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Research by Deloitte has found that few organisations commit to a succession planning process. The reason for this is understandable, of course: companies are hesitant to openly go ahead with succession planning for fear that it might show a lack of confidence in the current leadership, while those in leadership positions don’t want to take the lead in the process for fear of what that might say about their future plans.
However, organisations require a succession plan to avoid the fallout that can occur when a leader suddenly vacates a strategic leadership position. In the absence of a succession plan, organisations may find their growth and financial stability negatively impacted.
What is Succession Planning?
Succession planning is a strategy and process for replacing leaders and key employees. This strategy ensures that the company has suitable people in line to fill key positions so that the company doesn’t lose momentum.
Succession planning plans for a future that may see the sudden or eventual departure of important employees. It also involves the training of talented employees so that they have the skills to take on the responsibilities of their new positions.
In most large companies, Human Resource (HR) management is responsible for succession planning. In large corporations, the board of directors will oversee succession planning, as it impacts shareholders. In small businesses and family-owned companies, succession planning is often the sole responsibility of the owner.
So why should businesses of all sizes do succession planning?
Succession planning is critical for a company’s growth and future financial stability. The sudden departure of a key leader, such as a COO or CFO who filled a key position with wide responsibilities, can lead to a devastating loss of experience and knowledge pertaining to the company, weakening the business in the process.
Because things fluctuate all the time, succession planning must be an ongoing process. As things change in the company and people leave or might leave, the succession plan should be updated at least once a year.
Benefits of Succession Planning
One of the biggest problems when an employee in a key position suddenly leaves or becomes incapacitated is the disruption and chaos it causes. And this can happen at every level in an organisation, not just the top echelon.
When a mid-level manager suddenly leaves, other employees have to scramble to do their own work as well as that of the person who has left, which impacts productivity and morale.
A succession plan that identifies key positions and those who can fill them, helps companies to not be caught off guard when a position suddenly becomes vacant. If there are people who can step in, the business can continue to operate with minimal disruption.
We are all familiar with headline-hitting stories of failed appointments of CEOs from the outside. They promise to turn a company around only to turn around themselves after a short-lived tenure.
They usually fail because they don’t have a fundamental understanding of the company culture and steer it too far away from what it has always stood for.
Unfortunately, these types of appointments have a very negative effect on the reputation and future growth of some of these companies.
Succession planning helps companies to avoid appointments from outside and develop their own talent for the top position. This will be someone who understands the company’s core values, its culture, people, and customers.
Foster employee engagement
Succession planning fosters employee engagement. This is important because highly engaged employees are highly productive and have low retention rates. Forward-looking companies work hard to keep their employees engaged because low productivity and high retention rates are costly.
Engaged employees are enthusiastic about their work and the place they work for. A succession plan creates a clearly defined pathway for employees who then feel reassured and are more likely to stay committed to their place of work.
The majority of workers these days are millennials and generation Z employees. They insist on opportunities for career development. A well-communicated succession plan can be a way to show them how employees can advance through the company. These younger employees will be more engaged if they can see a career development path for themselves.
Hiring new employees is costly for many reasons, including a loss in productivity. A new appointment, no matter how qualified or experienced, doesn’t immediately bring in revenue, to the contrary, it’s a cost to the company.
The cost of hiring a new employee includes hiring, onboarding, and training, but the hidden cost is the low productivity. Fact is, new employees are only 25 percent productive when they first start working. They only double their productivity after six months.
Research shows that it takes one to two years for new employees to become fully productive, meaning productivity will suffer for two years after their appointment.
Internal appointments don’t affect productivity so much, because employees are familiar with company processes and policies.
Fundamental Questions to Consider at the Outset of the Process
Will you focus your efforts on those in leadership roles, or will you consider all employees?
Traditionally, companies only developed succession plans for the executive team, but many businesses also do succession plans for other leadership positions. Some companies even develop succession plans for every new employee.
The benefit of taking a broad approach is that you won’t overlook great talent that may not stand out at first sight. Focusing just on a few employees for succession, can alienate the rest and cause them to leave.
Will you be hiring from within the company or will you look outside for talent?
While it takes time and effort to develop insiders, they may be your best bet compared to external hires. Internal hires retain organisational knowledge and get up to speed in their new roles faster than external hires.
According to research by Wharton management professor Matthew Bidwell, external hires don’t perform as well as internal hires in the first two years, they are more likely to leave, and they cost more than internal hires.
These are not the only factors to take into account. Sometimes an external hire will be the best option. The point is, you have to be open to both options for all positions.
What role will diversity play in your decision-making?
Traditionally, key positions have been filled by white men. That will not do for today. Modern businesses are compelled to have a diverse leadership team. This means that succession planning should allow for opportunities to promote women and minorities for leadership positions.
How Succession Planning Works
Identifying key positions
Succession planning looks at the skills that people in leadership positions have and then tries to find employees within or outside the company that also have those skills. It includes the option to train high potential talent within the company to take over certain key positions. Every critical position in your business should have a succession plan, not just leadership positions.
In terms of succession planning, recruitment means hiring candidates that have the potential to climb the corporate ladder and rise to the top. In other words, ambitious candidates with the skills and experience your company needs for a person who would eventually fill a top-level position.
