succession management impossible? That may well be one reason for the problem but another may be a poor understanding of what needs to be done. The purpose of this paper is not to hypothesize on reasons for this strategic disconnection. Rather, its objective is to clarify what Succession Management is, in the hope that greater understanding will lead to more and better implementation. In the course of clarifying what it is, we will also look at some of the key factors for implementation: understanding the dual points of view that the work must address and understanding the role for technology.
4 What is Succession Management? Succession Management is a process that allows organizations to make sound decisions about its future. That s because every organization s future is dependent upon talent the right people in the right jobs at the right time. Succession management is a key process for determining that mix. Keeping those three rights aligned requires, first, a fully integrated view of talent management and, then, an understanding of how succession management fits into the whole of talent management. Let s start with those. Integrated Talent Management, per this author s seminal study (Integrated and Integrative Talent Management) for The Conference Board, is comprised of 8 categories of human capital initiatives: Recruitment Leadership / High Potential Development Workforce Planning Feedback / Measurement Retention Professional Development Culture Performance Management Within each of these categories is a range of specific programs or processes, succession management being one of these. Interestingly, succession management was originally seen as falling under both Leadership/HiPo Development; more recently, it is also being viewed as integrally related to Workforce Planning. Succession Management is the process that ensures continuity for the organization and for the individual high potentials. That s why we ll look at it here from both of those perspectives: that of the organization and that of the individual. Seen from these dual perspectives, we begin to realize the complexity of succession management. It is risk management, workforce analysis, strategic planning, a link between performance management and retention, and an outcome of professional development. It is also more than just the planning around succession. This is an important distinction. The Center for Creative Leadership has described it as work that runs on a continuum, from replacement to management, with planning in the middle. That s why using the word management rather than planning, is crucial. Management is a process, while planning is an act. The series of meetings during which succession moves are determined is only one intervention or act that is part of a greater whole known as succession management.
5 Think about the life cycle of talent within an organization. It starts when talent joins the organization, via recruitment and ends when talent is in a satisfying role and is fully engaged, or with retention. Integrated talent management covers that whole spectrum and does so by always keeping a focus on the value of talent in the complete strategic context. Succession management, although a subset of integrated talent management, also covers a lot of that spectrum. Hence the confused terminology: succession management and talent management. The similarities between the two are a major reason that some organizations use the terms succession management and talent management interchangeably. But they are not the same thing. For one, integrated talent management, addresses the culture directly; succession management may impact the culture but does not set out to affect it. And succession management may affect recruitment, but it does not directly address the process of recruitment. Integrated talent management addresses the individual processes in detail for each of the eight categories, as well as the ways they connect with each other. Integrated talent management determines the needs for talent in keeping with the business strategy and with what is learned from analyses of the workforce. It maintains a range of processes that keep talented individuals in the critical positions and ensure that talented individuals see a future for themselves with their organizations. These dual perspectives what is important relative to the organization and to the individual must be balanced. We ll look at both in this discussion. Like integrated talent management, succession management is holistic and strategic. The planning piece usually only addresses the needs of the top 2-3 managerial levels within an organization. However, the whole management process looks beyond the top levels of management and beyond the immediate needs. Although it certain identifies individuals who can potentially fill a role as it currently is, it also maintains a balanced view of potential long-term needs, readiness, and development. In some organizations it also considers strategic variations or the likeliness of needing to add new positions or new skills. In this sense, the focus is on developing leadership competence or a pool of talent, rather than being able to put a name in a box on the current organization chart. Research by the Corporate Leadership Council presented the many faces of succession management quite well. In High Impact Succession Management, it described four risks that the entire succession management process addresses: 1. Vacancy Risk focuses on leadership. Organizations cannot risk being without someone in a critical role. In this kind of succession management, organizations identify those positions that are most critical to success and develop appropriate interventions to ensure that the positions are always filled. Best practice succession systems are also effective at spotting gaps in talent and identifying important lynchpin positions the select set of jobs that are critical to the overall success of the organization. This type of risk management may also be seen as replacement planning. It assumes that the current manager can automatically, smoothly step into the next role, already having the requisite skills and knowledge. No development is needed. Some organizations that use succession management to manage vacancy risks also identify critical people. We ll talk more about this in the upcoming section on the individual s point of view. Generally speaking, though, the focus of vacancy risk is on the organizational needs first. 2. Readiness Risk is the second kind of risk and its focus is both on individuals and, especially, on those not yet ready to move along smoothly. Instead it looks at the developmental needs of potential successors. To ensure that potential successors can succeed in their potential future roles, organizations provide development opportunities and experiences for high potentials. Sometimes they also work at accelerating development, should there e a need for a high potential individual to be ready soon. This type of succession management certainly considers the needs of the individual, but its starting point remains the organization. For example, it might think about the fact that Jane s boss is ready to retire in a year, but Jane, who is next in line for that role, still doesn t have sufficient financial management experience to ensure a smooth handling of the department budget. Therefore, efforts would be made to develop those skills quickly, so that Jane is ready when the time comes, since that is in the best interests of the organization.
