SUCCESSION PLANNING AND MANAGEMENT PRACTICES AMONG PRIVATE SECTOR FIRMS IN MALAYSIA KRISHNA NAIDU S/O D. SUPPIAH

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1 SUCCESSION PLANNING AND MANAGEMENT PRACTICES AMONG PRIVATE SECTOR FIRMS IN MALAYSIA KRISHNA NAIDU S/O D. SUPPIAH GRADUATE SCHOOL OF BUSINESS FACULTY OF BUSINESS AND ACCOUNTANCY UNIVERSITY OF MALAYA JUNE 2008

2 Succession Planning And Management Practices Among Private Sector Firms In Malaysia Krishna Naidu S/O D. Suppiah Bachelor of Economics (Hons) In Finance University Putra Malaysia Selangor, Malaysia 1999 Submitted to the Graduate School of business Faculty of Business and Accountancy University of Malaya, in partial fulfilment of the requirements for the Degree of Master of Business Administration June 2008 ii

3 ACKNOWLEDGEMENTS I would to take this great opportunity to express my sincere appreciation and gratitude to my project supervisor, Associate Professor Dr. Abdul Latif Haji Salleh for his guidance, comments, suggestions and support to make this research project a reality. Similarly, my special word of thanks to all my lecturers who have taught me during the tenure of my MBA study at the University Of Malaya. Their valuable guidance and wise counsel have helped me to develop my career further as an effective and competent Human Resource practitioner. My sincere thanks is also extended to Professor Dr. Tracy Taylor (Associate Dean, Teaching & Learning), University Of Technology Sydney, Australia for all the help given in so many ways, especially to ensure that I have selected the appropriate research instruments to conduct the research. Also, many thanks to my head of department, Puan Rozilawati Mohamad Zawazi for her understanding and kind cooperation in granting me annual leave whenever possible in order for me to complete all my coursework and exams. This acknowledgement would not be complete if my sincere thanks are not extended to all those respondents who have participated in this survey. Indeed, I felt very obliged to them for sacrificing their time and efforts to complete the questionnaires. iii

4 I would also like to extend my gratitude to all my good friends; Ms. Bel Lew, Ms. Uma Jogulu, Ms. Ng Lee Bee, Ms. Melissa Moey, and Mr. Brandon Wong for their various forms of support, cooperation and commitment towards ensuring the success of this research project. Last but not least, to my dearest mum, Madam Nagaratnam Raju and my sister Ms. Uma Devi, I truly cherish your love, support, encouragement and faith in me to complete the MBA programme. Krishna Naidu Suppiah Graduate School of Business Faculty of Business and Accountancy University of Malaya, Malaysia June 2008 iv

5 ABSTRACT Purpose Succession planning is an important strategic management tool that helps to sustain organizational growth and competitive advantage. A planned succession reduces uncertainties and avoids business disruptions when there is a departure of key talents or leadership in the organization. This study aims to empirically investigate the adoption of succession planning program among private sector firms in Malaysia and explores its practices and approach. Specifically, the study intends to examine the significant relationships between succession planning characteristics, demographic/control variables and organizational outcomes. Design/Methodology/Approach Managing Directors/CEOs and HR professionals of 108 private sector firms from a crosssection of manufacturing and services sectors have participated in the survey, which contributed to a response rate of 26.1%. The framework of succession planning characteristics and organizational outcomes are adopted from the work of Rioux & Bernthal (1999). Findings The findings show that on average firms in Malaysia employ an effective succession planning system. A formal succession planning is practised in 56.5% of the firms which are mostly large firms. Company growth and desire to improve business results are two main reasons why succession planning is important for private sector firms in Malaysia. The results of the study indicate that no significant difference is found between succession planning characteristics and demographic variables. The Pearson s correlation and regression analysis also show that succession planning characteristics are significant in determining the organizational outcomes. The hypothesis that there is a significant relationship between succession planning characteristics and demographic variables are only partially supported. Similarly, it is only partially supported to the claim that, there is a significant relationship between organizational outcomes and demographic variables. Practical Implications The present study offers an empirical finding on practices and approach of succession planning and its impact on organizational outcomes in the context of Malaysia. Originality / Value Overall, the present study adds value to existing literature by examining the influence of demographic/control variables in determining the relationship between the succession planning characteristics and organizational outcomes. Keywords: succession planning; characteristics; practices; approach; demographic variables; organizational outcomes. v

