How to Develop a Good Succession Plan

by Paul Lanham

The reality of business today is that many key executives and talented professionals are coming up to their retirement. In addition, because of the recent economic pressures many organisations have had to reorganise and re-size themselves, the consequences of which mean that the talent pool that would have been ready to step up into key roles are either not ready or no longer there. All of this represents serious implications for the business.

This issue doesn't just affect large organisations either. A survey conducted by the Association of Chartered Certified Accountants (ACCA), found that 30 per cent of small-business closures take place because of the lack of an effective succession plan, as many owners do not make sufficient arrangements in the event of their retirement.

To address this issue, companies need to integrate succession planning with their strategic business plans and view it as a long-term, continuous process.

The following highlights the key steps to successful succession planning.

1. Think strategically

Succession planning requires a strategic perspective. What are the things that might impact your organisation in the future? Will it grow and acquire other businesses, or is the market shrinking and therefore a different leadership approach may be needed? What 'type' of managers and business leaders will be needed in the future?

2. Understand key roles

Which roles in the organisation drive the majority of the business's value? Think broadly, and not just about traditional leadership roles, but consider specialist technical roles such as product or service development as they may be as equally important. Once this is complete it is a straightforward task to examine the age profiles of those currently in the key roles. How many of these will be retiring in the next 5 years? How many roles have 'ready now' successors? Answering these questions will give a view to the size of the task ahead.

3. Identify the requirements of the key roles

The requirements for the key roles need to be agreed. What are the key skills and capabilities needed for the roles? What specific experience will be needed, such as international or project experience. All key roles should have the necessary components for success clearly defined. These requirements can then be used to assess people into the role. either internally via a promotion or perhaps externally via recruitment.

4. Identify who your talent and potentials are

The mechanisms to identify and determine talent can range from subjective views of managers to objective means of assessment where candidates are assessed against the clearly defined criteria identified above. Whichever method is chosen it is important to understand who your potential business leaders of the future are.

5. Agree your succession strategy

Once the organisation knows:

- who is planned to retire when

- who are 'at risk' and may potentially leave the business and...

- who the potential talent is

Objective decisions can be made about how the key roles will be filled in the future. For example, does the business need to actively recruit and bring in new blood or can all the key roles be filled from within? Should the strategy be a balance of recruiting externally as well as promoting internally?

6. Define career paths for internal promotions

Once your succession strategy is clear, establishing career paths and the ability to describe the requirements for pursuing the path becomes easier. Creating effective career paths requires two components, knowing the requirements for the next level and creating clear plan of how to gain the necessary skills, behaviours and experience.

7. Manage successors through the performance management process

Succession planning should become a part of the organisation's performance management and career development processes. Regular performance discussions are important to collect evidence of how potential successors have demonstrated the performance expectations needed by the key positions. These discussions also provide the opportunity for managers to coach talent to ensure ongoing development and readiness.

8. Provide ongoing development

Managers should identify the development outcomes and actions that potential successors need. What are the specific learning expectations, new skills or behaviours that will be demonstrated as a result of their development? What actions need to be taken? Should the individual attend a course, undertake an assignment or new role or be coached? Focusing on developing specific skills can help shorten the learning curve necessary for success.

9. Monitor readiness and prepare the plan

Senior managers should meet at least annually to initially agree who the potential successors are for the key roles and to subsequently monitor their progress. Who is ready now to move to their next role? Is their evidence to suggest that any of the successors will not 'make the grade'? If not what needs to be done?

10. Ensure proper ownership

Succession planning needs to be owned by line managers and needs to be actively led by the Chief Executive or owner of the business for it to be successful. However, HR has a vital role in raising awareness, supporting and facilitating the process. This can range from compiling all the relevant information on potential candidates, keeping records of development and career progression and providing independent assessment techniques to identify potential.

None of the above steps needs to be made overly complex and most can be integrated across existing Human Resource systems. If your business does not focus on succession planning then the availability of talent for your key roles will be left to the fickle finger of fate. Surely the future success of your organisation is too important for that?

Developing People have played an instrumental part in helping many companies assess their succession planning strategies over the years. If you feel that your company is not equipped to manage staff turnover in the most effective way, contact Developing People for advice.

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A Leadership Dilemma

Imagine the situation: Your organisation is currently struggling. Revenues are down, profits are down and if the current trend persists, the business may end up making a loss at the end of the year.

