Succession Management: A Primer. Kim Lamoureux

Transcription

1 Succession Management: A Primer Kim Lamoureux Principal Analyst June 2009 BERSIN & ASSOCIATES RESEARCH REPORT v.1.0

2 Succession Management: A Primer i The Bersin & Associates Membership Program This document is part of the Bersin & Associates Research Library. Our research is provided exclusively to organizational members of the Bersin & Associates Research Program. Member organizations have access to the largest library of learning and talent management related research available. In addition, members also receive a variety of products and services to enable talent-related transformation within their organizations, including: Research Access to an extensive selection of research reports, such as methodologies, process models and frameworks, and comprehensive industry studies and case studies; Benchmarking These services cover a wide spectrum of HR and L&D metrics, customized by industry and company size; Tools Comprehensive tools for benchmarking, selection and implementation, and measurement; Analyst Support Via telephone or , our advisory services are supported by expert industry analysts who conduct our research; Strategic Advisory Services Expert support for custom-tailored projects; Member Forums A place where you can connect with other peers and industry leaders to discuss and learn about the latest industry trends and best practices; and, IMPACT Conference: The Business Of Talent Attendance at special sessions of our annual, best-practices IMPACT conference. For more information about our membership program, please visit us at

3 Succession Management: A Primer TABLE OF CONTENTS Introduction 3 What Is Succession Management? 4 The Bersin & Associates Succession Management Maturity Model 6 Why Is Succession Management Important? 9 Business and Talent Challenges 10 Implementing a Succession Management Strategy 12 Tools and Processes 13 Best Practices 16 Conclusion 18 Appendix I: Table of Figures 19 About Us About This Research 0 0

4 Succession Management: A Primer 3 Introduction Many companies plan for vacancies at the top level. Very few, however, have an organized, integrated succession management strategy that takes into consideration all aspects of the business and most levels of the employee hierarchy. In the Bersin & Associates High-Impact Succession Management report 1, we look at current succession management practices and how to improve them. We also discuss the process by which an organization can implement a high-impact succession management strategy that encourages companies to consider the talent at multiple levels of an organization s hierarchy. Most importantly, we discuss the importance of succession management to overall business success. Our findings show that many companies implement succession planning for top C-suite level executives primarily but less often do they plan successors for managers, and seldom for lower echelons or highly skilled technical employees. Rarely have the business strategy and succession plan been aligned. Such lack of planning can have implications to a company s success. Without a clear program, a company is at peril of losing its talent at best and suffering from a crucial vacancy at worst. When such vacancies occur, companies can loose momentum in the marketplace. 1 For more information, High-Impact Succession Management: Best Practices, Models and Case Studies in Organizational Talent Mobility, Bersin & Associates / Kim Lamoureux, April Available to research members at or for purchase at

5 Succession Management: A Primer 4 What Is Succession Management? K E Y P O I N T An ideal succession management strategy looks at all levels of the organization, assesses employee skills, and aligns those factors with the company s vision and financial goals. K E Y P O I N T Succession management is defined as an organization s processes for identifying, selecting and managing talent to build bench strength and ensure the readiness of that talent to move immediately into key positions when necessary. From a historical perspective, succession management has been around since nearly the beginning of mankind. Early civilizations managed succession mostly through familial connections (such entitlement still exists today in some family-owned and operated businesses). As history has shown us, promoting a successor just because he /she is next in line is not always the best course of action. Modern succession management programs have their origins in 1920s military strategy, during which successors were identified to take the place of those killed in battle. While such entitlements may have been the norm in monarchies and militaristic societies, today s best businesses practice a more egalitarian structure in which opportunity for advancement is dependent on a variety of factors. An ideal succession management strategy looks at all levels of the organization, assesses employee skills, and aligns those factors with the company s vision and financial goals. Succession management, then, is much more than having a replacement CEO identified in case the current one leaves. It involves identifying those positions that, when left vacant or filled with an inappropriate candidate, would have a negative impact on the company. It involves choosing and preparing those individuals for their future roles and ensuring the company s succession management strategy meets the overall business vision. Thus, we define succession management as an organization s processes for identifying, selecting and managing talent to build bench strength and to ensure the readiness of that talent to move immediately into key positions when necessary. Such movements can occur when a position becomes vacant as a result of a resignation or dismissal, or when a position is newly created to meet a business need. It is the organization s proactive effort to encourage individual advancement and to ensure the continuity of talent ready to assume key positions. A common misconception about succession management is that it is an HR-driven activity with little impact on the company s overall business. However, in our research, we have found that the opposite is true. The lack of a succession management strategy can have a damaging and 2 Bench strength refers to the capabilities and readiness of potential successors to move into key professional and leadership positions.

