Navigating Your Way Through Succession Planning Why Organisations Need To Plan Today for Unexpected Changes in Business Tomorrow
Is your boss coming back to work tomorrow? 1 in 5 experienced loss of or SLOWED GROWTH due to a LACK OF LEADERSHIP OR DIRECTION ALMOST ONE THIRD 31.5% Cited it had led to DECREASED MORALE at the company 43% of the UK s biggest companies have seen their LEADERS UNEXPECTEDLY JUMP SHIP in the last year 28% of organisations claim it takes 6 MONTHS or more TO REPLACE THEIR CEO Only a third 32% admitted they have a CEO SUCCESSION PLAN IN PLACE 23% of those polled also had succession plans in place for GRADUATES Organisations are increasingly recognising the important role that Succession Planning plays today in maximising business performance tomorrow. 1 in10 people in the UK have what it takes to be a TRULY EFFECTIVE LEADER 48% of those surveyed had succession plans for TECHNICAL EXPERTS OR SPECIALISTS and 43% for junior managers 88% IDENTIFIED CRITICAL ROLES ACROSS THE BUSINESS 85% HAVE SUCCESSION PLANS IN PLACE CEB HELPING YOU NAVIGATE YOUR WAY THROUGH SUCCESSION PLANNING Sources: The research was conducted by Opinion Matters during the period 16-26 March 2012. The research surveyed 258 HR decision makers in the UK working in businesses with 250+ employees. Of those polled, 102 were in companies of 250-750 employees, 58 were in companies of 750-1000 employees and 98 were in companies with over 1000 employees. 3
Foreword Key Findings CEO and board exits are frequently hitting the media headlines as unexpected departures leave companies exposed. Whether it s down to stress, retirement, fraud or poor performance, the average CEO tenure has shortened by more than 18 months over the last decade. FTI Consulting demonstrates a clear link between those companies that have prioritised CEO succession planning and consequently experienced less stock market volatility during a leadership transition. Clearly there is a tangible impact when unexpected changes happen at the top but it goes much further than market share it affects employee morale, growth and company momentum, so businesses need to be fully prepared for transitions whether they re planned or unplanned. The strategy for succession should not simply be focused on the C-suite but applied to every level of an organisation. To maximise business performance and continuity, effective succession planning needs to develop longer-term successors as well as short-term replacements. In recent years, HR leaders have made significant progress towards identifying critical roles across the organisation and taking a long term view of succession planning, but as the pace of change in business accelerates and economy fluctuates, so too must an organisation s succession planning. CEB s research, Navigating your way through Succession planning, explores how succession planning is being implemented across organisations and identifies trends around unexpected changes in leadership and its effects on company morale and growth. The report concludes with six actionable strategies for succession planning best practice to help companies deliver the talent of tomorrow for stronger business performance. 43% of the UK s biggest companies have seen their leaders unexpectedly jump ship in the last year. The Impact of Unexpected Changes in Leadership Over the last 12 months, almost half (43%) of UK companies surveyed have experienced an unexpected change in leadership 1 in 5 (19%) stated they experienced a loss of or slowed growth due to a lack of leadership or direction Almost a third (32%) cited it had led to a decrease in morale amongst employees Although the majority of those surveyed have succession plans in place (85%), it is clear that the unexpected change happening at the top is restricting business growth and impacting employee engagement. Past experience shows that poorly executed succession plans can have an immediate negative impact on company momentum, reputation and bottom line. These findings suggest that the succession planning process has not yet fully matured. Despite respondents stating a confidence in their succession plans, the results show that efforts are limited to certain levels or departments creating a siloed and inconsistent approach, illustrating that HR leaders may be struggling to balance short term goals with longer term priorities. Those companies without fully formed succession plans in place may find themselves having to take an unnecessarily reactive approach to unexpected departures. What is needed are effective policies and procedures tightly integrated with talent management so HR leaders can take a proactive stance to navigate succession planning. Successors for Leadership 1 in 5 experienced loss of or slowed growth due to a lack of leadership or direction. Melanie Long, Senior Managing Consultant, CEB Only a third (32%) of respondents admitted they have a CEO succession plan in place despite (28%) stating that it takes six months or more to replace their CEO Almost half (49%) of respondents stated having a plan in place at board level was the top priority for companies of over 1,000 employees Succession planning hasn t reached the CEO level yet for the majority of organisations surveyed, even though they see board succession planning as a priority. Common practice is for companies to look externally for a new CEO, using this as an opportunity to change direction or culture. But the risk is if a CEO leaves unexpectedly, the organisation will need someone to lead in the interim. By analysing the capabilities of the incumbent CEO and examining what is required from the next individual, a strategy can be built to recruit for the position and a profile formed for candidates to be objectively measured against. Report Summary The findings in this report are based on research conducted by Opinion Matters, sponsored by CEB, during the period 16-26 March 2012. The research surveyed 258 HR decision makers in the UK working in businesses with 250+ employees. Of those polled, 102 were in companies of 250-750 employees, 58 were in companies of 750-1000 employees and 98 were in companies with over 1000 employees. 4 Navigating Your Way Through Succession Planning 5