While putting the brakes on expenditure may be the only option the business has, depending on how this is approached can make a big difference to the motivation, commitment and engagement of managers and staff who have to implement it.

If you did not have to think too hard to imagine this situation, you may find it useful to read on...

Consider the following scenario:

Last year, your business invested in a leadership development programme for its middle and senior managers. The focus of the programme has been on developing the skills, capabilities and behaviours of the management cadre to lead and empower their staff more effectively to generate greater engagement and change the organisation’s culture.

The results of the programme have been tremendous. Key business measures have shown improvements and the culture of the organisation has changed to become more customer focused and proactive.

However, because of the economic climate the organisation has not been making the required profits and the leadership team decided to put an embargo on all unnecessary spend. The directors decided to take control over the purchasing of all “consumable” items such as stationary, printing inks etc and all managers have to get approval from a director before they can purchase anything.

What will be the impact of such an apparently ‘micromanagement’ approach? Managers will suddenly feel that they cannot be trusted to make the right decisions and staff become frustrated because they can’t get the tools they need to do their jobs properly.

The consequence of this is that in an instant all the good work that the organisation did in investing in the leadership development of their managers becomes undone. This is because the managers perceived a lack of congruence between what they had learned and were expected to do (i.e. develop trust, empower their staff etc) and the behaviour of the directors who are into command and control.

This issue is not about what the directors of the business were trying to achieve but how they went about it. Clearly action needs to be taken to control costs during difficult times, however by stripping managers of their decision making authority will simply alienate and demotivate them. So what advice can Developing People offer?

• Managers need to know what’s expected of them e.g. to reduce costs.
• Maintain your manager’s motivation and commitment with trust in their decision-making abilities.
• Set realistic targets and budgets so managers feel empowered to deliver the new targets and budgets without draconian measures that WILL reduce morale.

If businesses approach the engagement of managers in this way, trust and performance is more likely to be increased despite the economic difficulty. If you act now, managers will be primed and ready for when the economic pressures ease and the organisation returns to growth.

Assessing the Potential You Need

For many businesses one of the biggest risks to their future success is having the right talent in place as and when key people leave the organisation.

While finding good people may be less difficult during a recession, the demand and competition for talent will increase over the next few years because of a number of factors:

• The global economy will recover.
• Companies are operating more and more on a global scale and can attract the best from around the world.
• Changing demographics means that it is estimated that one in four of the working population is over 45.
• A change in working culture and the choices people make mean that young people are more likely to move jobs.

All of this provides a number of challenges for businesses who wish to find and retain talent. At first glance it may appear easier to hire talent from the outside, to bring in “fresh blood” or someone with a “different perspective”, but is this really the right thing to do?

Certainly with competition increasing, this will become a more time consuming and expensive process. It has been estimated that it “costs” between 1-2 times the salary before a new middle management recruit becomes effective. In other words, if you hire a manager on £60,000 p.a., it could cost the company between £60,000 -£120,000 before that person starts to be effective. However, this money might be better invested (and less risky!) in identifying and developing “in house” talent.

However, what techniques are available to assess the capability and talent internally?

The first assessment that should be made is how an individual has performed previously. While previous performance is no guarantee of future success it is a good guide to how the individual is likely to perform in the future. However, there are also other factors that should be assessed such as:

• Undertaking an assessment of an individual’s critical thinking, numerical and verbal reasoning will provide an indicator of their thinking capability and innate intelligence.
• Psychometric profiling instruments can assess an individual’s personality traits, likely communication and leadership styles. How do these fit with what the business needs?
• Giving an individual specific business or organisational problems to resolve will provide valuable assessments of their business acumen and problem solving skills.
• 360 degree feedback tools are valuable for assessing an individual’s performance and behaviour in the workplace. This assessment will provide a broader view than one simply based on the line manager’s assessment.
• Asking the individual to lead a challenging business improvement project that will take them out of their usual work experiences, will provide a valuable assessment about how they handle new and unfamiliar challenges.

Some of the above techniques can be blended with others (such as formal presentations) at an assessment/development centre. How each individual deals with such a pressurised and stressful situation will provide additional evidence of their future potential.

While the assessments described above will not guarantee the identification of those with the greatest potential, they will provide the business with vital information on which objective decisions can be based. As the marketplace for talent becomes even more competitive, it is vital that businesses meet this challenge and establish their own assessment and talent management programmes – after all you don’t have to scour the world for talent if the potential you need is right under your nose!

