planning for success.

planning for success. how a succession plan can help your business retain knowledge & grow leaders. move up in the world.

planning for success: how a succession plan can help your business retain knowledge and grow leaders. Succession management has always been an important issue for companies. However, with the workforce about to undergo a dramatic shift as Baby Boomers reach retirement age and the competition for qualified talent intensifies, companies are beginning to understand that succession planning must be brought to the forefront of their human capital strategies if they are to survive this shift without dips in customer service. a successful strategy will pair the needs of the company with those of individual talent Succession planning is a process by which successors are identified for key positions throughout an organization, and should not only focus on the top levels of the company, but vital roles throughout the organization. It should take into account the strategic vision and culture of the organization. A successful strategy will pair the needs of the company with those of individual talent to effectively build the future leadership of the organization. Ajilon Office, a division of leading workforce solutions provider Adecco, encourages companies to develop plans to grow the next generation of leaders and keep the valuable institutional knowledge that Baby Boomers hold within their organizations for years to come. In this special report, Ajilon Office looks at three approaches to succession planning and provides practical advice on how to develop a successful plan within your organization. to effectively build the future leadership of the organization. 2

the marketplace. Why has succession planning risen to the forefront at this time in the history of the American workforce? The reason is two-fold: Baby Boomers are reaching retirement age, leaving positions to be filled and, at the same time, young talent must be kept at firms for longer periods if they are to grow into the leaders of tomorrow. Let s take a deeper look at these two demographic segments to better understand why succession planning has become a major human resource issue. the baby boomer effect. The American workforce is aging. By 2010 more than half of the workers in the United States will be over 40. According to the U.S. Bureau of Labor, 25 million workers will leave the workforce for retirement by 2008. The impact of these departures is felt most heavily in the jobs considered to be professional. Forty-two percent of those workers classified as Executives, Administrators or Managers are expected to retire by 2008, leaving companies with close to three million positions that must be filled. ratio of retiring to non-retiring managers by 2008 42% retiring 58% non-retiring Source: U.S. Bureau of Labor And, the Baby Boomer workforce is almost double the Generation X group that follows it. Further, many of these workers have spent the majority of their careers with one company. During the span of those careers, Baby Boomers have built up vast amounts of company and industry specific knowledge that will be lost without an effective plan for transferring those skills to the next generation. the next generation. It is not only the need to hold on to years of accumulated knowledge and replace key positions that makes succession planning important for organizations. Effective succession planning also helps retain strong talent within the company. The key is to match the needs of the organization to the goals of the individual. Keeping talented people in place by providing them with opportunities they may not receive elsewhere will create a stronger, more loyal group of future managers and executives and will save the company extensive recruiting and hiring costs over the long-term. Unlike Boomers, the current generation of workers has not been loyal to their employers. Although the U.S. Bureau of Labor has not conducted a conclusive study on the number of job changes in a lifetime, the average number is believed to be approximately 10. Many experts predict this number will only increase in the next decade. The competition to retain top talent is fierce due to the rising recruiting costs, need for greater technical skills, and an elevated learning curve for managerial positions due to increased expectations at organizations. Tight labor market conditions also make it difficult and more expensive in terms of dollars and opportunity costs for companies to bring new talent through their doors. 3

strategic approaches to succession planning. If the problem is filling senior positions with appropriate young talent and making certain that the necessary knowledge is transferred during the shift, what are the approaches for solving this challenge? Not all companies are able to undertake a complete succession plan once they first start to tackle this situation. There are three main models that companies use when succession planning:» Emergency replacements or worst case scenarios» Talent management» Combination or complete plans percent of middle management turnover effect of formal plans on mid-management turnover 1-5% 6-10% 11-20% 21-50% 51-75% 0% 0% 2% 2% 26% 24% 15% 11% 57% 63% formal retention plan formal succession plan 0% 10% 20% 30% 40% 50% 60% 70% percent of respondents with retention or succession plans Source: Aberdeen Group There are advantages and disadvantages to all three models and companies should take a close look at their goals and levels of commitment before choosing a model that best suits their needs. Let s take a closer look.» emergency replacement planning. This is the most common model of succession planning and serves as a jumping off point for many businesses. In this scenario, it becomes apparent that a vacancy will arise, often due to retirement, and a successor must be identified to avoid any missteps in customer service. In this model, the current employee will often play a large role in identifying the best successor for the position. Generally, human resources will try to fill the role from within, but often must go outside the organization if no one has been trained for the job. Examples of emergency succession planning are numerous and take place any time a company expands in a new direction or discovers that it does not have the proper talent to fill a managerial position. In an interview with HR Magazine, Dole, the world s largest producer and marketer of fresh fruit and vegetables, discussed its work to centralize their succession planning process across the company. Previously a de-centralized organization, Dole often had to go outside the company to look for talent as it had no way of filling positions across company branches. An organization-wide effort was created to develop talent internally and minimize emergency efforts by looking at the future of the organization, the internal talent and the growth path that would be necessary to develop in-house managers. Emergency replacement planning is focused on an immediate need caused by a circumstance within the organization retirement, growth or contraction of business. Sometimes, emergency replacement planning must work to retain knowledge that is about to be lost. Emergency knowledge retention is an option to consider if your company is about to lose specialized knowledge and does not have a successor to receive the information. For example, when dwindling demand forced Northrop Grumman to lay off many of the engineers that had designed and maintained the B-2 bombers during the 1990s they lost much of the on the job know-how needed to maintain an extremely complex piece of machinery. To avoid losing this valuable mind share, a knowledge management team was created to identify top experts and videotape them 4