6 What is Succession Management? 3. Transition Risk looks at individuals who have already moved to a new position, but need some support in order to succeed in this new role. Studies have shown that prior success is not a pure indicator of future success. According to the Center for Creative leadership, 66% of senior managers hired externally fail in the first 18 months. This has created a new emphasis on supporting the assimilation of new leaders. From the organization s point of view, it is important that new leaders be able to succeed and that they stay in their jobs. Furthermore, preventing executive derailment is worth a great deal of money to an organization. Most managers do not achieve productivity until 6.2 months into the job. Any way to speed up that time to productivity can yield tremendous bottom line results. Therefore, organizations are now assessing the likeliness of success within the transition period and working at increasing that likeliness to affect the business. 4. Lastly, there is the Portfolio Risk, or the risk of poor deployment against business goals. Leading organizations realize that development and succession decisions must include an appreciation for the evolving needs of the organization. The portfolio of products, services, or offices may change and so must the people. the succession management umbrella. It is also the one that organizations new to succession management do not have the perceived luxury of addressing right away. Overall, robust succession management processes tend to have several core elements: A basic understanding of business needs (strategy) that is then aligned with individual preferences/needs An ability to determine talent vulnerabilities, organizationally, and paths for talent Tools for decision-making A process that is able to be replicated down several layers of the organization (even if it starts with the top layer) A link to development The involvement of senior leaders and, eventually when rolled down a few layers, of key managers Facilitation by HR or OD Sometimes and increasingly technology to enable the process and make better use of senior management time Portfolio Risk looks at current and future strategic needs sometimes also some strategic options and determines gaps or decisions to be made. This is probably the most sophisticated of the kinds of risk management done under
7 In Practice Shell has its own CEP, or Current Estimated Potential, Process. This calibrates individual potential and readiness with organizational needs. It provides a framework for conversations around succession and the starting point for developmental planning. Duke Energy uses a needs-based planning process that allows it gauge the risks of vacancies. This creates a context by which individual successors can be assessed in keeping with high organizational impact. A range of Fortune 500 companies (American Express among them) manages executive transitions with a program consisting of planning, coaching and frequent feedback, to help individuals in high impact senior roles be effective in a new role. Drawing extensively from the work of Michael Watkins, the programs tend to focus on the critical starting timeframe approx. 90 days -- while also keeping an eye on the longerterm impact.
8 How do Organizations View it... The Strategic POV? Unlike how some people decisions were years ago, at secretive meetings during which names of visible or well-positioned people known personally by a select few were placed in organizational boxes, the current succession management systems are more holistic and transparent. Decisions are not made on the basis of who you know but on the basis of who fits. And the old decisions, that perpetuated having people like us in leadership roles, are now replaced with new decisions that include people we need. The strategic point of view requires an understanding of business needs, now and in the future; of market and diversity drivers, now and in the future; of vulnerabilities and risks. It also requires a balance between near term profit generation and long term organizational sustainability and success. Maintaining that balance is not easy. Perspective Individual Organizational Drivers Enablers Grounding Potential (Performance) Capability (context) Learning & Career Performance (Potential) Context (capability) Continuity & Learning The table above provides an overview of what is involved in the organizational point of view and how it differs from that of the individual. From the organizational perspective, the driver of succession decision-making is performance, with potential a factor. Since behavior always takes place in a context, the organization looks at that first also, while considering capability in a secondary way. Lastly, the grounding of their decision-making comes from their need to maintain organizational continuity first. Providing organizational learning, which is critical to growth, is important also.