6 Succession Management: A Primer B E S T P R A C T I C E An organization that practices high-impact succession management knows the skills and career aspirations of its individuals, and is able to develop those people in concert with the business s goals. long-term impact on the company s bottom line. Consider what happens when the CEO of a company is suddenly dismissed and no successor is immediately named the company is set adrift without a captain. Eventually, the lack of leadership (whether in the C-suite or below it) has an impact on the company s forward momentum. Succession management then differs from talent management in that it is focused on the organization s needs, rather than those of the individual. Yet, a best-practice organization aligns its talent with its business needs in lock-step. An organization that practices highimpact succession management knows the skills and career aspirations of its individuals, and is able to develop those people in concert with the business s goals. Thus, in our definition, high-impact succession management is a companywide strategy, incorporating most levels of the company s structure that are linked with the business s present and future goals.

7 Succession Management: A Primer 6 The Bersin & Associates Succession Management Maturity Model The first step to implementing a best-practice succession management strategy is to perform a brief assessment of the organization s current succession management practices. At Bersin & Associates, we have developed a five-level Maturity Model that classifies companies based on their current succession management programs. The information on each Level of Maturity can help companies determine the steps they need to take in order to make their succession management strategies more mature and effective. Figure 1: Bersin & Associates Succession Management Maturity Model 15% 52% 12% Transparent Talent Mobility Dynamic Process, Highly Transparent, Pool-Based, Talent Movement, Professional and Management Roles Integrated Succession Management Business Strategy Alignment, Talent Management Integration, Enterprise Perspective, Owned by CEO Traditional Succession Planning Development Plans, Talent Reviews, Business-Unit Focus, Targets Key Positions, HR-Driven Replacement Planning List of Senior-Level Positions, List of High Potentials, No Development 21% No Succession Process May Include Identification of Successors of Executive-Level Positions Source: Bersin & Associates, Level 0: No Succession Process At this level, organizations have no real succession management process. They may identify potential successors for the CEO and executive-level positions. Our research shows that 21 percent of companies operate at this level, and they typically find themselves limited in growth or business flexibility by a lack of managerial and leadership skills.

8 Succession Management: A Primer Level 1: Replacement Planning Organizations at Level 1 Maturity focus on senior-level positions. A list of high potentials 3 is created, but there is no formal development process in place. Our research shows that approximately 15 percent of organizations today function at Level 1. K E Y P O I N T Bersin & Associates defines transparent talent mobility as a dynamic internal process for moving talent from role to role at the leadership, professional and operational levels. Level 2: Traditional Succession Planning Organizations that implement succession planning target critical senior-level positions. Talent reviews are conducted and development plans are put into place. Our research shows that 52 percent of organizations operate at this level today. Level 3: Integrated Succession Management Level 3 companies target all critical positions at all levels. Companywide succession is tightly aligned with the business strategy and integrated with other talent management processes. Our research indicates that fewer than 12 percent of companies have achieved this Level of Maturity. Level 4: Transparent Talent Mobility Level 4 is the next practice of succession management. To our knowledge, no companies have achieved this Level of Maturity. At Level 4, companies completely understand the capabilities and potential of their workforces; talent decisions are made naturally based on what is best for the business as a whole. Our research shows that the majority of companies reside on the lower tiers of this Model. In fact, one of our key findings is that most companies have a great deal of room for improvement in their succession management practices. Moving through the Bersin & Associates Succession Management Maturity Model can guide companies hoping to achieve transparent talent mobility our pinnacle of a high-impact succession management strategy. To date, we have not found a company that has achieved this level of talent movement, business integration and open communication. 3 A high-potential employee is an employee who has been identified as having the potential, ability and aspiration for successive leadership positions within the company. Often, these employees are provided with focused development as part of a succession plan and are referred to as HiPos.