Why is coaching often more effective than other forms of leadership or management development?

Businesses often are unaware of the benefits coaching can give to their employees and as a direct result, their profits. It is often suggested that coaching is more effective in improving an individual’s performance than a leadership or management development programme. This is a somewhat subjective statement and as a business, you know you cannot afford to take a chance in these difficult times, on companies offering services that have little apparent and tangible results.

So what are the practical differences between coaching and leadership or management development programmes?

Firstly the coaching process is 1 to 1 and the focus is 100% on the individual, where as leadership and management development programmes are invariably for groups. By focusing on one person at a time, there is an opportunity to address the issues the coachee may not wish to raise in a group setting. Also, the agenda and objectives for these group programmes are usually set in advance, meaning that it may not relate directly to the individual manager's specific developmental requirements. As the agenda for a coaching session is largely set by the coachee, the process becomes flexible and the results specifically tailored. On a leadership or management course, it is not easy to change the agenda and as the structure is more rigid, participants may leave with more questions than they arrived with.

When involved with coaching, the coachee may feel the call to action is stronger and more detailed than a participant of a leadership or management training course. The sessions where the action plans are often fewer and more general are clearly going to be less beneficial to those involved than action plans that are individually tailored and monitored by a coach.

A feature of coaching sessions is that notes will be taken, goals will be set at the end of every coaching session and managers will be asked by the coach if they have achieved their goals and how. Individuals are nurtured and are assessed to see if they need a different motivation technique. The ability to talk and act honestly, naturally and spontaneously is encouraged for a coachee whereas any displays of frustration, anger and emotion would be regarded as disruptive on a leadership or management training course. Managers should be encouraged to express their feelings in a constructive manner and this is generally more effective in one-on-one sessions.

There are of course, advantages for participants taking part in course-based activities, many people respond to group activity and create good networking opportunities, however, this is dependent on what you hope to get out of each method. Overall, I believe that subjects of coaching get more from their sessions purely through the specific advice offered to them. It has a powerful impact on their actions, performance but most of all, confidence in the subject’s own abilities and judgement.

Recruiting the right person – define your criteria first!

A survey last year by Right Management Consultants* found that almost 7 out of 10 employers say that it costs them between 2 and 3 times an employee’s annual salary to replace that worker if he or she doesn’t prove to be a good hire, with the higher the position, the more likely the costlier the mistake.

While the survey may have included a number of ‘subjective’ considerations such as recruitment, training, severance and reductions in productivity in the replacement cost estimates, the truth of the matter is that poor hires cost organisations time and money and so it is vital to get it right first time.

The first step in the process to ‘getting the right person’ is to identify a ‘specification’ for the ideal candidate. As a minimum this should be a description of the skills, qualifications, capabilities and experience that a candidate would need to fulfil the role successfully. However, it’s important not just to think about the current role, for example, you may also have a requirement to find someone who has the potential to take on a broader or more senior role.

The following questions are designed to help to prepare an appropriate person specification that can then be used to assess potential candidates against.

1. What technical skills are required for the role?
2. What qualifications are needed?
3. What level of intellect and thinking ability is needed? Does the role include resolving complex and challenging problems?
4.What specific behavioural traits are required? Does the role require big picture and long term thinking, or is it more about the day to day detail and completion of tasks? What type of behavioural profile is most successful in the organisation?
5. What experience is needed? Does the role require international experience, or experience of leading a team or specific sector experience?
6. What level of personal impact and credibility is needed for the role? Will the role holder need to interact with and influence customers, peers, other stakeholders?
7. What are the ideal candidate’s motivations and values? What are the organisations values? How important is it that the role holder can identify with these?

In addition, it is important to identify what ‘standard’ of ability is required. This could be in the form of minimum qualification levels or comparison to internal or external benchmarks.

The above is not meant to be an exhaustive list of selection criteria but a guide on the sorts of criteria that should be considered. Clearly, preparing a list of selection criteria is only half of the task of selecting the right candidate for a role. However, it is the vital first step in ensuring that the right candidate is selected first time.

* Lower Employee Morale & Decreased Productivity Are Biggest Consequences of Bad Hires & Promotions" [Right Management], press release, April 11, 2006

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