Succession planning: preparing for future success

Many businesses recognise the importance of succession planning for continuity and success. However, data shows that despite understanding how essential it is, 60% of companies say they do not have a succession plan for their CEO and only 14% of businesses say they do well with succession planning as a whole.

 

Our guide looks at the challenges facing businesses and why succession planning is becoming more important than ever. It also looks at how this ongoing process ensures companies are prepared, helping to avoid empty chairs and to keep teams engaged and minimise the impact of the loss of senior leaders.

Contents

Succession planning is closely connected to strategic workforce planning. When done well, it should not only focus on replacing people but also on:

  • developing internal talent
  • recognising the importance of identifying critical roles across the company, not just at senior levels
  • ensuring the plan is connected to the overall business strategy and a solid understanding of the market
  • minimising the uncertainty that often occurs when leaders leave without an identified replacement
  • avoiding this uncertainty cascading to the rest of the business, resulting in further attrition

Why succession planning matters

Succession planning should be implemented across all of the key roles in your company. But even looking at the top job – CEO – it’s clear that having a solid succession plan is essential.

In 2020, with the pandemic impacting businesses everywhere, CEO turnover dropped by 20% and hit a record low in the second quarter of the year. This was understandable, as chief executives sought to minimise further disruption and looked to keep some stability in the company.

This contrasted with peaks in 2019 which saw the highest ever number of resignations. It’s therefore perhaps unsurprising that, as vaccine rollout continues and businesses look to return to normal, CEOs again began to leave.

In February 2021, chief executives announcing their departure rose by 19% month on month, although this figure is still down 43.8% vs the same time last year. Many CEOs may be waiting for further stability, so it’s likely that departures will increase as the year goes on.

Succession planning for the top job is also essential because the average tenure is dropping, according to data from the US, Canada, UK and Australia.

Average time in post for a CEO

chart-succession-planning-ceo-tenure

Finally, with an ageing workforce, it’s essential that businesses ensure they have a clear roadmap for the development of talent and to handle retirement for key roles. Data shows that the proportion of over-50s in the workforce increased.

21% in the workforce in 2008
32% in the workforce in 2019
80% of CEOs in 2019

And despite increasing life expectancy, the average age of retirement has not increased. In fact, the average age of exit from the labour market is two years below 1950 levels for men. Women retire at the same age as previously.

The ageing workforce and earlier retirement age for men impacts all sectors but is especially significant for the four industries with the largest number of employees aged 50 and above: health, retail, education and manufacturing.

Whatever your industry, it is clear that succession planning matters now and in the future.

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Challenges with succession planning

Despite all the data showing that businesses are likely to see increases in key employees leaving roles, data shows that leaders recognise that they are unprepared.

60% of companies do not have a plan for CEO succession
37% of companies never even discuss succession planning
86% of leaders say succession planning is important
14% of leaders say they do it well
50% of leaders say they are well-equipped to lead for the future
34% of HR leaders struggle to develop effective senior leaders
45% of HR leaders struggle to develop effective mid-level leaders
68% of FTSE 100 companies have flagged CEO succession planning as an issue to shareholders

Sources: HBR, Deloitte, Gartner, New Street

While businesses recognise the importance of succession planning, there is clearly still much to do. Our guide offers some advice about how to successfully implement a strategy for this.

Understand your company’s strategy and the marketplace

Succession planning should be thought of as a development process, rather than a replacement process. The key to a successful approach to succession is to plan well in advance, understand your organisation’s direction and growth plans and what is needed to support that.

As such, succession planning applies to all business-critical roles, not just C Suite positions. It’s important that you can identify the roles that are essential to future success – and in order to so that you need to understand two key areas: the business strategy and the marketplace.

The company and its future plans

Key questions to understand include:

  • What is the strategic direction for the business?
  • What talent is needed to get there?
  • Is that talent available inhouse – with internal advancement – or are there gaps?
  • What new capabilities or new roles may be needed at senior level?

These insights not only offer benefits for succession planning but also identify learning opportunities within existing boards.