9 Succession Management: A Primer 8 Many companies, however, have elements in place that exist in silos of their businesses. The challenge is to integrate them and to develop a transparent, open culture that moves talent where it is needed for the good of the company, rather than for either the individual s or business unit s agenda or needs. With that said, plenty of companies have excellent succession management programs. In fact, much of our discussion in this report is based on companies that have achieved Level 2 or 3.

10 Succession Management: A Primer 9 Why Is Succession Management Important? Our research shows that many companies consider succession management an important part of the overall talent management strategy. The three main reasons cited by our research respondents for implementing a succession management strategy are: 1. Improve internal candidate pools 4 / leadership bench strength; 2. Prepare for retirements or other workforce changes; and, 3. Grow more leaders more quickly. Figure 2: Business Drivers for Succession Management Improve internal candidate pools / leadership bench strength 57% Prepare for retirements of existing leaders or other workforce changes 29% Grow more leaders more quickly 26% Business growth 19% Reduce talent t skills gaps 16% Increase business flexibility 11% Share talent more effectively 10% 0% 10% 20% 30% 40% 50% 60% Source: Bersin & Associates and CCL, Indeed, for example, demographic changes could mean a mass retirement of baby boomers in the coming two decades. Many of those 4 Talent pools are groups of employees identified for a specific leadership level or type of role for example, identifying individual contributors who have the potential to become a first-level manager or identifying junior engineers who have the potential to become senior engineers.

11 Succession Management: A Primer 10 older employees hold mission-critical positions. The fact that improving internal candidate pools and growing leaders more quickly came to the forefront in our research points to companies acute awareness of the skills and leadership gaps in the workforce. It also reflects, in these lean economic times, a company s reluctance to recruit externally (an expensive endeavor). A clear strategy to grow your own is both costeffective and culturally wise. K E Y P O I N T A succession management process linked with a strong talent strategy creates a highly responsive, highperforming sustainable organization that meets its business goals. As we state in the report, the key to a best-practice succession management strategy is a highly developed and efficient talent management program. Without a comprehensive strategy for managing talent, any succession management project would necessarily fail. At Bersin & Associates, we define talent management as a set of organizational processes designed to attract, manage, develop, motivate and retain key people. A succession management process linked with a strong talent strategy creates a highly responsive, high-performing sustainable organization that meets its business goals. Business and Talent Challenges Succession management becomes even more crucial in today s business climate. Not surprisingly, our research shows that financial pressure to cut costs is one of the top business challenges which companies are facing. Additionally, companies have to develop new sources of revenue as the economy shifts. Thirdly (and perhaps of most interest to our discussion of succession management), many companies have gone through turnover in their top management teams. An organization s focus on succession management shifts according to the priorities of those sitting at the boardroom table. Another set of challenges identified in our research has to do with the state of readiness of talent to take on those responsibilities. More than one-half of the companies we surveyed cited gaps in the leadership pipeline as a current talent challenge. Secondarily, the state of the 5 Leadership pipeline refers to an organization s ongoing need to have a pool of talent that is readily available to fill positions at all levels of management (as well as other key positions) as the company grows. At each level, different competencies, knowledge and experiences are required, and (to keep the pipeline filled) the organization must have programs designed to develop appropriate skills sets. (Also known as the leadership bench. )

12 Succession Management: A Primer 11 Figure 3: Top Business Challenges Financial pressures to cut costs 37% 40% New top management team 14% 21% Competitive threats 19% 29% Expansion into new markets 19% 24% Rapid business growth 23% 19% Rapid change of market Global expansion 16% 13% 16% 22% 0% 10% 20% 30% 40% 50% Business Executives HR Leaders Source: Bersin & Associates and CCL, economy has hindered many companies abilities to create a strong, performance-driven culture, especially among those facing restructuring, downsizing and intense competition. Executives stated they want to get more out of their people yet during such downsizing, morale (thus productivity) has a tendency to plummet. A best-practice succession management program efficiently prepares an organization for these scenarios and helps a company move as seamlessly as possible from difficult business climates to more robust times. By identifying and developing talent, creating a corporate culture that assumes the talent will move to those places where it is needed for the company to meet its business goals and maintaining a broad, nonhierarchical view of talent management, succession programs become part of the business strategy.

