Succession Planning: A Full Guide
According to corporate leaders in a recent report by IED and Stanford Business School, succession planning is vitally important. Knowing who is next in line to fill senior positions and being able to groom these people to become your company’s next generation of successful leaders is crucial to stay competitive. In this in-depth guide, we will explore succession planning in-depth, provide you best practices, and end with a succession planning template that can be applied in any organization.
What is succession planning? A definition
Succession planning is the process of selecting and developing key talent to ensure continuity of critical roles.
If we look at this definition, we see multiple elements that stand out.
- First of all, succession planning is about critical roles. Not all roles are relevant. It should focus on roles that are vital to the organization’s competitiveness and continuity. A junior sales rep may thus be easily replaced. However, your VP of sales is a role you don’t want to be vacant for very long.
- The second part of the definition is about selecting and developing key talent. This means that for those critical roles, the best and the brightest are selected and developed, or groomed. Most of the time, succession planning happens with internal candidates. The director of sales is groomed to fill the role of VP of sales, while the VP of sales is groomed to become the new CEO. Occasionally external candidates can be brought in and up to speed before taking over a new role, although this is often on a more ad-hoc basis.
- The last part of the definition is to ensure continuity. This is the ultimate purpose of going through all this work: to ensure that when someone leaves, there is someone else ready and qualified to take over that role and be up and running in no time.
When we talk about developing key talent, an interesting quote comes from Marshall Goldsmith, a management writer. He wrote, “change the name of the process from succession planning to succession development”. In this quote, he emphasizes that the focus should not be on the planning, but on the development of great successors.
Succession planning best practices
There are a number of best practices that can make succession planning work (better) in any organization.
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1. Have a long-term perspective
Amsterdam-based soccer club Ajax has historically been one of the most successful clubs in the world, producing talents like Johan Cruyff, Patrick Kluivert, Wesley Sneijder, and Luis Suárez. One of the reasons the club has been so successful is its long-term perspective.
Talent is scouted early. Children as young as 7 join the Ajax Youth Academy. As the children age, the best ones get promoted to higher divisions and the most successful end up living their dream: playing in the Premier League.
This is an excellent example of the long-term, strategic perspective taken by Ajax. Talent is groomed for at least 10 years before they join the Premier League team. Whenever a player of that team leaves, Ajax has multiple candidates lined up who can replace him, regardless of the position in the field.
2. Ensure structured development
Another succession planning best-practice is planning a well-structured development process. The Ajax Youth Academy can succeed because of their structured training program that allows people to train and acquire the skills they need to get better.
This also means that different groups will get different training. Grooming a director to become VP requires a different approach than developing a VP to become CEO.
Succession planning should, therefore, be linked to learning and development actions. These can include the development of specific skills or for employees to gain broader career experience in different functions, units, or geographical locations.
3. Integrate succession planning with talent management
Succession development is a form of talent management. It is advised to align succession management and leadership development practices with already existing talent management practices.
Talent management starts with the employee and identifies how their career path can develop and their potential be reached. Succession management, on the other hand, starts with the critical roles that need to be filled, after which candidates that would fit these positions are identified. These two approaches should be integrated with each other to maximize the retention of key talent and to ensure relevant development efforts from a succession perspective.
4. Measure outcomes, not process
When evaluating succession planning practices, success metrics should focus on outcomes instead of process, according to Goldsmith. Examples of outcome metrics in this context are the number of critical positions that are filled with an internal promotion vs. an external hire, or the percentage of promotions that come from the high-potential pool. Process measurements, like the number of talent or succession programs in place, should not be measured.
5. Be realistic
Another key point made by Goldsmith is to make realistic plans. Goldsmith gives the example of an accomplished engineer who has the potential to become COO. In order to do that, she needs to get more sales experience – but the company would never take the risk of putting someone without sales experience in a top sales job.
In line with this, another succession planning best practice is to be careful in managing succession expectations. If the talented VP of sales is being groomed to be CEO, he or she may leave the company disgruntled when the board decides to keep the CEO for another 4 years. Clear communication and expectation management is therefore crucial when it comes to effective succession management.
Succession planning model
Before we provide the succession planning template, we will first introduce the succession planning model our template is based upon.
This succession planning model is an adaptation from Groves (2005), who proposed an integrated leadership development and succession planning model. Talent developed and spotted, identified, actively developed in leadership programs, and prepared for succession. We changed this model to make it more applicable to succession planning.
We will explain each step of this succession planning model in detail in the next section, as well as the preconditions required for effective succession planning.
Succession planning template
The question that remains is how can we design and implement a practical process that streamlines our succession planning efforts. In this section, we will provide you with a succession planning template. Afterward, we will translate this template into a succession planning model that can be used in your own organization.
Preconditions for succession planning
Our succession planning template has two preconditions: the creation of a culture of leadership development, and the selection of critical roles.
Precondition 1: A culture of leadership
The first precondition is having a culture of leadership. For succession planning and long-term leadership development to be a success, there has to be a clear commitment from senior management, including the CEO.
Senior managers and C-level executives need to actively participate in grooming young talent. Examples of this are events in which future leaders are developed that should be attended by executives and active mentoring of talent.
