Once thought to apply only to “taking over a family business,” today succession planning is pertinent to companies of all sizes in all industries—all over the world.
In this article, I’ll address some frequently asked questions (FAQ) that shed light on succession planning and why it’s important for your company. In the follow-up to this article, you’ll learn about four steps to making your succession planning initiatives a success.
Succession Planning FAQ
What is succession planning?
Succession planning is the process of identifying and developing internal people with the potential to fill key leadership positions within an organization. A good succession plan identifies the management roles and people resources that are needed over a three to five year period to meet your company's strategic plan. It assesses what skills your current people have and need to do their jobs, and identifies the coaching and education required to advance them to be able to fill key positions within this timeframe.
Does my company need a succession plan for every employee?
Succession planning generally includes recruiting high-performing employees, developing their knowledge and skill set, and preparing them for advancement or promotion into more challenging roles (often leadership positions such as a chief executive officer [CEO], chief financial officer [CFO], vice president [VP], etc.). Essentially, succession planning strategies prepare the company for the replacement of key employees who will eventually retire.
Today, many organizations understand the importance of implementing a succession plan for more and more roles across the company–in some cases extending it to the managerial, professional, and administrative roles. While having a succession plan for every role within a company is a “nice to have,” the replacement of key positions is generally the most demanding in terms of planning.
Depending on the role you’re looking to fill, the process of planning and developing a successor (for example, replacing a retiring CEO), could actually take several years, so it’s best to have a succession plan in place to make the process of transitioning the replacement employee into the new position as seamless as possible.
What is the objective of succession planning?
Succession planning guarantees that as your company grows and loses key employees (either voluntarily or involuntarily), you’ll have employees ready to fill those new roles. If a proactive approach is taken (rather than a reactive one), your succession plan will ensure that your organization is properly prepared for expansion and growth—a key to building bench strength (the competence and number of employees ready to fill vacant leadership and other positions).
Succession planning:
- protects the legacy of your business,
- manages unexpected events (illness, accident, or death),
- provides financial security for your stakeholders,
- prepares for your company’s future,
- provides continuity in critical work functions,
- facilitates employee development,
- helps to define career pathways,
- yields a higher return on investment (ROI) from employees,
- reduces attrition rates,
- leads to appropriate promotion,
- matches organizational needs with qualified talent, and
- provides a means to monitor and reward talent.
Why is succession planning so important?
A recent poll focusing on strategic workforce planning conducted jointly by the Society for Human Resource Management (SHRM) and AARP (formerly the American Association of Retired Persons) shows that millions of baby boomers (those born between 1946 and 1964) are expected to exit the workforce in the next 20 years. Chances are your company employs some of those workers, and when they retire, you could be left with a “skills gap” that you may not be able to close!
The SHRM-AARP poll looked at the basic and applied skill gaps of workers aged 31 years or younger compared with those aged 50 years or older. It discovered that according to human resource (HR) managers, older workers have stronger English writing, grammar, and spelling skills, and they also exhibit a stronger work ethic and critical thinking skills.
While many companies have thought about the prospect of losing these skills when baby boomers retire, the poll shows that many employers still haven’t got a solid plan in place for “managing the exodus.” As a result, the future continuity and performance of their business may be at risk.
How are companies approaching succession planning?
Proactive companies are actively ramping up skills training and employee benefits as a means for garnering those skills that will fill gaps created by retiring baby boomers. They are also working to retain and recruit older workers (when possible) with such skill sets. The SHRM-AARP poll shows that HR managers said the actions their organizations have taken to prepare for the retirement of talented older workers include:
- increasing training and cross-training (45%),
- developing a succession plan (38%),
- hiring retired employees as consultants or temporary workers (30%),
- offering flexible work arrangements (27%), and
- designing part-time positions to attract older workers (24%).
What are the risks of not doing proper (or any) succession planning?
All companies need to find and develop the next generation of leaders if they want to survive, let alone thrive. But most experts agree that only a few companies master this step, which is known as succession management. In the past five years, a sense of urgency has developed around workforce demographics because there are not enough younger skilled workers to fill the number of positions that will be vacated by retiring baby boomers. If your company does not have a proper plan in place for finding successors in key roles, you run the risk of not only losing money, but possibly your entire business as well.
If the benefits are so great and the risks are clear, why are so many companies not doing succession planning?
Believe it or not, succession planning often means different things to different people within the same organization. As such, succession planning initiatives often become more “talk” than “walk.” Without a combined commitment from top executives to the succession planning effort, many organizations fail to take the first steps to tackle the problem, and instead waste much time and effort on tackling short-term challenges. Rather than being proactive, they take a reactive approach—often scrambling to find the right successor to fill the gaps only after the employee has left. Without a clearly defined plan, organizations are unlikely to have a grasp of the potential talent that lies within all areas and departments of the company.
What philosophical shift needs to occur for my company to start thinking about succession planning?
Succession planning is a lot of work and takes much time and dedication from key people within the company if it’s going to be successful. Many senior managers think their company is adept at succession planning, but the “planning” part is just the first step! It's equally important to properly train and develop the future leaders and managers so they can execute the business strategy and deliver results. Companies that don’t succeed are those that didn’t take the planning to the next step—succession management! Companies that find and nurture leaders who can grow their business do more than just plan!
Look for my follow-up article on four steps to a successful succession development planning strategy, which will be available in the next couple of days.