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4 reasons why you can't afford to skip out on succession planning
Despite your best retention efforts, people in critical roles will inevitably leave. Therefore, succession planning is vital to minimize gaps in leadership positions.
But succession planning is more than simply bridging the gap between open roles and leadership positions. In many ways, succession planning is about leadership development to make sure your workforce can reach its fullest potential. And while we know people aren’t born leaders, it’s important to take into account which leaders you’re grooming for executive-level roles.
Take Apple. In 2011, Steve Jobs stepped down as CEO. Before that, he spent years mentoring and grooming his successor Tim Cook to take over. Cook took on a wide range of operational roles and worked with Jobs directly to gain knowledge specific to the CEO position. Cook also got some hands-on experience, stepping up to lead day-to-day operations at Apple twice when Jobs was on sick leave.
No matter the size of your organization, you can make leadership transitions simple and effective. By using a succession plan to prepare, you’re future-proofing your organizational success.
Employee development and succession planning go hand-in-hand. At its core, it’s about investing in people that’ll help to lead your business to its full potential. Let’s break down what succession planning is and how it works. We’ll also talk about the benefits of succession planning — and how you can prepare for the future.
What is succession planning?
First, let’s understand what we mean by succession planning.
What is succession planning?
A key function of human resource management, succession planning is the process of preparing employees to assume new roles in your organization when they become available. The goal of succession planning is to ensure a smooth transition after key employees go on sabbatical, resign, retire, or pass away.
Think of succession planning like managing a sports team. One of your star players could get injured, traded, or retire at any time. And while you can acquire new talent, it can be time-consuming and expensive.
A smart alternative is to develop someone on the bench to step up and take on a more significant role in the future. In addition, the player on the bench will likely be a lot more motivated, knowing they're working towards a starting position.
In the workplace, companies operate similarly to their C-suite roles. We work in a multi-generational workforce with many leaders on the cusp of retirement. Organizations use succession planning to help prepare for the future of their organization. A concept that leans on leadership development, succession planning makes sure your people are taken care of.
When is succession planning necessary?
All organizations should have a succession plan in place. However, there are a few situations where succession planning is especially critical.
- You have a family-owned business. Avoid relying on informal or verbal succession agreements and have a formal succession plan in place.
- You have roles with specialized skills. For example, a technician with decades of experience with special software can be a difficult loss. If your leadership role requires technical skills, make sure you’re building in that cushion to help develop the right person.
- Senior leaders are a few years away from retirement. It's best to start succession planning as early as possible. But as retirement nears, succession planning becomes urgent. Finding and training someone suitable for the role can take a couple of years.
4 benefits of effective succession planning
Human resources leaders know that succession planning is critical to keeping your organization flourishing for years to come. While it requires a significant time investment upfront, the payoff is huge. When an employee does leave, your organization is not left scrambling to recruit and hire a replacement.
Succession planning is a critical component of a strong talent management strategy. Filling your talent pipeline with trained employees has the following benefits:
Increased employee retention and morale
A promotion policy that prioritizes advancing employees from within can help you maintain top talent. And a transparent succession plan with an emphasis on generational differences can help keep them happy and productive as they know they have a path to growth at your organization.
When done right, succession plans help you walk the talk. Most companies market themselves as great places to work. But succession plans can help you back this up. Internal hiring, leadership development, and transparent succession planning show that companies value employees.
A more diverse portfolio of leaders
We know there’s still a huge gap in the diversity of leaders across businesses in the U.S. For example, in the Fortune 500, only six CEOs are Black, 5% are women, and less than 1% publicly identify as LGBTQ+.
It’s important to include diverse perspectives when building teams and organizations. People who embrace inclusive practices tend to be more effective leaders, and their companies experience greater levels of success.
In order for succession planning to result in a more diverse workforce, leaders must be intentional about how they're sourcing candidates, training and breaking down biases in the workplace, and developing inclusive leadership skills.
Yet succession planning — when leaders are intent on bringing a culture of belonging to the workplace — can lend itself to increased diversity. How is your leadership team approaching developing diverse leaders? Are you conducting diversity training for all of your leadership team?
A stronger company culture
When done right, succession planning can help strengthen your company culture.
