Succession: creating a leadership pipeline
Losing key employees can be harmful to your company’s long-term health if you haven’t already talent-spotted future leaders. Here’s how to prevent an organizational vacuum when leaders step down.
Hit TV series Succession captivated viewers with the internal power struggles of the dysfunctional Roy family. While wildly entertaining, it was a classic example of how definitely NOT to do succession planning.
Businesses in the real world need to be primed and ready for when the time comes to hand over the reins. Although you can’t predict when a serious illness will strike, or a key player will leave the company, what you can do is build a solid foundation for the hierarchy of your organization. This will help you cope better when change inevitably happens.
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What is a succession plan?
Succession planning is a continuity strategy for finding and developing employees who can replace leaders when they retire, die or step down. It’s defined by the Society for Human Resource Management (SHRM) as ‘a focused process for keeping talent in the pipeline’.
A well-designed leadership succession plan minimizes disruption and allows for a smooth transition of power when the need arises. This is vital to maintain stability, yet many organizations are ill-prepared for change. In fact, less than a quarter of organizations have a formal succession plan in place, according to SHRM.
Crucially, business succession planning isn’t simply about choosing a named successor. It’s more to do with creating a pool of high-caliber candidates for each business-critical role. The goal is to make sure you always have someone who is ready to step up when necessary.
Think of it like a game of chess. You not only have to plan your next move but moves further down the line too. If one piece falls, how can you turn your remaining pieces into a winning strategy?
To be truly effective, succession plans must be created long before they need to be put into action. However, figures from SIGMA Assessment Systems’ report on the State of Succession Planning in 2023 show there is still a long way to go to convince some leaders of this:
Almost one in 10 leaders believe succession planning isn’t worth the time and money it costs.
Nearly half of leaders believe succession planning has operational benefits but no financial benefits.
The reality is that organizations with strong business succession planning are 2.2 times more likely to outperform their competitors in terms of shareholder returns, according to McKinsey.
What a leadership pipeline looks like
A key part of business succession planning is the formation of a leadership pipeline. This is how you grow your own talent for the roles that have the biggest impact on company performance. As well as identifying CEO potential, it can help you fill other important roles that are critical to day-to-day operations too.
To show the natural progression of leadership in the workplace, business consultants Ram Charan, James Noel and Stephen Drotter came up with a leadership pipeline model that is followed by many companies today. Its 6 key stages are:
Managing self to managing others – when someone becomes a first-time manager
Managing others to managing managers – learning how to move from managing individuals to overseeing other supervisors
Managing managers to functional manager – going from managing supervisors to overseeing an entire department or team
Functional manager to business manager – shifting from a managing mindset to a leadership mentality to inspire multiple teams
Business manager to group manager – learning how to run an entire division of the business
Group manager to enterprise manager – becoming the CEO responsible for overseeing the entire organization
The idea is to use this framework to develop the skills needed for each step up as a managerial position gradually transitions into a leadership role.
Why create a succession plan?
In the current climate, where many people are taking early retirement or moving jobs for a better work-life balance, succession planning has never mattered so much. It has many benefits for both employers and employees, including:
Protection from uncertainty
One of the most obvious advantages of succession planning is that it enables a smooth transition when someone leaves their role unexpectedly. Being able to choose a replacement from a highly skilled pool of internal talent gives you long-term stability, which is reassuring for everyone.
External hires often fail because they haven’t grown up with the core values of the organization and lack understanding of the brand and its customers. Leadership succession planning can help you avoid this.
Identifying people for key roles
An effective succession planning process helps you discover your most capable employees who have the qualities, skills and aspiration required to progress to higher executive roles as they become available. Importantly, it can make leadership pipelines more equitable and inclusive by providing opportunities to a diverse array of talent.
Improving retention and loyalty
Developing a succession plan is a good way to retain your best employees. Those who are ambitious will appreciate the time and effort you invest in their futures and will be motivated by the opportunity to advance from within. That makes them more likely to stay loyal to the business.
By showing employees they have a clear career path, business succession planning makes employees feel more engaged and valued. A shared vision creates a sense of worth and leads to an overall more collaborative working environment where everyone’s voices are heard.
Saving on recruitment
Succession planning minimizes the time and money spent on hiring, onboarding and training. Because it focuses on developing internal replacements for senior management positions, it saves on resources that would otherwise have been used on external recruitment.
The succession planning process isn’t just beneficial for the future. It impacts the here and now too. Training and development opportunities help employees improve their skills and knowledge as they climb the ladder to the top.
What are the risks of lack of business succession planning?
Ask yourself this – what would happen if a particular person were no longer around? The ripple effects of a key employee leaving can be hugely damaging. In fact, a LinkedIn study shows that 59% of employees have considered quitting their job just because of a colleague’s resignation.
When a worker who is highly experienced leaves the company, they take with them a wealth of knowledge about systems, processes and personalities. Worse still, they may also take the contacts they’ve acquired over the years to potentially set up a rival business elsewhere.
Then there are the financial risks. If you have key employees leaving the company without suitable replacements, you’re likely to see a slowdown in production and a loss of revenue as you muddle through.
Many business owners get so preoccupied with the day-to-day running of their company that they fail to make succession planning a priority. Understandably so perhaps, given that there are so many other plates to spin, but this can leave an organization vulnerable.
How to build a leadership pipeline
To make a succession plan work, it needs to be one that can be easily communicated to employees and scaled across different teams and departments. Follow these tips for building a successful leadership pipeline.
Identify key roles and responsibilities
The first step is to determine key leadership positions that are essential to the long-term health of your organization. Your succession planning strategy could either focus on individual positions, for example CEO, HR director, supervisor and so on. Or it could take a more general approach by targeting A-grade positions for which similar skills are needed.
Make sure job descriptions and key responsibilities for each role are regularly reviewed and updated to adapt to the changing needs of the business.
Identify skills gaps
Assess your current talent pool to see who’s ready for leadership now and who has the potential to step into senior posts in the future. Use tools like talent assessments to evaluate their capabilities and pinpoint any skills gaps so you can begin preparing them for their eventual succession.
By identifying potential successors early on in the process, you can give employees enough time to acquire the knowledge and experience they’ll need to become successful leaders.
Establish coaching and development programs
Show employees you mean business by putting into place formal training procedures to support the development of potential leaders. This could come in the form of coaching, job shadowing or a step up in day-to-day responsibilities.
It could also mean partnering with a local college so staff can study for professional qualifications. In turn, you can offer entry-level traineeships to graduates to start molding talent from a young age.
A well-structured succession plan makes it clear how candidates are identified, developed and tracked over time. Be open about what people need to do to climb each step of the career ladder, and don’t be afraid to ask for opinions on how you can deliver future leaders more effectively. This is good for employee motivation and engagement.
You need to know whether your leadership pipeline is getting results. Is it delivering the right people to the right roles? Or do you need to widen the candidate pool?
Hold regular conversations with key stakeholders in the succession planning process, and monitor employees’ development. You can do this through pulse surveys and management training software. Succession planning metrics such as staff retention and career path ratios are also good indicators of your program’s effectiveness.
Ultimately, the success or failure of your business lies with those who are left behind. That’s why you need people you can rely on to step up when the time comes.
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