In addition, managerial performance appraisal and reward processes should incorporate leadership development activities, including the identification and development of high potentials.
Precondition 2: Selection of critical roles
The second precondition is the selection of critical roles. Critical roles are the vital roles in the organization that if they would be vacant for a few months – or filled by a bad hire – would create irreversible damage for the company.
The easiest way to identify these roles is to look at the most senior people in the organization’s hierarchy or to select the organization’s highest earners. If the organization has a well-defined job architecture with function description and rewards based on responsibilities, this selection will be fairly accurate.
If there’s no clearly defined job architecture, an alternative could be forced ranking of functions based on their importance. A CEO is more important than a CFO, and the CFO is oftentimes considered more important than the CTO. This way top functions can be identified. Relevant considerations in this process are the scope of the function (strategic vs. operational), the span of control, the rewards (performance-based vs. competitive wage), the impact of function on value creation, the severity of potential mistakes in the function, and the severity of consequences of a bad hire.
When it comes to leadership functions, a best practice here is to not include too many roles but to aim for the top 0.5% in the organization. Selecting too many critical roles will make it harder to maintain your managerial succession bench strength, as you need multiple people on the bench to replace one senior executive.
A four-step succession planning process template
Once these conditions are met and in line with our model, a succession planning template naturally progresses in four steps:
- Talent development
- Identification of leadership talent
- Leadership development
- Succession decision
Let’s take a look at each step of our succession planning template.
1. Talent development
Two of the best practices mentioned earlier were taking a long-term perspective and combining succession planning with talent and leadership development. This makes sense. Succession planning focuses generally on senior leadership roles that would be replaced by people currently in mid-level leadership roles. A key practice is, therefore, to integrate talent and leadership development with succession planning.
The succession management template starts with regular talent development. Many organizations have talent development programs where high potentials are being trained, given different jobs and challenging assignments. Relevant talent management activities focus on career planning, job rotation with the aim to gain more experience, and leadership competency development.
Top talent is often provided with a mentor. Employees with mentors perform better, are promoted quicker, compensated better, have more organizational commitment, personal learning, job satisfaction, and reduced turnover intentions. There are also psychosocial benefits, like acceptance, encouragement, and coaching, as well as increased internal exposure and more challenging assignment (Groves, 2005).
2. Identification of leadership talent
During these talent development programs, talent is monitored and evaluated as not everyone will succeed. I’ve once heard a senior leader say that for every twenty new management trainees, only one or two are senior leadership material. The rest may be great for a low or middle management position in the organization but is unlikely to rise further through the ranks.
The input created from the talent development programs leads to the identification of leadership talent. This happens through mentors, committees, survey tools or coding systems used in organizations. These tools are helpful in assessing managerial bench strength and form the basis for developmental activities.
In this phase, diversity is key. If diversity in the board room is an issue for the organization, diversity should be a key consideration starting in the talent and leadership development programs. If these programs are diverse, the chance of more diversity in the board room is also considerably higher.
3. Leadership development
The selected leadership talent is developed further. This is different from your average talent development. Future leaders are invited to internal courses and workshops and are encouraged to develop closer connections to the top of the organization as this will make them more effective in their future roles.
This group should also be exposed to active learning through challenging projects, stretch assignments, which are challenging tasks aimed at developing experience outside of an employee’s regular routine, 360-degree feedback to provide developmental feedback to managers, and executive coaching on skills they need to develop.
The succession planning model shows a feedback loop from step 3 to step 2, as leadership development is new input for measuring managerial bench strength and new information in this step will impact the identification of leadership talent.
4. Succession decision
Based on the previous steps, a succession matrix is created. In this matrix, potential successors are mapped for each function.
A key consideration in this step is the likelihood of people quitting the organization.
- Turnover in critical roles. Accurate assessment of the turnover rate for the critical roles that were identified earlier is key as turnover in one of these roles will engage your succession plan. In addition, aligning five people to replace the role of a CEO who is intent on staying for the next 10 years will only lead to frustration, while the COO may have just one potential successor but has a high likelihood of quitting
- Turnover among leadership talent. Turnover in the leadership talent group is less disrupting but still very costly. This is the group that is extensively trained. This not only means high cost but also that turnover can disrupt the entire succession planning model for the organization. Managing expectations and monitoring turnover are also key to this group.
Whenever someone occupying a critical role quits or retires, a succession decision should be made. If not already in place, an onboarding program with clear targets should be created together with the leaver so that the successor can get up to speed as quickly as possible.
Succession planning is the process of selecting and developing key talent to ensure continuity of critical roles.
Succession planning means that as a company, you actively develop talent, and groom the highest potentials for future leadership roles so that when a senior executive leaves the organization you have a suitable replacement ready.
If succession planning is done well, senior roles will always be occupied by people who are well prepared and ready for the job. If not, you run the risk of bad hires and ill-prepared leaders which can threaten the bottom line and viability of the organization.
Succession planning has four steps. First, develop talent in talent management programs through training, courses, challenging assignments and job rotation. Second, identify top leadership talent. Third, groom this talent through a leadership development program that includes courses, action learning, stretch assignments, and executive coaching. Finally, when a senior executive leaves, a succession decision will be made and you have a qualified successor ready and waiting.