Key Findings Key Findings Booz & Company, in 2011, found that over the past 10 years CEO tenures have shortened by an average of 18 months from 8.1 years to 6.6 years. Also, the length of planned tenures, in which the CEO departs on a date prearranged in agreement with the board, has dropped by 30%, from 10 to seven years. Clearly, CEOs are departing more frequently, especially in a volatile market where results and transparency are scrutinised, so HR leaders must have succession plans in place to cope with the changes. Data from CEB Talent Analytics show that just 1 in 10 people in the UK have the potential to be a truly effective leader, which is significantly higher than the global average of 1 in 15 1 However, 75% of people currently occupying senior manager or executive roles have the ability to develop a compelling vision for their organisations and convert this into a tangible plan of action Overall, 39% said it took 4-6 months to replace director level employees Whilst the UK s potential leadership pool is broader than the global average, the odds of having a truly effective leader in an organisation are still low. However, there is a 75% likelihood that those occupying senior director and executive roles will have the ability to develop a compelling vision for their organisation and convert this into a tangible plan of action. This strongly highlights the need to audit talent to ascertain who has the potential to take on more leadership responsibilities. Our research shows that it takes 4-6 months to replace director level employees, so it is a necessity to understand internal talent pools; when director level positions become open, there needs to be a ready stream of talent that is prepared for the roles. Promoting internal talent has its advantages and can be facilitated by assessing individuals throughout their careers, ensuring they have a development plan in place and a clear progression path in the organisation. There are clear advantages to internal talent mobility programmes; on-boarding times to reach productivity are as much as 50% faster for internal hires compared to external hires 2. 1 in 10 people in the UK have what it takes to be a truly effective leader. Succession Planning for the Engine Room of the Company Of those respondents that have succession plans in place, 99% said they have also identified the critical roles which need to have a succession plan Over half of those surveyed (48%) have succession plans for technical experts or specialists, despite 45% of respondents stating it only takes 1-3 months to recruit for these positions Organisations are realising that to compete in the market, they need to have the right skills and capabilities in critical roles across the organisation. The research suggests that HR leaders are taking positive steps by forming a longer term view of succession by focusing on the engine room of the company those roles that are innovating, creating value and delivering results despite only taking 1-3 months to recruit for these positions. On average, less than a quarter (24%) views the IT department as a priority to have a succession plan in place for, and this drops to 1 in 5 for customer service As these two departments are often outsourced this could contribute to the trend. However, it depends on the type of organisation if IT is more central to the business or if it is a consumer facing business needing strong customer service such as retail, then succession planning for roles within these departments should be considered. This recommendation is backed up by The Institute of Customer Service who found a clear link between the ROI of customer service and market share in their January 2012 UK Customer Satisfaction Index. Organisations are realising that to compete in the market, they need to have the right skills and capabilities in critical roles across the organisation. 1. SHL Occupational Personality Questionnaire (OPQ) data for 636,314 graduate, manager and professionals across all sectors globally. Gender ratio 2:1 male to female. Benchmarking based on 1.1m assessments. 2. Mellon Learning Curve Research Study Results, 2006 6 Navigating Your Way Through Succession Planning 7
Key Findings Conclusion Emerging Potential 23% of those polled also had succession plans in place for graduates, showing over 1 in 5 are favouring a grow your own leadership recruitment strategy, by ring-fencing and nurturing high potential graduates from an early stage Statistics suggest that organisations with a workforce between 250-750 and 1000+ are investing in developing succession planning for graduates whereas companies with 751-1000 employees are more concerned with technical specialists Every CEO was a first-timer at some point. Employers are seeing the benefits of recruiting high potential talent right from the start hiring graduates with a view to nurturing them for leadership roles later on. Generation Y is a particular asset to companies; offering a wave of entrepreneurial thinkers that are achievement focused, which will benefit companies buffering the unpredictable economy showing promise for transformational leaders. It is vital to have an ongoing and open dialogue with these employees to establish what their aspirations are, areas of development or interest and how the company can help them achieve their goals. Those organisations that keep their end of the psychological contract with graduates will reap the benefits and help retain their talent. 43% of organisations have succession plans in place for junior managers CEB Talent Analytics 3 data indicate that around 1 in 12 junior staff have the potential to be an effective leader, compared to the UK-wide average of 1 in 10. Organisations are understanding that in order to retain and nurture top talent in the long term, clear career paths for progression need to be carved out to bind those psychological contracts. However, it is important for companies to accommodate individual aspirations and provide high potential individuals with growth opportunities even if they don t proceed down a leadership path. Not everyone will have the capability, drive or ambition to lead the business. The key to effective succession planning is having the processes in place to take an objective view of your people and understanding where the next generation of leaders will come from. Leaders have had a tough time of late, which rather unsurprisingly, is reflected in the large numbers that have jumped ship or been pushed from their organisation in the last 12 months. No business, irrespective of sector or size, is immune to losing its top talent but organisations needs to have a strategy in place to deal with this loss to ensure business continuity, momentum and reputation protection. HR leaders are required to plan for all