We know that leaders have an incredible influence over employee mindset, behaviors, and actions. When great leaders leave or retire, it’s critical that those filling their shoes are modeling the same set of values. With thoughtful succession planning, organizational leaders can continue that embodiment of your company’s core values.
A future-proofed workforce
Especially now, change is more prevalent than ever. If we’ve learned anything over these last few years, it’s that change is here to stay.
At BetterUp, we talk a lot about the idea of future-mindedness. It’s a concept that we’ve studied and innovated around. To be a future-minded leader means you’re approaching the future with optimism and pragmatism.
In order to successfully prepare for the future, your leaders need to consider what’s looming ahead. And while many companies may need to weather rough patches and constant change, future-mindedness can help soften the impact.
Thanks to succession planning, your company will be better prepared to thrive in changing conditions. As a result, you'll enjoy greater resilience and organizational stability, which fosters market confidence and drives shareholder value.
4 succession planning best practices
Here are a few key things to remember as you build a succession plan for your organization.
Plan in advance
Succession planning is a proactive approach, not a reaction to rumors of a vital team leader leaving. Remember that strong succession plans can involve up to three years of strategic planning and training.
Identify key positions now. Consider who in your current workforce is especially valuable and whose loss would have the most immediate and wide-reaching effects. Then, start developing succession plans for those roles extending beyond the next position in the organizational structure.
Be transparent with employees
Talk to those in your talent pool about their goals and show trust in their potential without promising particular roles. Then, incorporate their training progress into existing performance management by making it part of weekly one-to-one meetings with their manager.
Foster diversity in training
This includes demographic diversity through intentional DEIB initiatives and various skills, talents, and perspectives.
Be open and creative about who you consider for training in your succession plan, as a fresh viewpoint can sometimes be as valuable as an experienced one. Actively engage your leaders in unconscious bias training and work to build inclusive leadership skills.
Seek expert guidance
When in doubt, lean on your support network. For example, are your leaders working with career coaches to help guide their professional development? Do you have executive coaching options for those on track for the C-suite roles?
What sort of professional development offerings do you have in place for your leaders? How are you making sure your managers are building the skills they need to succeed?
"When making succession planning decisions (and when implementing them), we include multiple team members including our CPA, succession planning and estate planning attorneys, strategic advisors, executives, and coaches," shares Larry Brinker, Jr., Chief Executive Officer at Brinker Group. "It's very important to get the best advisors around you when making these decisions and creating succession plans."
6 common pain points when succession planning
There are plenty of benefits to succession planning. But depending on the scope of the project and the organization's culture and readiness, there might also be challenges. The following obstacles to a formal succession planning program may exist. Consider them when planning (and marketing) the program.
Succession planning takes time
By nature, succession planning has a long time to value. But many of today's leaders are rewarded chiefly based on short-term accomplishments. For far too many organizations, the board only discusses CEO succession when a transition is looming.
How to overcome it: Start succession planning as soon as possible. You never know when key roles will shift within your organization, so it's best to be prepared for when they do. This means checking in with your leaders regularly on their career plans. It might also mean identifying future leaders by seeing their potential.
Succession planning can be unsettling
The nature of succession planning can be perceived as a threat to some leaders. For some, succession planning may be seen as a lack of confidence in your current leadership team. And executives may hesitate to raise the issue of succession planning for fear of being perceived as having intentions of resigning. This destabilizing dynamic can have a negative effect on your organization.
How to overcome it: Begin talking about succession planning with your key executives during the onboarding process. Reassure them that you want them to stay long-term, but you have a plan in place if things don't turn out that way.
Any strong and good leader will recognize the importance of succession planning. Work with your coach as your guide, too.
It's not clear who owns succession planning
In many organizations, no one has been tasked with the responsibility of succession planning. Therefore, no one takes accountability for it. Certain stakeholders might shy away from the idea of owning succession planning as its own program.
How to overcome it: Sit down with your leadership team and hash out who will be responsible for succession planning within your organization. It could be human resources, people operations, the board of directors, a special committee on the board, or functional leaders.
Resistance to change
Change is hard. And as human beings, we like being comfortable for a reason. So, when change happens, it’s a disruption. There will be people who oppose any new initiative simply because it's new.
How to overcome it: Succession planning can happen incrementally. First, look at your existing hiring and performance management initiatives to sell the value and importance of building an internal bench of talent.