The marketplace

Taking the time to understand competitors and the wider marketplace ensures that your succession plan is robust. It can also help you understand the talent pool that is available externally.

Insights can be uncovered about:

  • What’s happening in the marketplace and how this may impact on your business
  • Data about competitors including organisation design, employer brand and other key metrics
  • The talent available externally, including insights around the diversity within talent pools

The earlier that you can gain these insights, the easier it will be to roll out a strong succession plan. However, we have also done this within weeks when our clients have an unexpected vacancy and the succession plan wasn’t yet in place.

Marble-Oil-Bubble-1440

How intelligence helps

Our client was unprepared for a senior-level resignation. They had no inside track on key individuals in the market, no understanding of the breadth of remit of comparable roles and no benchmark for remuneration due to the length of tenure of the current incumbent.

We uncovered the insights they needed, quickly but accurately to minimise risk.

Read the full case study

Identifying business-critical roles

From the insights gained, the next step is to consider which roles are business-critical. While the focus has traditionally been on C Suite, Executive Directors and senior leadership, there is now recognition that other roles within the business are also critical.

Critical roles intersect those employees with critical skills, those in critical strategic roles and those in critical workflow rolesi

Gartner has a new way to define roles which are critical to the business.

This approach is beginning to be recognised by HR and TA teams within companies. In our research into workforce planning, one participant from an FMCG company commented, “We focus a lot on hi-po's and key roles to maintain focus (possibly too much focus on hi-po's versus key contributors).”

Once you have identified these roles, the next step is to identify which roles may be at risk through retirements, flight risks and even promotions which cascade vacancies throughout the business. This forms the basis of your plan.

“When we do analysis, we’re looking at the top 25 to 50 roles that drive disproportionate value. We break down the value agenda and ask, “How are we going to make money in the future?” Some parts will be new. Others will be sustaining.”

Bryan Hancock, McKinsey leader and talent expert

Finding future leaders

There are two key sources of talent: internal and external.

Internal

One area that companies sometimes overlook is the need to define what a high-potential employee looks like and how to identify these people within the business.

It’s important that the process for identifying potential successors is clearly defined but it’s also essential that it is fair and provides equal opportunities for all employees. Recent cases have highlighted the importance of having a robust and legal process for identifying future talent and ensuring that this is not discriminatory.

And while the case highlighted above focuses on age discrimination for an older employee, it’s equally important that younger employees are not excluded from key roles. In particular, there is a concern that digital skills are lacking at senior levels within many businesses. Data from Forbes shows that:

12% of executives strongly agree that their leaders have the right mindset to lead
40% agree that their companies are building robust leadership pipelines for the digital economy

While those skills are not solely the preserve of younger employees, with the rise of new technologies it’s important that companies are able to find talent with the right expertise and a strong awareness or understanding of future trends.

External

As part of your process, you may identify gaps in your existing talent. This is where proactive external pipelining will be beneficial. As with internal teams, who are identified and nurtured in advance, a similar approach should be taken for external talent.

By using a pipelining approach, you can find future talent ahead of time. This allows for longer lead times, which in turn allow your business to build a relationship with prospective leaders, improving the fit for the business and increasing the likelihood of a successful hire – a must for these business-critical roles.

 

Whichever approach you take, whether internal or external talent sources or a mixture, one area to consider is complementary leadership. This approach recognises the skills sit within the team as a whole, rather than with one individual. The C Suite or other business-critical team has members with complementary skills, which also allows specialists to exist within these teams.

Gartner research showed that leaders who use complementary leadership saw:

60% increase in their teams' performance
40% increase in their own performance

Finally, this stage of the succession planning process is the perfect time to look at the diversity within your future talent pools. Not only does this help you meet legal guidelines, but it also helps develop future leaders to ensure the business is representative, meeting diversity targets and making better decisions.

There are many benefits to this, including:

Developing your bench talent

Once you have identified any internal future talent, the next step is to upskill these people and ensure a clear progression plan is in place.

