Insights

Good Succession Planning is vital, why do so few companies do it?

Martin Ewart, Chairman of the Group Advisory Board, Taranata Group

Human beings are prone to a rather unfortunate tendency: we’re inclined to place matters that we know to be vital but are uncomfortable to contemplate on the mental backburner, even though we also know that neglecting them will come back and bite us someday. It’s the old “making a will” conundrum – humans are the only animals who are conscious of the fact that they are mortal and yet many will avoid taking this crucial step because thinking about their own mortality disquiets them. Yet the old aphorism remains true: effort delayed is effort multiplied – and succession planning firmly falls into this category.

 

The miracle of well-functioning organisations

A well-running organisation is a human miracle of cooperation and benevolent competition combined.  So many factors have to go right – and keep on going right. The everyday need for organisational maintenance and conflict resolution, adapting to change and so on isn’t mundane. It’s astounding. It requires ingenuity, creativity, collaboration and vigilance.

So why should all this be jeopardised by a failure to plan for future replacements of especially important and valuable talent? Unless the eventuality of losing key resources are planned for, a formerly well-functioning organisation will rapidly discover it has key gaps in its team.

 

Bad habits

And yet, so many organisations fail to deal with this inevitability rationally. A recent study by KPMG polling 2,300 board members found that just 14% had developed a detailed succession plan. Another study from Halogen Software found that 61% of respondents reported that they had not devised any clear succession planning goals. Of those that had embarked on succession planning, just 13% rated themselves as doing a good or very good job at evaluating their existing personnel’s capabilities against the competencies required for success in a future career progression within the organisation.

Consider this: a 2018 study by Deloitte showed that companies who have promoted leaders from within benefit substantially. These leaders enjoy success rates of 70% to 80%. But leaders appointed from external sources have success rates of just 50% to 55%.

 

The key question in succession planning

Even with internal leadership hires, it’s not sufficient to rest on the assumption that past and current performance predicts future performance in a leadership role. Next-level roles usually require the person to think and act in significantly different ways than their current roles demand of them.

Leadership consultant Brent Proulx suggests that the seminal succession planning question is this: “Do I have a valid and reliable way to assess people for next-level readiness and ability?”

But asking this question on the day a leader retires or leaves is asking it too late. Future talent has to be nurtured, fostered, trained – and that takes time. Potential takes time – and experience – to develop and become real. A ready-now successor will usually have years of such careful, future-oriented grooming behind him or her.

This affects the bottom line. Proulx’s calculation can stress out even the most stoical in our midst:

“A fair estimate for the cost of senior leadership turnover is approximately 10X salary. If you do not have a ‘ready-now’ successor, the time you spend sourcing, identifying, assessing, interviewing, debating and waiting will add to that figure, up to 100X salary!”

 

Working today on tomorrow’s leaders

The other miracle about well-functioning organisations is this: they have multiple invisible doors available to their most promising talent. Leaders and managers who quietly keep a close eye on talent, who are continually evaluating their employees’ natural aptitudes, are potentially looking at future leaders, monitoring how able they are to engage in behaviours characteristic of leaders at the next level. Retaining this talent by opening one of those invisible doors to a career progression is crucial when the time is right.

Organisations that put effort now into developing and maximising the talents of their existing employees will reap the benefits. That means cultivating the right employees today so that they’re equipped to move into management, supervisory and director roles later. The result? When an executive opening arises, as it inevitably will, the talent needed to fill it is already to hand, tried and tested. We could call this the art of sustaining a succession mindset.

 

No pain, no gain (but the gain is worth every bit of the pain)

The bad news, if there is any, is that succession planning does take time, effort and investment today and it can’t be postponed. Yet It’s far, far more disruptive to an organisation to react to an executive departure in a state of near-panic and desperation, especially if the end result is taking the gamble of an external hire who may not align well with the leadership characteristics of this particular organisation at this particular point in its evolution.

The good news is that organisations demonstrating this inestimably precious succession mindset tend to attract the best talent from outside anyway, broadening the talent pool and enhancing the succession program into the bargain.

Moral of the story: put the effort in today to prevent the panic and stress that will come your way tomorrow if you don’t.