9 No matter which of the four areas of risk, discussed above, serve as the driver of succession management, all require a focus on the future. Long range planning is the key, supported by a range of strategic information and decision-making. The strategic view also calls for the creation of a development framework that knows which positions are most critical to the organization and which skills are required for those positions. It includes the creation of opportunities for the targeted talent to learn those things, ideally on the job. Learning opportunities include special assignments, mentoring, action learning and elearning. Furthermore, once future leaders or successor are determined, their potential career opportunities and likeliness to move up within the organization is shared with them, as are the developmental requirements. From this point forward, the achievement of future goals becomes a shared responsibility between the organization and the individual. No promises or guarantees are made, but communication becomes more important, so that mutual expectations are goals can be met. The future career options and the pathways to achieving them are mutually agreed upon and developed collectively. Managers know what is possible for their employees, as do the employees. Some leading edge companies, for example, actually hold managers accountable for the development of sufficient bench strength. A global systems integrator and aeronautics information technology company sets clear targets: for critical positions they require a certain number of ready now candidates as well as ready in 6 months to 2 years. They also monitor the percentages of women and minorities among their high potential talent pool, to ensure that diversity is maintained for the future. At the highest level, the strategic succession management process should pinpoint talent opportunities and vulnerabilities. It should also trigger both renewed recruitment and renewed development efforts. A checklist for taking the strategic organizational point of view includes knowledge of or actions to support: potential vacancies competencies required timeframes gap analysis tracking development external sourcing
10 In Practice Brown-Forman manages 90 critical positions that are highly important to business success: They often fill critical positions with employeeswho have not yet been slated for leadership development, but have unique skills and expertise that affect the potential organizational impact they can have in the critical role Individuals in critical positions often receive career development and management focused on developing their specific expertise; the focus is clearly on how to be effective in the present role (unlike the general development of HiPo s, where cross-functional exposure or experience is important). Schlumberger creates two talent pools one for global talent and another for expert talent. The expert group has expert knowledge with a rich, specific focus. The global group, on the other hand, requires a broader base of knowledge. Therefore, with this group they try to identify high potentials early in their career so as to offer them developmental, cross-functional opportunities. Sometimes they offer non-obvious developmental moves that contain higher risks, which they seek to mitigate. Often these higher risk opportunities also offer the possibility of higher reward. Through analyses of stretch errors, they keep an eye on the developmental opportunities that have been successful versus those that haven t, to learn for future talent development. A major North American retailer has had succession management but only informally and only for the senior level positions for the past 6-7 years. They admit that as their market becomes more competitive, the succession management process is becoming more important. They see their areas for improvement as the collective and regular review of those positions they see as most important and the development of a process that addresses the needs of the organizational ranks, eliminating the need for external hiring.
12 How do Individuals View it... The Strategic POV? Succession management is also important for the individuals whose futures are being decided throughout the process. Their perspectives are worth exploring also. As the above chart shows, in terms of drivers, individuals tend to think first about their potential, although they certainly recognize the impact that their performance has on what is likely to happen to them in the organization. Understandably, their focus what is driving them is their own future. Therefore, they place tremendous importance on what they believe they can do, what they are striving to do, and their overall aspirations. In fact, this individual or personal focus on potential is one of the factors that seems to contributing to the shorter duration of employment with organizations. The sense of loyalty to a company is long gone. It has been replaced by a belief in individual value and potential. Therefore, it an opportunity to maximize perceived potential does not appear within what that individual considers to be a reasonable timeframe, the individual is likely to look for that kind of opportunity in a different organization. The traditional views of careers vs. the new views of careers may most easily be summarized by the box on the opposite page:
13 Traditional View New View Upward career path within organization Promotion is the goal Promotions based on performance Sense of entitlement after time Performance Appraisal / Comp. links Career self-managed ; many organizations Development is the goal Development / promotions based performance & potential If the best development comes from jobs or assignments, I want those. Performance management / Leadership development links As this shows, in the newer world, today, careers do not take one route to the top. In fact, individuals who seek to develop their capability and want to learn as referenced in the comparative chart above, will try out a range of developmental assignments even if those do not lead directly to a higher level position. Individuals who are managing their own careers also value feedback. Therefore, they are keen on learning from the succession management discussions relative to their own potential and learning needs. They work with their managers to create development plans, since they seen benefits from learning that they can apply no matter where they are within the current organization or moving out to a new one. Talented individuals, or high potentials who are likely to be the ones discussed during