Succession plans help organizations develop and retain key talent, increase engagement, diversify the pool of potential leaders, and mitigate risk with respect to key positions in leadership and operations. Strong succession planning is critical for any organization because in life there are truly no guarantees. Superstar leaders in your organization might move into new positions or become too ill to work. In addition, many organizations are already reckoning with a wave of Baby Boomer retirements that could potentially spell disaster. Organizations with strong succession plans are prepared for whatever might come — are you?
For this month’s metric, we examined the percentage of staff for which companies have formal succession plans in place, from the executive level to operational and office positions. Data from APQC’s Open Standards Benchmarking, depicted in the figure below, shows that many organizations have not thought carefully enough about what they would do if key talent suddenly walked out the door or were unable to continue working.
The data shows significant gaps in succession planning beyond the executive levels of an organization. For example, even at top-performing companies, the percentage of employees with succession plans in place drops from 94% for management and executives to 75% for middle management, before a precipitous drop to only 8% for operational and office staff. Even so, top performers on this metric were still more likely to use succession planning across all levels of an organization than median and bottom performers, helping ensure that an unplanned exodus of key talent does not bring work to a standstill.
The consequences of poor performance on this metric ripple through the organization. Succession planning isn’t simply a matter of generating a list of names to replace someone in a given role; it is an integral facet of talent management that includes training and development for employees who will eventually take important executive leadership, management, or operational positions. Organizations with poor succession planning practices not only run the risk of instability when important roles become vacated, but also lose opportunities to identify, train, and develop the next generation of leaders and empower them for success.
Maintaining Critical Knowledge
Best-practice organizations use a systemic, formalized, and enterprise-wide process to identify high-potential talent for future leadership positions. Common methods for identifying high-potential talent include 360-degree feedback, personality inventories, interviews, competency models, and even assessments of cognitive and behavioral attributes. Regardless of the method, a formalized process for identifying, assessing, and developing high-potential talent is critical.
Executives and business leaders should play a key role in mentoring and training their successors. Beyond identifying who might replace me as a CFO, for example, succession planning gives me the opportunity to develop my team for roles like controller or assistant CFO so that they are prepared to step into my role. In the meantime, my team continues to develop key leadership skills that make them all the more valuable in their current roles.
While even top-performing organizations tend to ignore succession planning beyond the executive level, some of the best-practice organizations profiled by APQC have robust succession planning initiatives for critical operational and staff roles as well. These organizations offer activities like training programs, stretch assignments, exposure to senior leaders, and other development activities. These ensure that high-potential employees, regardless of their role, remain engaged and have what they need to step into the breach should the need arise.
Regardless of the role or level, succession planning also provides an opportunity to ensure that critical knowledge does not become lost due to generational workforce changes or positions that suddenly become vacant. Over the last year and a half at APQC, we’ve been documenting all of our processes with each department. Should anything happen to anyone, a new person could step into the role, pick up the process maps, and have a much better chance of performing their job successfully. Documenting and maintaining this critical knowledge is just as important as having a list of potential successors.
Organizations of any size can leverage strong succession planning practices. Smaller organizations without a lot of redundancies or resources to train and develop high-potential talent can still think creatively about how to ensure that critical roles aren’t left empty. For example, smaller organizations might need to have a plan for hiring from an external source, splitting an existing role between two people, or cross-training employees so they can move to different functions.
It’s important for organizations of any size to keep diversity in mind for succession planning as well. Candidates to replace your executive should not simply be a replica of that executive. Instead, think about the talent across your organization. How can you cross-train and rotate a diverse pool of employees? More diverse teams make for more creativity, innovation, and dynamism within organizations, but only if you invest in identifying and growing that talent.
Succession planning ensures that organizations can continue working toward their strategic goals when key positions become vacant. Beyond having replacements ready for critical roles, it gives executives an opportunity to invest in the next generation of leadership through executive coaching and mentoring.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.