One of the most high-risk decision organizations make with talent is selecting new leaders, from the first line to the CEO. It is a discussion many executives have had with me. Just as often, they make the same mistake beginning with entry level and mid-level leaders: Promoting the high achiever or technical expert thinking the individual will make a great manager. The trouble is they are different roles.
At the executive or CEO level, you may be promoting an internal candidate who cannot deal with the disruptions facing the industry. Or hiring a successful outsider who turned around his or her previous company, only to fail in the new role for misreading the new company’s values or culture or the peculiarities of a different industry.
Your organization cannot afford to stumble with leadership at the first level of management or with the CEO. Yet, 39 percent of companies have no viable candidate to replace their current CEO; and only 54 percent of company Board of Directors are grooming a specific CEO successor.
Getting the CEO replacement decision correct is vitally important. Companies that must fire their CEO forgo an average of $1.8 billion in shareholder equity, regardless of whether the replacement is an insider or outsider. Research shows that up to 40% of new CEOs fail to meet performance expectations in the first 18 months. Many experts believe the failure rate for new CEOs is due to poor CEO succession planning.
At the first level of the organization, promoting the wrong people into first line management can lead to high costs too. Front line mangers are the glue holding the organization together keeping employees focused on the organization’s goals and empowering much of the organization’s productivity, innovation, and employee experiences.
Gallup estimates that lousy managers cost businesses billions of dollars each year and too many bad promotion decisions can bring down a company. The only defense against this problem is a good offense, because when companies get these decisions wrong, nothing fixes it. Businesses that get it right, however, and hire managers based on talent will thrive and gain a significant competitive advantage.
Yet, only 18 percent of companies make good selections of first line managers. In middle management, many leaders peter out because they never learned to set a vision, motivate and develop a team, or delegate at first line leaders. As directors or vice presidents, they have remained micro-managers who fail to see the forest from the trees but can no longer muscle their way to success.
With the high cost of poor leadership selection, why aren’t more companies spending the necessary time and resources to continually build internal and external pipelines to replace their CEOs, executives, and managers? It can be done, but unfortunately, most organizations that are working succession planning focus on templates like 9-blocks and not the real psychology behind leadership development for today’s VUCA world.
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-performing and high potential 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 and can move up the leadership or technical career paths. Career development does not 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 company’s purpose, strategies and desired outcomes. You will not keep your best without paying them higher-than-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. They will need external leadership workshops. You need to identify the high potentials among your high performers—at each level of the organization.
Extraordinary research by Rob Silzer and Allen H. Church has identified the three components of leadership potential. 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 detrimental 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—thee employee is not a high potential candidate. 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 are 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, set up operating and decision-making norms, delegate effectively, and inspire and develop others? Have they learned how to influence their staff, 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, to transition to a hybrid workforce, to integrate Artificial Intelligence into work processes? What about leading a large restructuring? Or moving 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 that strategy must include a succession planning system.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting, managing partner of InnovationOne, and Sales Advisor to MeBeBot. He works with companies to transform HR, implement remote work, recruit executives, and develop extraordinary leaders, teams, and innovation cultures. He is the author of the highly acclaimed book, Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. Subscribe to his weekly blogs at www.VictorHRConsultant.com.