As the great resignation rages on, employees have made it clear they want to work for organizations that provide great pay and benefits, flexible work option — and career paths. Career pathing doesn’t provide the organization with excellent leaders without an effective succession planning system to determine whom to promote and when to higher from outside the organization. To keep your best talent, you need to learn how to succeed with succession planning.
Promotions are high-risk decisions.
One of the most high-risk decisions 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. They often make the same mistake beginning with entry-level and mid-level leaders: Many leaders favor promoting the high-achiever or technical expert, thinking the individual will make a great manager. The trouble is they are different roles. And making this mistake is very costly.
To avoid these costly mistakes, you need to identify the high potential employees among your high performers—at each level of the organization and then aggressively develop them. More on how to spot and develop such employees below.
At the executive or CEO level, you may promote an internal candidate who cannot deal with the industry’s disruptions. Or hiring a successful outsider who turned around their 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. First-line managers 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 and potential 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 to 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 working succession planning focus on templates like 9-blocks and the “gut feel,” and not the real psychology behind leadership development for today’s VUCA world.
How to succeed with 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-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 has the competencies to 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 and the performance and development feedback they need to grow. Executives need to drive the performance management system — not just HR. Executives and other senior leaders need to take active roles in mentoring and coaching high-potential employees.
Developing future leaders cannot be solely dependent on the employee’s manager. In addition to the direct involvement of executives, it requires active assessment and coaching from competency experts and training to develop the skills and abilities needed at the next level.
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 and skill gaps for key job families, innovation projects, and the need for future development.
Finally, you won’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 and high potential employees without paying them higher-than-market pay and stock options and providing them extraordinary career development opportunities.
Succession planning is NOT about promoting high-performance employees. That is not enough. Instead, you need to identify the high potential employees among your high performers—at each level of the organization.
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 promotional opportunities to learn the skills required to grow your business. They will need external leadership workshops and be assigned lateral or rotational opportunities on important project teams to learn leadership and delegation skills.
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 setbacks and failure.
Growth Dimensions. The ability of high performers to grow is critical to learning, leading through crisis, and being able to move 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 cannot adapt to new situations and be open to learning what yhey do not know—the 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, relate to today’s diverse workforce, develop trust, set up operating and decision-making norms, effectively delegate, 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 of the Career Dimension. Do they have a record of continued strong performance in tough and unique situations? Can they manage turnarounds and growth opportunities? In different industries and geographical regions?
The third component is Knowledge and Values. Are they technically competent 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? United Airlines, Equifax, Google, Wells Fargo, Uber, Fox News, Volkswagen, and The Weinstein Company have suffered market and financial losses due to executives with bad values.
According to Western Governor’s University, unethical businesses lose favor with consumers. They report that 43 percent of consumers have stopped buying from brands they find unethical, and 71 percent say they carefully consider corporate values when making a purchase.
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, transition to a hybrid workforce, and integrate Artificial Intelligence into work processes? What about leading a significant restructuring? Or moving into new global markets?
Whatever the business strategy and opportunities facing your company, you need to learn how to succeed with succession planning. Your organization will need to implement an integrated talent strategy. Executives, not just HR, will need to drive it and be actively involved in mentoring and coaching. And you will need to select the high-potential employees from among your high-performing talent.
This post was originally published in February 2021 and was updated for today’s business challenges.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and managing partner of InnovationOne.. He works with companies to transform HR and recruiting, implement remote work, 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.