succession-related conversations, are want to know a lot competencies and selection criteria. They are highly motivated to personally develop their leadership potential and to explore behavior change. That is one reason for the expanded use of executive coaches with future leaders. Coaches, whether external to the organization, or from within, can provide the kinds of focused direction for behavior change that will enable a future leader to fit better within the organizational structure. Talent now also expects to engage with top management, as they move through the succession management process. They seek and welcome the open communications that become an intrinsic part of the process. In fact, communications skills both among top management and among the talent pool or cadre are important so that organizational and individual expectations are aligned. Conversations are now honest and direct regarding what future opportunities may exist. Personal preferences are aired and respected. Yet another aspect of the individual perspective is the fact that, especially among the younger generation, some talented individuals are choosing to opt out of the leadership talent pool since they are not willing to make what are seen as personal sacrifices in terms of long hours or travel. Others are unwilling to relocate because of family considerations. This is quite different from previous generations who would do whatever was required to get ahead. The fact that the individual perspective is on a career, regardless of it being within one company, is what we need to remember. The individual owns his or her career and feels able to manage that, in keeping with guidance from his or her current manager. The organization, therefore, needs to realize that the retention of a key talented individual may depend upon the direct manager s ability to see and honor personal preferences and aspirations. Certainly those must be managed in keeping with the corporate strategy and opportunities, but losing sight of them may lead to losing hold of a top employee.
14 In Practice Johnson & Johnson uses their Standards of Leadership framework to personalize leadership development for high potentials. They link their succession planning and leadership development so that personal development plans align with the organization s future leadership needs. Both perspectives are taken into account. GE is known for their Talent Reviews, called Session C. While their focus has always been on the organizational needs first, Session C conversations are around one person at a time so the individual factors are considered. Session C binders contain the organizational or divisional strategy (depending upon which group is the focus of the particular session), overviews of employee mobility, performance/ potential/development reviews and succession plans for key positions. If an individual is deemed top talent, then retention strategies being employed specifically for that individual may also be discussed.
15 Lessons from Best Practices Start by addressing the needs of critical positions Move down/through the organization to cover a wide range of roles Evaluate how development impacts readiness Evaluate how succession management process impacts retention Help individuals moved to new roles become successful via transition planning/coaching Use technology to automate what is often a paper-driven process and where possible to improve that process
16 The Role of Technology Technology has always been used to either enable or to transform work. Enabling work involves following an existing process and automating it. Admittedly, some degree of improvement arises from such work. However, those sorts of improvement are not of transformational nature, nor are they often of great magnitude. Technology has, thankfully, been playing a richer role in many aspects of talent management. The time has come for it to look at succession management, since there is a big opportunity here for technology to make a difference. The opportunities for technology are most apparent in several aspects of Succession Management: Consistency nationally and globally Many organizations now operate from multiple locations, some within the US and some around the globe. Therefore, when decisions need to be made, decision-makers are not necessarily all located in the same place. Travel and advance preparation is required, to make best use of the personal time spent together to address the important issues at hand. Technology can play a key role is allowing people from many locations to receive consistent information, in real time, and to allow for the consolidation of many points of view, also in real time, into decision-making documents. Consider this scenario: A senior level executive was sent to Sao Paulo a year ago to start a new office. At that time, no succession planning was done; it must be done now. The senior level team that will discuss the organizations succession needs is based in three other countries: Germany, the US and Canada. In order to make the most use of their personal time together, the executives involved need to prepare for the meeting. They need to understand what the position in Sao Paulo requires and who within their regions might be appropriate for it. Their decisions about who might be appropriate will come from the performance management information available on top talent. It is important that this information be available to them and that consistent language is used across the geographic regions to ensure that the same criteria are being applied to all potential candidates. For example, if one executive wants to propose a candidate from Brazil who has received performance ratings of 4 and another executive wants to provide a candidate from the U.S. who has received performance ratings of 3, how do those performance ratings compare? Technology can reconcile language or flag differences it can share information it can help structure the decision-making process. By automatically the process, the technology is likely to also enhance it. It is also able to instill consistency of language and structure that will impact not only this
