The Succession Planning Imperative
Once reserved for the upper echelons of senior management, and often viewed - erroneously so - as replacement planning to mitigate risk (e.g., a catastrophe befalls company leaders), today's succession planning is being redefined. The discipline has broadened in both breadth and scope to become a central component of strategic talent management.
Defined as the process of identifying, preparing, and tracking high potential employees for promotion and advancement, several dynamics are driving the evolution of succession planning today:
The recognition that top-notch talent - and retaining that talent - drives bottom-line financial performance, customer satisfaction, and competitive advantage. Researchers such as Accenture, McKinsey, and Towers Watson have empirically validated these linkages.
Global talent shortages due to retiring baby boomers, shifting workforce demographics, and globalization. Fifty-three percent of companies are facing significant talent shortages today1 and this percentage will grow as baby boomers start retiring. In fact, the U.S. Bureau of Labor Statistics estimates a shortage of 10 million workers by 2010.
Mitigating the risk of untimely departures of high performers and essential personnel as labor markets continue their inexorable shift in favor of buyers (i.e., job seekers).
A confluence of market conditions impacting specific industries. For instance, within healthcare, increasing demand for services from baby boomers is coinciding with a shortage of skilled talent (e.g., nurses, technicians). In the public sector, an aging workforce coupled with competitiveness from the private sector and an inability to attract younger talent is posing challenges. And in technology, CEOs are finding it increasingly difficult to fill key positions as older workers retire.
Many companies are starting to recognize these dynamics (especially the challenges). In a 2008 Bersin & Associates study, three-out-of-five of the top talent challenges cited by global survey respondents were related to succession planning (see Figure 1).
Yet the same study paints a more ominous picture. Only 20 percent of companies have an enterprise-wide succession planning process, and fully 53 percent have no process at all. Indeed, a 2010 SumTotal study revealed that 59 percent of HR professionals do not believe that their personnel are adequately prepared to meet their companies' future growth plans. All of this market data points to one inescapable conclusion: The majority of companies are aware of the challenges yet most are completely unprepared to deal with them. Therefore, new and innovative ways of deploying succession planning are required. These include extending succession planning across the organization and integrating succession planning into the broader talent ecosystem.
Extending Succession Planning Across the Organization
Applying succession planning beyond senior management is critical to retaining high performers across all levels of the organization and mitigating the risk of untimely departures of key personnel. Retaining existing employees not only has the potential to minimize the effects of the global talent shortage, it also provides significant and tangible cost savings (since replacement costs range from 100%-150% of the salary for the departing employee).
ALFA provides an ideal example. Based in Mexico and employing more than 50,000 people, ALFA is a diversified global company consisting of four distinct business units: petrochemicals, aluminum auto components, refrigerated food, and telecommunications.
A key challenge facing the company was promoting cross-business unit transfers, thereby minimizing employee attrition to the competition. ALFA was losing high-performing talent because it was unable to find growth opportunities for employees within the organization. Due to the proliferation of different human resources (HR) systems at each of its four business units, ALFA suffered from inconsistency in managing its global HR processes as well as a lack of visibility into key employee information that could be used to drive succession planning.
To address its challenges, ALFA standardized on a single, integrated talent platform across its diverse business units. This platform, provided by SumTotal, became the centerpiece of ALFA's employee lifecycle, which consists of planning, hiring, compensation, performance management, learning and development, succession planning, reporting and analysis, and HR management. ALFA also leveraged SumTotal's global experience in developing and implementing standard HR policies and best practices. As a result, it is far more common for ALFA's employees to jump from one business unit within the company to another, expanding their experience and skill sets via promotion and advancement.
Connecting Succession Planning into the Broader
Succession planning is one of several key processes that enable organizations to embrace a holistic talent management strategy. At its heart, Talent management is the strategic approach to integrating and optimizing talent-related processes across the enterprise, including talent acquisition (recruiting and hiring), performance management, development and learning, succession planning, 360 feedback, compensation and rewards, and talent profiles. Software technology, a key enabler of talent management strategy, provides a best practices platform for information integration and process optimization. One such example of this platform is the SumTotal Talent Platform (see Figure 3).
At the center of this platform is the talent-based employee system of record, which includes employee data, talent profiles, job profiles, and competencies. All of this information, once made consistent across the organization, feeds critical HR business processes, facilitates the linkages across these processes, and ultimately enables improved business analysis, insight, and decision making.
The role of succession planning within the broader talent ecosystem is unique because it is dependent upon inputs from several other core HR processes. Whereas an annual performance appraisal process can be executed in a relatively self-contained fashion (assuming it has access to core employee data), the same is not true for succession planning. To illustrate the point, consider how HR practitioners have traditionally built succession plans.
Conventionally, HR practitioners will spend weeks or months manually scouring different parts of the organization for information needed to build lists of nominees for specific job families or positions. The information required to generate the lists may include self assessments, past performance appraisals (often paper-based), and 360 feedback. After a lengthy period of information gathering and aggregation followed by manual analysis (e.g., nine-box, gap analysis), HR prints the results, collates hundreds of pages of paper into three-ring binders, and presents its recommendations to senior management. This time-consuming, inefficient process is still common practice today (recall that only 20 percent of companies have an enterprise-wide succession planning process in place).
Yet by centralizing talent processes and information - in the above scenario, performance management, 360 feedback, and succession planning - onto a single, integrated talent management platform, the time to develop succession plans can easily be reduced from weeks or months to mere hours. The benefits can be significant: reduce HR costs, reallocate HR resources from tactical activities to more strategic endeavors, and mitigate the risk of untimely departures of essential personnel.
Additionally, a natively-integrated talent management platform promotes the linkage of learning and development planning with succession planning. By bridging the processes, nominees who are not ready for advancement can be assigned detailed development plans that guide them to improve the competencies required for new job positions. Learning paths and even specific courses can be established for employees to facilitate their career growth. By providing learning opportunities and development plans to employees, HR can take a more active role in promoting employee retention.
Finally, a single talent management platform facilitates enterprise-wide HR reporting and analysis, since all of the relevant talent data resides within a single data structure. Reporting and analysis are key to an organization's success in managing employee resources and implementing HR strategies that support corporate objectives and initiatives.
Figure 4 (next page) pulls all of these processes together and highlights the central role succession planning plays within the broader talent ecosystem. In the manual, paper-based world of conventional HR - and also in siloed HR technology deployments which are equally prevalent - this level of integration and its inherent benefits are not possible.
Succession planning is not a silo. Companies of all sizes and in all industries must reevaluate how succession planning fits within their enterprises. In order to take advantage of new opportunities, avoid the looming talent crisis, and mitigate the risk of untimely departures, companies must extend succession planning across their organizations and fully integrate succession planning into their broader talent ecosystems. This can best be achieved by leveraging a single talent management platform coupled with a strong focus on process and strategy.