eventualities; for succession planning to be effective, it must be a holistic company-wide process that considers, balances and provides a talent pool of short-term replacements as well as long-term successors. The research findings demonstrate that HR professionals are recognising the importance of succession planning across the organisation; the majority of those surveyed have already identified critical roles and have succession plans in place across their organisation. Organisations also appear to be developing their emerging talent from lower down the organisation thereby pushing succession planning strategies and principles throughout the whole business. Coupled with a strong implementation programme, this grow your own talent approach enhances succession planning and ensures companies develop strong talent pipelines with a number of successors for their critical and leadership roles over the longer term. The challenge here is the talent paradox : ensuring companies have enough of a view of the future competencies they are going to need to deliver business strategies they are not yet aware of. However, our findings also indicate that whilst HR has been focusing on succession planning for the engine room of the company, they may not be investing the resources necessary for effective planning at business leader and CEO levels. As cases over recent times have proven, inadequate succession planning at this level can have an immediate and rather serious impact on the workforce, company growth and investor perceptions. Succession Planning strategies are not quick fixes; nor are they the most cutting edge of HR programmes. Nevertheless, Succession Planning is at the heart of future-proofing organisations. The collaboration between HR professionals and business leaders can be a powerful partnership that transforms business performance; providing insight in to what talent and potential exists within the organisation and what future talent is needed to drive success in volatile and unpredictable market conditions. For succession planning to be effective, it must be a holistic company-wide process that considers, balances and provides a talent pool of short-term replacements as well as long-term successors. It seems many companies are now on this path, but it appears HR departments still need to ensure they have the tools and processes in place to demonstrate the benefit of succession planning across the whole organisation. CEB has provided six strategies overleaf for achieving effective succession planning, to help companies deliver the talent of tomorrow for stronger future business performance. Melanie Long, Senior Managing Consultant, CEB 3. CEB Talent Analytics draws on the largest global database of scientifically-based talent assessment data and intelligence available today. The statistics referenced from CEB Talent Analytics database is based on 127,000 assessments for leading UK companies and public sector organisations over the past five years with a gender split of 1:2 men to women, age range of 18 to 65 with 49.7% between the ages of 25 and 40. 18.6% hold senior/executive roles, 27.7% hold middle management roles, and 53.7% have junior to supervisory/team leader roles. Benchmarking is based on 1.1 million assessments globally. 8 Navigating Your Way Through Succession Planning 9
Six strategies for achieving effective succession planning 1. Take a holistic approach and establish a culture of talent sharing. Keep a balanced focus on your long and short-term succession planning and anticipate the unexpected. Try to avoid a siloed approach to identifying talent by establishing a process for sharing talent data across the whole organisation so strategic people decisions can be made at an organisational level rather than at a business unit level. 2. Define what a high-potential candidate is in your organisation. Managers and individuals often have a skewed view of what constitutes a high-potential individual. It is important to educate line managers and provide them with an objective approach to measuring and identifying potential, in tandem with the HR department. Relying on ability and track record alone is risky to determine potential using objective behavioural assessments will help predict. 3. Capture talent analytics data and use it to inform succession planning. Aberdeen Group s research finds that an inability to analyse talent data for succession planning is currently a significant barrier to maturing succession planning processes. Once data on high potentials has been captured, the data should be analysed to establish a bench strength to measure against so that top talent can be identified and consequently nurtured, engaged and retained. 4. Consider individual s aspirations and motivations when creating talent pools. Encourage line managers to have an ongoing dialogue with their team members about career aspirations and what motivates them. This will help to re-establish the psychological contract between the individual and the organisation and to ensure expectations are aligned. High potential doesn t always necessarily mean high potential for leadership, organisations need to have alternative career pathways in to specialist or non-people managing roles; often these are just as vital as leadership positions. 5. Measuring readiness. A thorough assessment of readiness (key skills, behaviours, knowledge and experiences) should be completed to make sure the high-potential individual can hit the ground running in the new role. Being transparent and having development plans in place to measure progress against will help to achieve candidate readiness. At a leadership level, understand the style, strengths and development areas of your current leaders and anticipate what the business might need if they were to leave. Do you have the right talent internally or do you need to look externally to deliver on future goals? Getting this step wrong can be extremely costly to organisations. 6. Continually review and refine your Succession Planning trategy. Re-visit the succession plan regularly and analyse whether it is working to achieve short and long term goals. Keep an open dialogue with key stakeholders in the business as senior buy-in to the process is crucial. For succession planning to be truly effective it will need to align with the business strategy and future vision so that you can plan for the talent of tomorrow. 10 Navigating Your Way Through Succession Planning
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