This is a critical stage of the succession planning process but, when done well, it can address a number of issues that businesses face and improve key metrics. Research shows that:

81% of HR leaders cite lack of readiness as the top reason that a high-potential candidate was unable to fill a leadership position
14% of CEOs said their biggest concern was holding onto top talent
91% of younger workers (18-34) said working at a company with a clear succession plan would improve their level of engagement
52% of millennials said that having opportunities for career progression was the top characteristic that makes an employer compelling
12x increase in the likelihood of leaving for employees who feel undervalued

Sources: Gartner, PwC, Sage, PwC

By nurturing high-potential employees and openly sharing the company’s approach to progression, retention and attraction can be improved.

And this isn’t the only business benefit. A strong succession plan with time to develop your bench talent minimises loss of knowledge when key employees leave. By undertaking knowledge exchange early, valuable information is retained.

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Progressing people at the right time

With everything in place, when key employees leave, it’s easier for companies to transition their identified successors into the new roles. If these moves are internal, additional opportunities open up and, in turn, their successors can also take on new roles. This process minimises business disruption.

chart-succession-planning-attrition-50Likewise, where you have built relationships with external candidates, you can reach out to them to begin the onboarding process. This may be expected for that role or it may be that the timing didn’t work for an internal candidate, so external talent is the best route for the business.

The benefits of successfully onboarding a new senior executive should not be underestimated. A robust succession plan mitigates the risk associated with introducing a new manager and, when new leaders are successful, the impact is significant.

With successful new leaders, data shows that:

  • Goals are met 9 times out of 10

  • Team attrition drops by 13%

  • Profitability increases by 5%

Benefits of effective succession planning

There are many advantages to the business when succession planning is done well. These include:

RiskMinimised risk

Succession planning helps reduce the number of vacancies in business-critical roles which can impact delivery, customer service and employee retention, amongst other areas.

group-16Minimised financial losses

Uncertainty can impact your bottom line and share price. When Hewlett Packard’s CEO left the business, the share price dropped by 8%. For Micro Focus, 45% was wiped off their share price when their CEO resigned. Having an effective succession plan minimises the impact and risks of such a departure.

group-11-1Longer lead times

Having identified and nurtured talent, both internal and external, your business can avoid rushed searches to replace key people but rather have time to ensure that you to bring in the best people with the strongest fit for your business.

diversityOpportunities to improve diversity

Succession planning gives opportunities to increase diversity at senior levels by identifying individuals who can be developed from within the business. It also offers an opportunity to benchmark the diversity of external talent pools.

Strategic-direction-2_whiteBetter knowledge transfer

Identifying key roles in advance allows you to ensure knowledge is transferred to your bench talent before people leave, minimising loss of important business information.

group-13More strategic approach

More lead time also gives you time to look at what the business needs and the skillsets to bring in as the business grows and the market changes.

Supporting our clients with succession planning

We understand that, for many businesses, finding the time and accessing the expertise to undertake succession planning can be daunting. We work with our clients to provide insights to guide their strategy and to reach out to the best talent available in the market to ensure the business has the right leadership, now and in the future.

Our core services relating to succession planning are:

Talent intelligence

Our experienced team can uncover the right insights about the market, your competitors and your employer brand to help guide your strategy. We can provide data about diversity, organisation design, salaries and remit and other information from the marketplace.

Talent pipelining

With your strategy in place, we can help you to build relationships with future talent that you may want to bring into your business. We recognise that we are representing your business so we always take time to understand your employer brand and the key insights you would like to uncover, as well as identifying both active and passive candidates who are the top talent in the market. We nurture these contacts, helping to build strong relationships, answer questions and identify a good fit, ready for onboarding when the time is right.

Talent mapping and search

It’s not always possible to identify flight risks in advance, especially when you’re first beginning your succession planning activity. We can help to find excellent external candidates to replace those who have left. Our service is both quick and cost-effective, especially for senior roles. Our clients make significant cost savings against traditional recruitment agency costs as we do not charge placement fees and nor do we charge as a percentage of the salary package.

To find out more, please contact us on 0191 691 5600 or email hello@talentinsightgroup.co.uk for a no-obligation conversation.