Your organization can’t afford to stumble with leadership at the CEO, senior management, or middle management levels. But when you look at the top of organizations, 39% of companies today have no viable candidate to replace their current CEO; and only 54% of company Board of Directors are grooming a specific CEO successor.[i]
The labor market in the US is exceptionally tight right now, with only 4.1% unemployment. The market for available CEOs is equally competitive. So why aren’t more companies spending the necessary time and resources to continually build internal and external pipelines to replace their CEOs, other top talent, and middle managers?
Getting the replacement decision correct is vitally important. Companies that must fire their CEO forgo an average of $1.8 billion in shareholder, regardless of whether the replacement is an insider or outsider.[ii] Estimates suggest that up to 40% of new CEOs fail to meet performance expectations in the first 18 months.[iii] Many experts believe the failure rate for new CEOs is due to poor CEO Succession planning.
I define succession planning as the process of selecting future leaders from among the enterprise’s high-performing and high-potential employees and key outsiders, including all the way to the CEO. Well thought out succession plans identify the high-performance employee’s next roles, lateral rotations or promotions and specify the optimal timing for such moves, and note key learning events.
Succession planning works best when it is an integral part of the company’s talent strategy.
The succession planning process begins with recruiting and attracting talent to the organization that can perform well for current job openings but also can move up the leadership or technical career paths. Career development doesn’t occur without an ongoing individual and organizational learning strategy that is accessible to all employees and helps develop those with high potential.
Companies serious about succession planning need a dynamic performance management system that provides employees with ongoing coaching as well as the performance and development feedback they need to grow. The performance management system also needs to collect workforce analytics on individual and team performance and determine who is ready for development and promotion. It also needs to inform the business about performance against current and future key job family competencies and the need for future development by the company.
Finally, you don’t keep your best and highest potential employees without aligning their values and primary interests to the purpose, strategies and desired outcomes of the company. You will not keep your best without paying them higher pay and providing them extraordinary career development opportunities.
Succession planning is NOT about promoting high-performance employees. That is not enough. Many of your high-performance employees do not have the skills to rise two or more levels in your organization. Or, if you are a small organization, with a relatively flat hierarchy, your employees may not have the room to learn the skills required to grow your business innovatively. You need to be able to differentiate among your high performers to identify the employees with high potential—at each level of the organization.
Research by Rob Silzer and Allen H. Church has identified the three components of leadership potential.[iv] They are the foundational dimensions, the growth dimensions, and the career dimensions. Let’s go through them:
Foundational Dimension. This consists of two stable, consistent components. The first is Cognitive. That is, conceptional or strategic thinking and cognitive abilities, often measured as IQ. Employees with high cognitive skills are often able to deal with complexity and ambiguity. While it is essential to have a high IQ, having too high an IQ can be a detriment to business performance and innovation. The second component is Personality, sometimes referred to as Emotional Intelligence. Employees who score high on this dimension are usually very sociable, have excellent interpersonal skills, have learned to control their dominance in team meetings and are emotionally stable. They also display resiliency in the face of set-back and failure.
Growth Dimensions. The ability of high performers to grow is critical to learning and being able to move into new industries and up the career ladder. The first of two components is Learning. This includes an individual’s ongoing learning orientation, adaptability, and openness to feedback. If an employee wants to stay with the “tried and true” and is not able to adapt to new situations and be open to learning what he or she does not know—they are not high potential candidates. The second component of the Growth Dimension is Motivation. First, do they want to be a leader? Some very skilled people do not want leadership roles, or they cannot take a current leadership role now due to family or personal reasons. Other qualities include drive, energy, achievement orientation, and career ambition. In addition, great leaders and innovators need to be willing to take risks and are committed to achieving excellent results.
Career Dimension. These are the early indicators of later career skills and success. There are three components. The first is Leadership. Have they learned to manage people, to set up operating and decision-making norms, to delegate effectively and to inspire and develop others? Have they learned how to influence their staffs, peers, and superiors? Can they challenge the status quo effectively and lead continual change? Performance is the second component. Do they have a continued strong performance record in diverse situations? Can they manage turnarounds and growth opportunities? In different industries and geographical regions? The third component is Knowledge and Values. Are they technically component in one or more fields? Do they have the values and norms to lead today? Are they trustworthy? Do they respect people of the other sex? Can they work effectively with team members from different backgrounds? Wells Fargo, Uber, Fox News, Volkswagen, and The Weinstein Company have suffered market and financial loss due to executives with bad values.
How do you get started and make succession planning relevant to your company? Begin with your company’s business plan. Does your company need future leaders with new skills to grow the business? Integrate Artificial Intelligence or other new technologies? Lead a large restructuring? Transition the company to be more innovative? Move into new global markets? Whatever the business strategy and opportunities facing your company, you will need to put in place an integrated talent strategy to achieve it—and with it a succession planning system.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, global talent strategies, developing agile leaders and teams, and other strategic initiatives. Questions? Please email Victor at firstname.lastname@example.org. Visit http://www.victorhrconsultant.com for valuable free reports. For innovation visit http://www.InnovationOne.io.
[i] David F Larker and Stephan A. Miles (June 2010), “2010 CEO Succession Planning Survey,” Heidrick and Struggles and Stanford University. Found at https://www.gsb.stanford.edu/faculty-research/publications/2010-ceo-succession-planning-survey.
[ii] Ken Favaro, Per-Ola Karlsson and Gary L. Neilson, (May 4, 2015), “The $112 Billion CEO Succession Problem,” Strategy and Business, Columbia Business School, Summer 2015, Issue 79. Found at https://www.strategy-business.com/article/00327#succession.
[iii] Eban Harrell (Dec. 2016), Succession Planning: What the Research Says,” Harvard Business Review
[iv] Rob Silzer and Allan H. Church, “The Pearls and Perils of Identifying Potential,” Industrial and Organizational Psychology, 2 (2009), pp. 377-412.