How to Succession Plan Like Your Future Depends on It
Follow these three succession planning best practices to ensure your organization is ready for the future.
The Great Resignation is taking its toll at both an organizational and economic level. McKinsey reports that 19 million workers have left their jobs since April 2021, SHRM reminds us that 10,000 baby boomers continue to retire daily, and executive outplacement firm Challenger, Grey, and Christmas reports that the number of CEOs leaving their posts each year is rising, with 832 CEOs leaving their posts between January and July this year.
This kind of turnover means that organizations are full of new employees simultaneously trying to learn their roles and functions. It has led to disruptions in business processes and created a critical loss of institutional knowledge. Further, this mass turnover has erased the historical context for strategic decisions and left organizations with critical talent gaps.
The economic consequences are steep. In fact, a Harvard business school study researched the impact of internally vs. externally promoted CEOs in companies performing both reasonably well and poorly. They found that while insiders did not tend to change the company’s performance, bringing an outsider into an organization that was already performing well significantly reduced the organization’s value. Another study of externally hired CEOs at publicly traded companies shows a decrease in shareholder returns of $182 billion tied to firm underperformance after hiring an external CEO.
Yet shockingly, organizations continue to struggle with succession planning for their critical roles. SHRM reports that based on results of a 2021 survey, 56% of organizations do not have a succession plan in place for their most critical roles, with the biggest barrier to succession planning being a lack of time and resources to create one.
While insiders did not tend to change the company’s performance, bringing an outsider into an organization that was already performing well significantly reduced the organization’s value.
The case is clear, it is time to put succession planning and internal placement at the top of the talent strategy agenda. But where to start? Here are 3 best practices to implement a strong 2023 succession planning strategy.
- Assemble cross-functional stakeholders: Succession planning is often tagged as an HR process. But successfully slating successors into high-stakes roles requires insight and input from the business and likely the board. Therefore, succession planning should be part of the executive strategy and include both HR leadership as well a team of critical leaders from across the business to serve as champions.
- Plan for future successors, not replacers: Many organizations approach succession planning by examining the qualities of currently successful leaders and trying to profile and replicate those qualities in successors. Replacement planning breeds a bench of leaders ready to step up and fill in, succession planning prepares a bench ready to take the organization into the future. To benchmark against requirements for future success, organizations must anticipate both the competencies and environment leaders will face. In fact, when leaders have both the competence and experience working in a specific business environment, they are 4x more likely to be strong performers than those slated based on competencies alone. And what’s more, research shows this competence plus context approach brings an extra level of objectivity to succession processes that result in increased diversity to your leadership bench.
- Leverage applied learning to increase placement success: Research shows that nearly half of leaders (46%) do not meet their goals in their first six months. While training and coaching are critical components of development, it has become well established (and is consistent with adult learning theory) that applied learning is the most effective way to prepare for success. Common examples of applied learning include stretch assignments, job rotations, and board participation. If these examples sound disruptive to a leader’s current responsibilities, it is because they are. Preparing for a future post should become part of a successor’s job responsibilities to ensure preparation and continuity when a transition occurs.
Succession planning has always been a critical part of long-term organizational stability, success, and growth. As you prepare to roll out or revamp your succession planning strategy, remember the most impactful succession strategies will include a senior cross-functional team of program owners, a slate based on future competence and context, and leverage applied learning to prepare successors for their next step.
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