67% of organizations do not currently have any formal succession planning process. CUTTING EDGE INFORMATION before they left. It wasn t a perfect solution, but it did prevent a massive knowledge loss. With Northrop Grumman, emergency replacement planning identified a problem and developed a solution for that situation. The benefits of this type of process are:» Low cost» Simple» Involves the current employees» Generally, existing systems can be used to create solutions But there are disadvantages as well, including:» Lack of long range vision for the company» Can lead to cloning replacing an employee with a carbon copy of the old employee regardless of whether or not those skills are the perfect fit» Rarely makes employees part of their own growth path» Does not show your organization as one that looks to employees future goals All companies engage in emergency succession planning to some extent, but other types of planning may help the business to grow more effectively and in-line with corporate strategy.» long-term planning. Long-term planning focuses on the future needs of the organization, often looking at the organization from eight years out. Working within the strategic framework for the company s future goals, senior management identifies the positions necessary for growth and the best candidates to fill those roles. This can be done in a number of ways. Some companies invite all employees to take part in an assessment process, while others have managers identify leadership candidates. American Productivity and Quality Control Center conducted a study outlined in Pepperdine University s Graziadio Business Report, on succession planning with several organizations that had strong plans in place. All of them had extensive talent management programs. One of the companies that participated in the study, Dow Chemical, offers a program that includes mentoring, coaching and action-learning programs combined with university programs. Dow s internal research shows that graduates of its leadership program showed improvement in valued attributes such as strategic thinking, customer orientation and global view. Many other Fortune 500 companies have a long and successful track record for developing leadership from within as well. It s been well documented that McKinsey & Co., Procter & Gamble and Microsoft not only hire and retain A level talent, they also are committed to their talent management programs and promoting from within. This approach engenders loyalty and commitment and breeds a culture of success at all levels. Leading healthcare manufacturer Johnson & Johnson has a renowned leadership development program where a handful of top graduates each year join an accelerated, two-year program of work and classroom study, rotating throughout different functional areas of the organization s companies and divisions. Through this intensive program the understudies gain technical and leadership skills that will be required in their future years with the company. It also provides them with incentive to commit to the organization long-term and become a valuable contributor to the firm s growth and success. (Source: JnJ.com) If companies wish to grow leaders from within their existing talent pool and have the time and resources to develop a useful program, effective talent management will 5

the family-owned business. There are close to 19 million family-owned businesses in the United States including 1/3 of Fortune 500 companies. Only 30% of family-owned businesses ever make it to the second generation. And only 15% survive into the third. Why? Lack of a succession plan! Owners should begin planning when they are still in control of the business and things are at their best. Don t wait until a crisis! The handing over of the reigns should be a gradual process, not a sudden shift. Appoint a successor and make certain they have the talent, commitment and vision needed for the job. Have a financial strategy that protects your company as part of your plan consider issues such as taxes, gifting, trusts, life insurance and buy-sell agreements. become a key component of its long-term human capital strategy. The advantages of long-term planning programs include:» Identifies a broad talent pool» Defines and builds future skills needed for the success of the organization» Empowers employees by involvement in their career growth Some of the disadvantages of this type of program include:» Costly and time consuming to develop and maintain» Existing employee-base may not have (or develop) required skills for critical posts and outside hiring can lead to resentment» Managers may be frustrated by not being allowed to choose a successor» combination or complete plans. A complete succession plan combines emergency and long-term planning. This model allows senior management to plan for the long-range growth of both the company and individuals within the organization and prepare for last minute replacements to ensure that service is not interrupted by knowledge loss or lack of staff. The advantages are the same as many of those listed in the long-term model, but there are some unique disadvantages of which human resource representatives should be aware. The complexity of the model can be difficult to develop, maintain and communicate to employees, and, without proper explanation of the system, a belief that an office elite exists can flourish. Companies will find that the advantages of succession planning greatly outweigh the disadvantages, which can be overcome through planning and communication. succession planning for your organization. Understanding demographic shifts and models are only important when coupled with the practical steps that companies must undertake when creating a succession plan for their organization. There are three key issues that human resource professionals should consider:» Strategic plans and future goals» Knowledge retention and critical roles» Talent management» strategic planning. Before your company begins to develop (or revise) its succession plan strategy, key members of the organization must look at the future plans of the company. The succession plan must align with your organization s future goals, initiatives and business strategies. The plan must take into account the company s current size, future plans for expansion, need for diversity, technological requirements, culture and values to be truly effective. A few key questions for your organization to consider include:» Does the current mission statement reflect the goals of my company?» Does the succession plan reflect the mission statement?» Are there key growth initiatives planned in 3 to 5 years and do we have the proper talent in place to meet those objectives?» Can our current structure handle growth? At this step in the process it is key for senior management to be involved. Succession planning will not be effective unless the company leaders believe in it and see it as ensuring the future growth and success of the organization. 6