Then, slowly introduce the ideas of waning skill sets in the labor market and the existence of internal talent that can easily be developed to fill anticipated gaps.
It can be tough for some managers to think about letting go of their best performers. As a result, they may resist the idea of succession planning.
How to overcome it:
- Be transparent about your goal of keeping talent within the organization
- Set an expectation for managers to develop their team and hold them accountable for recognizing the employees who excel
- Educate managers on all the benefits of succession planning, including how they'll have their choice of internal candidates to choose from when vacancies open up
- Invest in your team, helping them cultivate key management skills, along with the ability to make difficult leadership decisions
- Create opportunities for your leaders to feel supported, engaged, and great at work
Lack of time
Everyone is short on time. Succession planning is just one more thing to add to the to-do list. And because it's not urgent, it may keep being moved to the back burner.
How to overcome it:
- Calculate the time your organization spends recruiting, selecting, training, and managing new talent
- Consider how long it takes to assimilate and obtain all the relevant context to perform well
- Compare that with the time it will take to develop your current employees' skill sets
5 steps to creating a succession plan
"The lack of a succession plan can lead key employees and customers to leave, which can hamper the business's ability to grow post-transition," says Sam Brownell, Founder at Stratus Wealth Advisors.
Take the five steps below to get started on your succession planning strategy.
1. Conduct a business review
In this step, consider your organization's business strategy and what it means in terms of the leaders you will need. For example, are you a startup? Do you need to turn the business around, realign to a new business model or sustain or increase your success?
Brownell believes every succession plan should start with an independent valuation by an objective third party that is knowledgeable about your industry.
"Without knowing how much your business is worth, it's hard to put together a successful succession plan. Just as it would be difficult to complete a hike without knowing where the trailhead is, guessing how much your business is worth is not a great way to set up your succession plan for success."
Sam Brownell, Founder at Stratus Wealth Advisors
2. Create a talent needs forecast
Next, outline your organization's objectives so that you can best determine what jobs to train and begin gathering materials and resources. Dig into your talent management system to help forecast.
Decide how many people you'll require in critical roles, what experience and competencies they must have, and how you will choose them.
3. Take a talent inventory
Uncover essential leadership roles and identify high-potential candidates who could fill them. Avoid focusing solely on C-suite and senior management roles. It's worth looking at lower-level positions as well. Compile data on when vacancies could occur (e.g., retirement, promotions).
4. Conduct a talent review
Next, evaluate your current employees. HR leaders can make educated decisions about filling positions and implementing learning and development programs by assessing employees' skills and knowledge. This will give employees the training they need and nurture a growth-oriented culture.
5. Plan progress reviews
Succession planning isn't a one-and-done exercise. It should be an ongoing process that changes as your organization's needs change. Review your succession plan periodically and keep it current.
"Our company builds succession planning into our business continuity strategy. We weave it into our strategic plan, a rolling 5-year plan that we review yearly," shares Brinker.
Ask yourself, are talent development plans being implemented? How are you monitoring them? And are they delivering results? If not, make modifications as necessary.
You can't afford not to have a succession plan
Research reveals that only 35% of businesses have a formalized succession planning process.
"Most business owners get bogged down with their day-to-day operations and ignore their succession plan, and it only comes to light when it is too late," says Robert Clements, Partner, Wealth Management at LPL Financial.
Yet, according to the Harvard Business Review, the market value wiped out by poorly managed CEO and C-suite transitions in the S&P 1500 alone is close to $1 trillion a year.
"The most important aspect of succession planning is that an imperfect plan that can ultimately be altered is better than no plan at all," explains Clements.
He recommends communicating with family or key executives early and often about your intentions for the company to gauge their interest and feedback. From there, you can work with professionals to build the succession plan that will allow you to achieve your goals.
No matter where you are in your succession planning journey, BetterUp can help. By providing personalized support to your leaders, you can ensure that you’re tapping into your people’s fullest potential.
Madeline is a writer, communicator, and storyteller who is passionate about using words to help drive positive change. She holds a bachelor's in English Creative Writing and Communication Studies and lives in Denver, Colorado. In her spare time, she's usually somewhere outside (preferably in the mountains) — and enjoys poetry and fiction.