13 Succession Management: A Primer 12 Implementing a Succession Management Strategy While identifying high potentials and moving them into the pipeline for the right jobs sounds relatively simple, implementing a high-impact succession management strategy is complex and sometimes requires a cultural shift within the organization. The six-step annual process requires that all participants are fully engaged. In particular, key executives need to buy-in to the succession management strategy overall and, if possible, participate in it along the way. These six key steps are as follows. 1. Articulate Roles for Succession Management Determine the key leaders in the company who will drive the succession management plan forward each step of the way. 2. Identify Key and Critical Positions Focus on both professional and management roles (best-practice companies need to have succession programs for all company leaders, whether senior engineers, line managers or executives). 3. Assess High Potentials A high potential employee has the potential, ability and aspiration for successive management / leadership positions within the company. 4. Conduct Talent Calibration Sessions This is an opportunity for managers to agree on who should / should not be included in the talent review (discussed in more detail in the next section). 5. Implement Talent Review Workshops Senior business leaders discuss talent information, often as part of an overall succession management process. 6. Define Action Plans The talent review committee can move forward in developing action plans to assure successors are ready and able to fill in when the right position becomes available. This process should produce the following three kinds of action plans:

14 Succession Management: A Primer 13 a. Transparent succession plans; b. Actionable development plans; and, c. Essential organizational plans. The first step involves identifying which positions are most critical to include in a succession plan. Individual managers then have the responsibility for identifying those performers within an organization who are most likely and able to fill those roles. Indeed, one key to successful implementation is to have a full knowledge of the company s talent from its top-level executives down to the specific expertise of its technical staff. Concurrently, it is important to have an understanding of the goals and aspirations of employees, and any development plans they are currently working on or positions to which they aspire. Tools and Processes Several key tools and processes should be implemented for companies looking to learn more about their talent for the purposes of succession management. K E Y P O I N T In our research, we found that three-quarters of the companies practicing highly advanced succession management performed talent calibration at least at the executive level. The first is talent calibration. The process helps identify high performing and high potential employees as compared to their peers. 6 It is a future-focused activity that culls the best or most skilled individuals in certain areas who then proceed to the talent review process (discussed next). Talent calibrations are generally facilitated by an HR representative, and serve a variety of organizational and HR functions not the least of which is identifying a company s potential leaders. The talent calibration sessions are vital to succession management because they expose the strengths and weaknesses of the company s workforce. It also introduces managers and directors to talent outside of their business areas and allows them to assess how those individuals compare to others. A second key tool is the talent review. Whether annually, biannually or quarterly, senior business leaders gather to share information about the talent in their various business units. The talent review team 6 For more information, High Potential Versus High Performance: What Is the Real Difference?, Bersin & Associates / Kim Lamoureux, July 11, Available to research members at

15 Succession Management: A Primer 14 should include the business-unit HR leader who is most familiar with the employees and their skills sets. Talent review sessions provide an opportunity to discuss individuals, company goals, and open or future positions in-depth. The business leaders come to the table with a narrowed list of candidates from the talent calibration session. Figure 4: Key Action of Talent Reviews Share talent information from respective areas of business Develop an agreement of who the high potential talent is Facilitate a collective understanding of the bench strength Create assignments that put development plans into action Source: Bersin & Associates, While executive and C-suite buy-in is absolutely crucial to effective succession management (one of our best practices), those individuals do not necessarily need to participate in all talent review meetings. As long as there is a strong communication link between those at the top level of the organization and talent review participants, their endorsement and buy-in of the process is usually sufficient. Among the topics discussed at talent review meetings are: 1) Business strategy; 2) High potentials; 3) Job fit issues; 4) Open positions; 5) Scenario planning 8 ; 6) Talent sharing / transfers; and, 7) Development opportunities. 7 Job fit refers to a match between the current knowledge, skills, competencies and other key qualifications of an individual with the requirements of a specific role. 8 Scenario planning is a strategic approach for making long-term flexible decisions or plans, such as future roles or revised organization structures.

