|
|
Succession Planning: Current Trends
Beth Kniss, Insala Consultant
Statistics reveal that the projected growth of the U.S. labor force will be seriously affected by the aging baby-boom generation. Consider the following projections from the U.S. Department of Labor:
- By 2010, the U.S. labor force will have a shortage of 10 million workers
- By 2012, 162.3 million people will be in the workforce
- By 2012, the 55-and-older segment of the workforce (many in management positions) will have increased to 19.1%, due to an annual growth rate of 4.1%, almost four times the rate of growth of the overall labor force.
Bracing for the eventual swell in retirements, companies are turning to succession planning to ensure their pipeline is full of potential replacements. This article will review the current trends in succession planning, and how organizations are making changes in light of the statistics above.
Succession Planning - An Evolving Definition
"Succession Planning" as a formal concept initially related to family businesses . . . how would the management of the business be passed down from generation to generation? As the corporate world began focusing on the topic, it narrowly focused on the CEO position. As time went on, corporations began realizing that the ongoing stability of their entire senior management teams was just as important as ensuring a plan for the CEO role.
More recently "succession planning" has expanded yet again. Enlightened corporations are integrating succession planning in to their strategic planning processes and corporate policies. No longer just for the upper ranks, succession planning is the proactive management of the corporation's entire talent pool. Integrating with talent management, leadership development and career development programs, succession planning has gone beyond the reactionary replacement of exiting employees. Effective succession planning enables the deployment of an organization's talent, on demand, as needed, now and in the future.
Succession Planning - Current Trends
» Increase in Executive Turnover
As seen in the statistics above, executive turnover is poised to increase significantly over the next few years as baby boomers retire. So what has been happening recently? Consider the following:
- 57% of executives are in transition, and the ranks of executives who are "employed and actively in a job search" increased to 28% (up from 22% in 2004 and 14% in 2003) (ExecuNet)
- Turnover of chief financial officers at Fortune 500 companies increased by 23% from 2003 to 2004 (Russell Reynolds Associates, 2005)
- The top 100 branded companies have new chief marketers every 23 months on average (Spencer Stuart)
- Some of the world's leading companies stand to lose more than 30% of their top employees (Best Practices, LLC research)
- "Succession Planning Facts and Fantasies," (Journal for Quality and Participation, October 1, 2005) and "Getting Your Bench Strength Right" (Chief Executive Magazine, October 1, 2005)
» How Many Companies Have Succession Plans?
Although empirical research on this question isn't abundant, the following information is available:
- 67% of organizations do not currently have any formal succession planning process (Cutting Edge Information)
- 45% of the world's largest corporations have no meaningful approach in place for developing their CEO (Cutting Edge Information)
- Only 24% of organizations are confident in their ability to staff leadership positions during the next five years (Watson-Wyatt)
- Although most companies recognize the importance of succession planning in attracting and retaining excellent employees, few companies successfully establish a process for doing so (Best Practices, LLC)
So, what is the hold up? The demographics are compelling. Why aren't more companies utilizing succession planning?
» Challenges for Organizations Implementing Succession Planning
Time and resources are the prominent challenges cited by organizations considering succession planning. Typically the day-to-day challenges of running the organization overpower the organization's ability to proactively engage in succession planning. Other challenges often occur when managers feel threatened as they are asked to groom their successors. Predicting future needs of the organization is another challenge.
Many organizations don't have internal career development programs in place, or career pathways defined. Being able to quickly and easily identify internal candidates with the necessary skills, experience and competencies to fill various needs is a common challenge. Automating the collection and retrieval of such data enables the implementation of succession planning activities. By identifying skills and abilities needed for various positions, and by communicating them to the workforce, companies have the opportunity to proactively source internal talent, and employees are enabled to proactively manage their careers. These actions boost employee retention.
"CEO Succession Planning in Freestanding U.S. Hospitals"
(American College of Healthcare Executives, October 27, 2004) offers a detailed list of challenges typically faced by organizations considering and/or implementing succession planning.
» Companies - Beginning to Understand the Need for Succession Planning
More and more organizations are beginning to understand the need for developing some type of succession planning strategy. This is mainly prompted by the demographic statistics cited above, and the upcoming need to have new managers ready to step in for the massive numbers of upcoming retirees. "Replacement Planning," the reactionary steps of replacing an exiting employee, is being replaced by "Succession Planning" in forward-thinking organizations. Additionally, the Sarbanes-Oxley legislation has also highlighted the need for organizations to have succession plans in place for senior management.
Some organizations are beginning to require senior managers to have formal succession plans in place for their areas within the organization.
» The Case for Internal Promotions
When considering the potential benefits of succession planning activities, organizations should consider the following:
- 66% of senior managers hired from the outside usually fail within the first 18 months (Center for Creative Leadership)
- Companies with a succession plan that results in an internal hire "are less likely to experience this negative effect on employee morale" ("Making Transitions Work," Canadian Center for Management Development)
So, what can organizations do to ramp up their internal mobility options for employees?
» Career Mapping and the Use of Technology
Providing employees with information on internal career options enables them to better prepare themselves for job changes that will benefit themselves and the organization. Such information often consists of job descriptions, job families and required skills/competencies. Internal job changes are no longer limited to promotions, but many organizations are realizing the benefits of defining lateral moves as well.
Interestingly though, many organizations are unable to easily provide this type of information to their employees. Research conducted in more than 50 large corporations, indicated that most corporations are not able to provide a clear rationale or template for job moves ("Roadmaps for Developing General Managers: the Experience of a Healthcare Giant"
The use of technology to automate this information is increasingly being used, and provides the backbone data for succession planning activities. Additionally, employee assessments and career development planning, along with training and leadership development activities can be aligned with this data, enabling the organization to identify talent from within and deepen their succession planning activities. When this data is aggregated, the organization is able to learn about various levels of capability in the organization, compared to what may be needed in the future.
» Succession Planning - Increase in "Self-Selection" for Career Path Planning
Recent research findings from more than 30 leading organizations conducted by research firm Best Practices, LLC reported the following in August 2005:
- Organizations are increasingly relying on "self-selection" to not only identify potential candidates, but to also encourage individual employee ownership of their career paths
- Best-in-class organization's succession plans are more than 2-3 levels deep and incorporate employee value to the organization, employee market value and predictors of exit risk
When employees take more active roles in their own career development, and organizations define employee development and advancement opportunities, the stage is set for succession planning activities.
» Succession Planning Linked to Company Performance
So what are the benefits of succession planning? Employee retention is an obvious one, along with an empowered workforce. Research does suggest that the existence of formal employee advancement plans is linked to business performance. Consider the following:
- A study of more than 100 companies found that organizations consistently using a formal process to help workers advance, are also consistency high-performing firms, as measured by total shareholder return. (Hewitt Associates, November 2003).
Clearly challenges exist for companies attempting to plan the workforce of their future. No one has a corporate crystal ball. But, the demographic facts do bring some unsettling clarity to the picture. For those corporations paying attention, strategically planning for the proactive management of their talent pool, AND engaging their employees in the process, will result in successful succession planning and a more secure future.
|
|
|
|