direct correlation with success. According to a study by the Aberdeen Group, the majority of companies surveyed that reported an attrition rate of 5% or less had these programs:» 89% had a formal retention program» 84% had a succession program A steering committee responsible for succession should be convened, consisting of leaders from the organization including human resources, senior management, communications and any other key, front-line departments. Your human resources team should consider conducting interviews with senior management to determine:» What direction will the company be taking?» What kind of evaluation criteria do they want future leaders to meet? Once these questions have been answered and the succession plan has been properly aligned with the strategic vision of the company, the succession planning team can turn its attention to identifying the roles that are mission critical to the organization.» knowledge retention: which roles are critical? Once the strategy has been set, teams must understand which positions are critical to the plan. In other words, would the loss of a person in a certain position cause a disruption to the day-to-day workings of the organization? Again, succession-planning teams will want to look to the company leaders to determine what roles they believe to be critical and what criteria are needed to fill those roles. Monitoring these critical roles and planning for each of them will help keep on-the-job know-how within the organization. It is this type of knowledge that is hardest to duplicate because it consists of the creative solutions developed through experience. Identifying future leaders and allowing them to work side-by-side with the experts currently in place will help organizations develop new talent and retain crucial tactical information.» talent management. Once roles have been identified, appropriate candidates must be found to fill those positions. The goal of succession planning is to create a match between the needs of the organization and the individual. And by doing so, you keep talented people growing within your organization and engender a sense of loyalty and commitment from these highly valued staff. The majority of companies use a combination of general competencies and organization-specific criteria to identify appropriate candidates and manage their talent. There are numerous human resource tools that can be used from talent identification questionnaires to management software programs that move candidates through a series of progressive interviews, skill tests, and feedback channels. Your organization should investigate a variety of options and pick the one that best aligns with its culture. Regardless of the type of system used, companies have found that efforts that focus on their business values are most effective. Many companies are turning to technology to aid them in succession planning and talent management. Web-based systems allow for worldwide access and large-scale integration of data effective for both tracking employees around the world and sharing knowledge globally. Developmental activities go hand-in-hand with candidate identification. It is unlikely that a potential talent will grow into a strong leader without guidance from the organization. Many leading companies employ a wide range of developmental 7

to keep pace with the competition companies must hold on to the knowledge that their managers and senior leaders possess. activities to engage future leaders and to expand their potential. For example, as part of the Pepperdine University study, Eli Lilly revealed that they use individual developmental plans for identified candidates, which include 360-degree feedback, job rotation and a formal mentoring program. Without defined growth paths for leadership candidates it is impossible to achieve an effective succession plan. communicate, communicate, communicate! If location is the cardinal rule of real estate, communication should be of equal importance with succession planning and talent management. To be successful the plan must become part of the company s culture! Workshops should be held for managers across all levels of the organization to understand why the company is undertaking this process, how it will work and what will be expected of them. Information should be provided to employees on how the succession plan will work such as: Do they need to apply? Should they talk to HR? Will they simply be informed that they have been selected for leadership training? Any changes to the program should be communicated through written materials, and selected candidates should be spoken to on a regular basis to see if their goals are being met. Equally important, members of the planning team must continue to communicate with each other to make certain the program is staying on track and meeting the goals of the organization. retain your institutional knowledge today and grow leaders for tomorrow. Succession planning and talent management is a key initiative for hundreds of organizations across the United States today especially those that have a strategic vision of where they want to take their company. To keep pace with the competition, companies must hold on to the knowledge that their managers and senior leaders possess without it they cannot meet the needs of their clients. Fortunately, with proper planning all companies have the solution within their own firms. Identifying and training existing junior talent and guiding them with the help of current company leaders, will allow a smooth transfer of knowledge and ensure future success. The companies that embrace succession planning as part of their human capital strategy now will have an advantage as the current generation of leaders retires. To learn more about succession planning and how to build your workplace of the future, contact an Ajilon Office staffing professional today at 1.866 GO AJILON or visit ajilonoffice.com. move up in the world. Administrative and Management Professionals 2006 Ajilon Office #4065