16 Succession Management: A Primer 15 B E S T P R A C T I C E Talent should be viewed as the property of the company, and not of an individual manager, department or silo within a company. Talent decisions should be made, based on what is best for the business as a whole. There are a variety of training opportunities that develop employees for their future roles. In terms of succession management, we found that experiential learning has proven valuable in developing a workforce because it introduces individuals to new roles and departments, as well as promoting what we call talent mobility within an organization. Similarly, promoting relocation (whether to geographic, regional, functional or business locations) proves valuable to the succession management strategy. Such talent-sharing encourages an overall cultural shift that is necessary for high-impact succession management talent is the property of the company, and not of an individual department or silo within a company. That talent is used where needed, and developed carefully to fill key positions wherever those positions may fall on the corporate organizational, geographic or functional chart.

17 Succession Management: A Primer 16 Best Practices It is key for those wishing to implement a best-practice succession management strategy to develop an annual process (as previously described) that is promoted throughout the organization. In addition, it must engage all levels of the organization and be endorsed by the executive leadership team. To summarize, the following are the top 10 best practices of succession management. 1. Facilitate Process-Driven Succession Management Use the six steps for the annual succession process (see Figure 4) to create a culture of ongoing talent discussions and decision-making. 2. Promote a Transparent Process Succession management should be part of the business strategy and discussed openly with employees. 3. Align Capabilities with the Business Strategy Linking talent with business strategy enables business and HR leaders to talk about strategy, and assess employees abilities to drive the business strategy forward during the same discussion. 4. Ensure Executive Commitment and Engagement Senior executive accountability is critical to ensure business leaders stand behind the succession management process. 5. Broaden the View of Talent Assess talent from an enterprisewide perspective, and address both the technical and management roles. 6. Implement Similar Processes at All Levels Companies with best-in-class succession management programs are more likely to address all of these roles with the similar processes, tools and development opportunities. 7. Create a Culture of Sharing Talent Make decisions based on what is best for the company in the long term, and not on what may be important for a department or business unit in the short term.

18 Succession Management: A Primer 17 A N A LY S I S Companies that install technology prior to establishing a strong process find that they lose sight of the purpose of succession management and, instead, get bogged down in issues around the technology. 8. Integrate with Talent Management Processes Align succession management with the business strategy and the organizational culture, and then integrate with all of the other various talent management processes, such as performance management and leadership development. 9. Establish a Measurement Strategy Without measurement, companies will implement inefficient succession management programs. 10. Recognize Technology as an Enabler It can make the process more efficient and transparent, but should not drive the process.

19 Succession Management: A Primer 18 Conclusion We believe companies that put the effort into creating a best-practice succession management strategy will reap multiple, long-term benefits. A deeper knowledge of the talent pool will allow the company to best place individuals into positions that are both satisfying to the individual and beneficial for the company. Such familiarity also gives leadership a clearer view of the importance of certain jobs, whether or not they fall at the top of the corporate hierarchy. In this report, for example, we note that a best-practice succession management program includes technical, as well as leadership, positions. Additionally, high-impact succession management helps to create a culture of talent-sharing that promotes business change and growth. It has additional benefits in promoting and engaging the entire workforce in the future of the company.

20 Succession Management: A Primer 19 Appendix I: Table of Figures Figure 1: Bersin & Associates Succession Management Maturity Model 6 Figure 2: Business Drivers for Succession Management 9 Figure 3: Top Business Challenges 11 Figure 5: Key Action of Talent Reviews 14

21 Succession Management: A Primer 20 About Us Bersin & Associates is the only research and advisory consulting firm focused solely on WhatWorks research in enterprise learning and talent management. With more than 25 years of experience in enterprise learning, technology and HR business processes, Bersin & Associates provides actionable, research-based services to help learning and HR managers and executives improve operational effectiveness and business impact. Bersin & Associates research members gain access to a comprehensive library of best practices, case studies, benchmarks and in-depth market analyses designed to help executives and practitioners make fast, effective decisions. Member benefits include: in-depth advisory services, access to proprietary webcasts and industry user groups, strategic workshops, and strategic consulting to improve operational effectiveness and business alignment. More than 3,500 organizations in a wide range of industries benefit from Bersin & Associates research and services. Bersin & Associates can be reached at or at (510) About This Research Copyright 2009 Bersin & Associates. All rights reserved. WhatWorks and related names such as Rapid e-learning: WhatWorks and The High-Impact Learning Organization are registered trademarks of Bersin & Associates. No materials from this study can be duplicated, copied, republished, or re-used without written permission from Bersin & Associates. The information and forecasts contained in this report reflect the research and studied opinions of Bersin & Associates analysts.