6 TABLE OF CONTENTS PAGE NO. ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES iii v vi viii ix CHAPTER 1 : INTRODUCTION Chapter Overview Introduction Purpose Of The Study Importance Of The Study Objective Of The Study Scope Of The Study Limitation Of The Study Organization Of The Study 13 CHAPTER 2 : LITERATURE REVIEW Chapter Overview Concept And Definition Of Succession Planning Why Succession Planning Matters? Succession Planning And Employee Turnover Rate Succession Planning And Firm Size Succession Planning And Firm Type/Ownership Succession Planning And Firm Listing (Listed/Unlisted) Succession Planning And Industrial Sector Succession Planning And Firm Age Succession Planning And Organizational Outcomes/Performance Characteristics Of Effective Succession Planning And Management 28 CHAPTER 3 : RESEARCH METHODOLOGY Chapter Overview Theoretical Framework Research Instrument Sampling Design Data Collection Procedures Data Analysis Techniques 47 vi

7 CHAPTER 4 : RESEARCH RESULTS Chapter Overview Response Rate Characteristics Of The Demographic Profile Characteristics Of The Succession System Mean Analysis Internal Consistency Reliability Assessments Independent Sample T-Test Factor Analysis Pearson Product-Moment Correlation Multiple Regression Analysis 82 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS Chapter Overview Summary And Conclusions Suggestion For Future Research Implication Of The Study 94 BIBLIOGRAPHY APPENDICES Appendix 1 Appendix 2 Sample Of The Survey Questionnaire SPSS Output / Results vii

8 LIST OF FIGURES FIGURE FIGURE TITLE PAGE 1.1 Malaysia s Population Pyramid By Age And Sex Malaysia s Population Pyramid By Age And Sex Theoretical Framework : Succession Planning Characteristics, Control Variables And Organizational Outcomes 4.1 Eigenvalue Plot For Scree Test Criterion Succession Planning Characteristics 4.2 Eigenvalue Plot For Scree Test Criterion Organizational Outcomes viii

9 LIST OF TABLES TABLE TABLE TITLE PAGE 2.1 Relationship Between Organization Size And Succession Characteristics 2.2 The Benefits Of Succession Planning For Organization And Individuals Response Rate Categorization Of Firm Size Characteristics Of The Demographic Profile Formal Succession Plan By Firm Size Firms Approach To Succession Planning By Industrial Sector Percentage Of Total Employment By Industrial Sector In Malaysia Reason For Succession Planning By Firm Size Organizational System Linkage To Succession Planning By Firm Size, Mean And Standard Deviation 4.9 Methods Used For Evaluating Candidates For Succession Planning By Firm Size, Mean And Standard Deviation Cronbach s Alpha Comparison Between Variables Practices & Approach Of Succession Planning By Industry Practices & Approach Of Succession Planning By Firm Type Practices & Approach Of Succession Planning By Firm Listing Significance Difference Between Succession Practices/Approach, Industrial Sector, Firm Type/Ownership, And Firm Listing 69 ix

10 TABLE TABLE TITLE PAGE 4.15 Characteristics of Succession Planning: Scale Items, Means, Standard Deviations (SD), KMO, Bartlett s Test For Sphericity And Factor Loadings 4.16 Organizational Outcomes: Scale Items, Means, Standard Deviations (SD), KMO, Bartlett s Test For Sphericity And Factor Loadings Descriptive Statistics And The Correlation Coefficients For Independent, Control, And Dependent Variables 4.18 Summary Of Hypothesis Testing Using Pearson Product- Moment Correlations Between Independent, Control, And Dependent Variables Results Of Regression Analysis On Organizational Outcomes 82 x