Create career pathways for internal hiring
Once top talent has been identified, HR works with them to create a career pathway within the company that would help them to fill a targeted top-level position. They make sure that the employee buys into the plan.
Training and mentoring
Once the pathway is in place, the next step is mentoring and training. Depending on the skills needed, HR develops individualised training and development plans for high potential employees. This can include cross-training, so they will be intimately acquainted with how different departments operate. This, in turn, will lead to well-informed decisions once the employee is in a key leadership position.
Creating a Succession Planning Strategy
Make sure there is support from the top. Most succession plans don’t get off the ground because top management is not invested in the idea. HR can educate top management on the importance of succession planning to get executive support.
Succession planning isn’t the same for every company. Here is a simple outline to begin with.
Consult top management
Work with top management to iron out what your company stands for and where it’s heading. Top management must have a clear vision for the organisation, which will indicate what kind of leaders the organisation needs. This information will inform the succession planning.
Don’t focus on top leadership roles
Consider everyone in the organisation when you do succession planning. Look at your entire staff complement to identify key positions and top talent. Keep in mind that some of your best people might be working in a support position. You want to take every employee into account who consistently does a sterling job, not just the ones who attract most of the attention.
Plan the particulars of your succession planning strategy
No two succession plans look the same. You need to figure out what would work best for your company. To help with this, you can consider the following questions. You will have others that apply to your situation.
Will the succession plan just be applicable to top management, or will it include all positions and employees?
What role will diversity play?
What are the company’s talent gaps?
Can you call on executives to do mentoring?
Will leaders be held accountable for developing high-performing employees?
What is your staff demographic? Are they mostly millennials? Are many on the brink of retirement?
Identify key positions
Look at your company’s organisational chart to identify key positions. Familiarise yourself with the exact responsibilities of those roles and the qualities and skills needed to accomplish them.
Identify your top talent
For each key position you identify, you need to find employees who could fulfil those roles, at least two. To identify these employees, look for such qualities as reliability, adaptability, emotional maturity, and a willingness to learn and adopt new skills. Also, look for leadership skills.
There are three types of people to identify:
Core – these people have the ability to step into a critical position or leadership role and would be a strong contender in a selection process.
Contingent – these candidates are missing some of the skills and experience required, but could fill the role for a period of time while a recruitment process is underway.
Crisis – these people would not necessarily be a contender for the role, but could keep the wheels turning in a crisis until a suitable backfill is identified.
Make employees part of the process
Don’t announce promotions out of the blue with no explanations. Throughout the process consult employees on their career goals and find out if they feel they need development.
Once a decision has been made, communicate the reasons behind it so that people understand why they can’t be considered for a position. Prepare yourself for some difficult conversations.
A succession plan that is well-planned and thoughtfully executed can help the company retain its best talent and save on recruiting.
Succession Planning Tools
It is almost impossible to keep track of all employees and their careers within a company that employs hundreds of people. This is where HR technology companies and the platforms they provide come in.
Many of these platforms integrate succession planning with other HR features like recruiting, onboarding, and training.
Some of these platforms display information visually so it’s easy to see where talent gaps exist and if there are employees who are ready for a position. They can display comparisons between individuals, which can be seen in a single view, which is very handy.
Examples of HR technology tools that help with succession planning include:
- SAP SuccessFactor – helps companies identify, attract, and develop talent and identifies talent gaps.
- Oracle Taleo - helps companies to compare internal and external talent for key roles.
- Halogen Software - aligns employee competencies with strategic plans.
- Peoplefluent – focuses on building a sustainable leadership pipeline through internal talent.
- Silkroad Wingspan - manages all employee information so that HR can easily identify internal candidates for upcoming positions.
Succession planning is vital for small, medium, and large organisations. A succession plan can identify the next crop of leaders. If it’s deployed properly, a succession plan will allow for employees to develop their leadership and other skills so that the company can always function at its best.
Rosalind Cardinal is the Managing Director of Shaping Change, a consultancy specialising in improving business outcomes by developing individuals, teams and organisations.
Ros is a globally awarded facilitator and leadership coach, with a career in the Human Resources and Organisational Development field spanning more than 25 years. Ros' expertise spans leadership development, organisational culture, team building, change and transition management, emotional intelligence, organisational behaviour, employee engagement, strategic direction and management.
Ros is accredited in over 20 psychometrics and diagnostic tools, covering leadership behaviour, organisational culture, emotional intelligence, competencies, and more.
Ros is a Certified Member of the Australian Human Resources Institute, a member of the Australian Institute of Training and Development a Professional Member of the Australian Association for Psychological Type, and a member of the Australian Institute of Company Directors. She holds a Graduate Diploma in Human Resources and is studying for a Diploma of Neuroscience.
In addition to Ros’ own blog, she is a regular contributing writer for Leaders in Heels, “Thrive”, and “People Development” Magazine.
Ros is a 2020 Telstra Business Women's Awards Finalist. Shaping Change was a finalist in the 2015, 2016, 2017, 2018 and 2019 Small Business Champions Awards, and Ros was a winner in the 2015 Australian Edupreneur Awards. In 2016, 2017, and again in 2018, Ros was awarded Leadership Coach of the Year – Australia by Corporate LiveWire in their Global Innovation and Excellence Awards. In 2016 Ros released her bestselling and award nominated book “The Resilient Employee: The essential guide to coping with change and thriving in today’s workplace”.