17 one decision, but also decision-making further down the organizational lines within each of those geographic regions. Simply put, technology for succession management allows multiple users, regardless of whether they work near each other, to have access to information, tools and processes that are consistent even if they area in multiple languages. Technology can also save and share the information provided by multiple, geographically-dispersed process participants so that better decisions can be made more easily. Workforce / gap analysis Workforce planning remains one of the poorest areas of talent management. It is not often done and, if done, not done well enough to provide meaningful information. Here is an area in which technology can make a huge difference. By helping an organization anticipate and plan for talent vulnerabilities, technology can enable long-term strategic decision-making as well as short-term risk management. Technology can, for example, profile in words or graphics patterns of turnover by department, division or geography. It can also profile likely turnover, given such workforce demographics as age and performance evaluations. The latter can provide warning signs for succession management. These analyses can be compared with current and future growth or strategic needs. The outcome is a gap analysis between workforce needs and workforce requirements. Clearly, this showcases the kinds of decisions that need to be made relative to hiring, knowledge management, development, or retention initiatives. This kind of strategic assessment shifts the role of HR from headcount reports to analyses of talent vulnerabilities and needs. The ability to aggregate, compare and model data allows HR to play a business partner with line managers in new and meaningful ways. Creates a process, rather than supports an event If succession management is comprised of the collection, sharing, and discussion of people-related information throughout the year, then the maintenance and sharing of that information is a big job. A technology system that keeps the information current or reminds managers that further information is needed can help HR enormously. A technology system that can share the information with all involved managers Of course the larger process is talent management and technology here can link succession management with the other areas of talent management so that succession decisions are most effective.
18 Consider this A high potential has been slated as a potential successor for an SVP role in 3 years. However, discussions about that individual s ability to be ready for the role have determined that international experience in the Asia Pacific rim is critical and that further communication skills need to be developed. Technology can let that individual s manager know about appropriate international developmental assignments and can send the individual information about communicationskill building opportunities. Technology can also update the individual s development plan when new assignments have been completed or courses taken. Feedback from customers or peers can also be included. By cutting across the silos of talent management and incorporating information from a wide range of areas, technology can fully support an ongoing process of succession management.
19 Enables strategic alignment Much has been written, here and elsewhere, about the importance of having the right people in place to meet strategic goals. Technology facilitates this by providing a way for many employees to see and understand the business strategy, and for managers to see how the work of individuals aligns with those goals. Often this comes under the category of performance management systems. However, what is used for performance management is also applicable for succession planning. The notion of decomposing a current strategy, or a future strategy, into work is the first step in understanding what needs to be done. The next step - - where succession planning comes in is understanding who is doing that work now and who should or could be doing it in the future. Technology that enables strategic alignment can link current people to strategic positions or it can flag potential successors, while also collecting the information available on what is required for those potential successors to be ready. Facilitates manager involvement Managers are the core of most aspects of talent management. The relationships they have with talent are what drive retention or engagement. They play key roles in shaping careers and developing people. The individuals who will become future leaders (those who will be named in succession planning discussions) arise from the work of managers. Therefore, it is crucial that managers become involved in the processes that develop future leaders. And technology can do that by making it easier and better for managers. The biggest barrier to managerial involvement in such processes is the lack of time. Technology can make managerial involvement easier and more effective by capturing data linking performance data to developmental planning or options reminding employees and managers of progress needs or outstanding follow-ups linking managers with developmental opportunities for their HiPos. Technology integrates and communications. Technology helps managers see why developing their people is important and it allows them to make better people decisions.
20 Getting Started If the business case for succession management is now clear, as well as the complexities of the work, you may be wondering about getting started. The work does not lend itself to a top ten list of must do s. But a few logical starting points do emerge: 1. Start from the strategic position: What are our current people needs given our strategy? How might this change if the strategy changes? 2. Look internally Do we have the kinds of people we need? Are they in the right jobs? What can we do to enhance the likeliness of their being able to succeed in a different, higher level role? What kinds of processes do we have to enhance decision-making around succession? 3. Look externally Is our market shifting? Do we need to hire more or differently? What other resources technology and/or consulting could help us develop new or better processes? Another important, final, realization is that succession management is a strategic linchpin for talent management. It touches on several of the key areas of integrated talent management and, most importantly, impacts the organization s future. Done well and enriched by technology succession management can ensure that the organization will have a successful future. About the Author Lynne Morton is President/ Principal of Performance Improvement Solutions, a NY-based consultancy specializing in talent management and leadership development. A globally recognized thought leader in talent management, she leads a global team of consultants that work with organizations on strategy, facilitation and development/training. Lynne can be reached at
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