Why Succession Planning is Vital

Succession planning allows organisations to place the right talent in the right positions at the right time. But why is succession planning so vital to the present and future of a business? To understand why succession planning is critical to a company, we need to look at the employment habits of the leaders and managers of organisations. 

It is no secret that CEO tenures are decreasing. For example, Harvard Law School reported in 2022 that the average tenure for a CEO is 6.9 years, which is down from 8 years in 2016. Plus, we know senior executives are unrelenting in planning their careers, including the organisations they’d like to work for and when.

If the average CEO tenure is 6.9 years, and your organisation is looking to plan talent against a five-year strategy, how do you ensure your talent strategy is forward-focused, aligned with business strategy and has the momentum to make your organisation successful in the future?

There is a danger that organisations merely clone the current incumbent and replace the employee with a like-for-like replacement by taking a short-term approach to succession planning.

What is Succession Planning? 

Succession Planning is the systematic approach to identifying and developing potential future leaders and management of an organisation. The aim is to fill vital roles seamlessly and effectively if the current position holder moves on. It minimises disruption to the business and allows the organisation to prepare for the future. 

The CEO and the board members are ultimately responsible for succession planning; however, the company’s HR department will often assist in the process. 

Succession Planning is vital to organisations for many reasons, including:

• Reducing company turnover by promoting internally. 
• Identifying vital goals and objectives within the planning means a business hires candidates with the right skills and talent to drive the business forward. 
• Having strong leaders in place will give an organisation an advantage over competitors. Investing in these leaders will mean they can overcome challenges and have the right skills to lead and grow the business successfully. 
• It will build your company's reputation and enhance your EVP. Potential talent will be attracted to companies that invest in their people and where a clear development and succession path is available.

What Succession Planning is not

To gain a comprehensive understanding of succession planning, we must also identify what it is not. 

Succession Planning is not:

• A process that happens when someone leaves, is expected to leave or is promoted. It happens anyway in order to manage risk to the business.
• Replacement planning for current individuals (executive cloning).
• To enhance the knowledge or comfort of the individuals who manage the process. It should be linked to the future of the organisation and to the leadership competencies required in the future.
• An annual or six-monthly process. It is a continuous flow, a dynamic and ongoing business imperative.
• Driven by a single individual. It needs to be a collective; across geographies, functions and business units.
• Detached from organisational culture. Understanding culture is crucial in identifying successors.
• A pool of internal candidates. Many companies believe they can fill all senior roles internally, but most cannot. External benchmarking still needs to be undertaken to understand what good looks like. 

Are you Cloning or Managing?

In order to determine the level of maturity of succession planning in your organisation you need to answer these questions

• Who owns succession planning?

• Have you defined the leadership competencies you need in the future?

• Have you identified these individuals that have the skills and ability to be your future leaders?

• Are talent acquisition, internal talent development, succession planning and HR internally aligned?

How to make Succession Planning Work

Get business unit buy-in. Succession planning is most effective when tied to bonuses. In one international bank we work with 20% of their annual bonus is attributed to succession planning.

Have organisation-wide internal talent pipelining to make succession achievable. This means it is common throughout the organisation, not only at the top levels. Define unique individuals who are ‘ready now’, ‘ready soon’ and ‘ready later’ and keep an eye on other emerging talent.

Make it future-focused. Succession planning requires the business to link the business plan and future strategy and therefore requires integration between workforce planning and the strategic business plan.

Track pivotal roles that are emerging as pressure points. For example, one company we work with tracks senior people against development plans but also personal needs and milestones.

Manage it as a risk. Succession planning needs to be adaptable. Focus on lynchpin roles. Incorporate it into the Board meeting agenda.

Make it transparent. This encourages clarity and integrity, and it minimises politics. Succession planning requires a category for those who are not high potential but who are vital contributors with consistent performance but have not yet demonstrated high potential.

Build depth in your talent pipelining. Understand who you have now, who is ‘ready now’ and ‘ready later’ and supplement this with external talent. A succession plan with only internal candidates is not comprehensive succession planning.

The Maturity of Succession Planning

We believe that regulation of leadership risk is just around the corner and that all publicly listed companies will be required to show effective succession plans. The governance model in the financial services sector is likely to be replicated elsewhere as people risk moves up the agenda.

We also believe the days of the little black book of traditional head-hunters are numbered and that it’s time for organisations to really manage succession, not just ‘clone’ their outgoing executives. Succession planning will help maintain the organisational intellectual property and memory and bring leadership continuity.

Succession planning is critical to the future development and growth of a business. If you would like to discuss developing a strategic talent plan for your business, please do not hesitate to contact our specialist team at Armstrong Craven.