What is Succession Planning and Why Is It Important for Business Strategy?
Most of Gen Z expect to become managers soon after entering the workforce. On the other end of the spectrum, Baby Boomers are retiring fast. This dynamic, and all the other workforce issues in between, makes succession planning more important than ever.
Let’s talk about what makes for a good succession planning process, some pitfalls to avoid and the dangers of not doing it at all.
What is succession planning?
Succession planning is a future-focused process of preparation for maintaining a talent pipeline. It identifies the knowledge, skills and behaviours needed for certain key positions and develops plans to prepare individuals to potentially perform those roles. Rather than choosing successors when a role becomes vacant, succession plans are usually prepared over a 12- to 36-month period.
What is the goal of succession planning?
There are a few outcomes for effective succession planning.
- Management of critical roles, leadership skills and the key competencies required for those positions.
- To identify and fill skill gaps that may impact business growth in future.
- Replace subject matter experts with highly specialised capabilities.
- Retain and pass on mission-critical knowledge, skills, relationships and practices to the next generation of employees.
- Ensure leadership continuity, so key positions are never vacant.
- Mitigate impacts of critical vacancies and neglected strategic responsibilities.
- Create a deep talent pool through leadership development opportunities.
The risks of not having a succession plan
The business landscape (internal and external) and key skills needed to compete are continually changing, which can leave you without enough workers or capabilities to perform key roles. Leaders are those key roles, defining and communicating strategy to shape how employees, stakeholders and customers see your company.
So, the question of why succession planning is important is really about the risks of getting it wrong—or not doing it at all.
Say a manager suddenly leaves and you spend weeks looking for an external hire because it’s not at the top of anyone’s priority list. Or you hastily promote one of their team. There are a few costly scenarios that can arise:
- Underperformance from ill-suited external candidates
- Underperformance from ill-prepared internal successors
- Loss of intellectual capital from outgoing leaders
- Loss of intellectual capital from incoming individuals not versed in company knowledge.
None of these scenarios are particularly appealing when you consider lacking leadership causes organisations to operate with a 5–10% productivity drag. This contributes to decreased market value (up to 25% lost), which leaves you without equity to face future market turmoil. All in all, a lack of leadership costs you.
The succession planning process
From large companies to small businesses, succession planning is an important part of overall business strategy. It doesn’t require large human resources departments or even plain endless resources—just a plan.
- Identify critical (and vulnerable) roles
- Define eligibility
- Identify talent and tasks
- Create development plans
At its core, succession planning is about matching effective job design, employee development and career goals to an organisation’s strategic direction. Let’s start with the latter.
Planning for the future requires deep understanding of the present. You’re looking at two sides of the same coin: Roles that are critical and those that are vulnerable in terms of successor.
First, look at the roles with the greatest impact on your organisation’s mission. Factors to consider include roles that are:
- Central to competitive advantage
- Specific to the organisation or a business function
- Influential on resources and decision-making
- Likely to have large learning curves
- Based on experience and require it as a main form of knowledge acquisition.
From there, determine the roles that don’t have a successor. These are vulnerable to knowledge loss. Losing the Chief Technical Officer, without immediate successor, would have large ripple effects because of the potential loss of strategic direction.
Remember: We’re not just talking about roles that are currently or imminently vacant. This is a whole-of-workforce activity that ensures you’re not just pre-selecting people for positions.
Determine eligibility requirements
This step involves profiling a role in need of succession plan. You can be guided by performance expectations and role descriptions here.
Consider the selection criteria that would be used if the position were vacant. That could be capabilities and experience necessary for the level of seniority (including behaviours), as well as the KPIs and expected outcomes the role is accountable to. These are used to assess an incumbent’s potential success based on their current performance and capabilities.
Match talent to tasks
There are two parts to this: Identifying talent that can permanently or temporarily fill a position. When you know the role best primed to take over another, you have a better chance at picking the right person with the right skills, too. This is done by uncovering similarities in positions.
- What responsibilities are shared or aligned?
- Does the position have a similar day to day (in terms of functional tasks) to the succeeding role?
- Do the current position’s responsibilities cultivate the core capabilities needed for the succeeding role?
- What gaps exist between the two?
Create learning pathways
On that last question, we reach step 4. The succession management process is about developing, not replacing.
Use the data you’ve already collected. The head of engineering may be the position best primed to take over from the CTO. But there may be gaps in their understanding of customer support. This is where a development plan can not only be established, but also time blocked. Succession plans should generally consider how long it may take for an individual to upskill for a position.
Remember when we said critical roles are those that require experiential learning? Many succession candidates may be taking on leadership responsibilities for the first time—so make sure your succession plan accounts for this. When building future leaders, offer on-the-job training.
Mentoring, stretch assignments and job shadowing give employees both the foundational capabilities and context in which to use them.
You need to be continually identifying gaps in order to develop high potential employees for your leadership bench. Succession planning isn’t a standalone process; it’s an ongoing commitment meant to influence recruitment, performance management and business plans. That’s why you want to have a rolling evaluation plan in place.
- The strength of your leadership potential pre-succession plan compared to now.
- The number of candidates ready to step into key positions or leadership roles now compared to before.
- The tools or processes used in learning and development.
- Organisational performance, including strategy realisation, business growth, overheads and revenue.
- The risks associated with turnover.
The biggest challenges in succession planning
There are hurdles that can impede succession management. It often sounds more complex than it really is, which is where buy-in can be hard to secure.
It can be easy to assume succession planning is a future issue that requires little present-day action. You need to show the functional value to all employees. Stakeholders don’t always care about the bottom line. They want to know how it affects their department or career goals.
Don’t just focus on senior leaders. Be transparent about the process and show how it can begin at entry level jobs to facilitate career progression.
Bias and familiarity
Where some organisations fall down is delegating succession planning to CEOs or getting team managers to prime their successors. One may not have the on-the-ground knowledge of high performers and the other may be too entrenched to see the bigger picture.
And when you leave a succession plan to the outgoing employee, there’s a tendency to pick a successor they like or relate to on a personal level. This is why eligibility requirements work; they ensure that characteristics and capabilities are at the forefront of diverse talent decisions.
Assuming high performance
The Peter Principle holds that promoting for performance means an individual is eventually promoted out of their depth. They remain in this final position because they can’t move up, impacting productivity. Not only that, but there’s a hole somewhere down the line since succession planning usually creates a cascade effect of movement in roles.
This is why it’s so important to understand potential and benchmark proficiency. Promoting based on past performance neglects potential — whether it exists or not. And if it doesn’t exist, no amount of training will create potential successors out of those who’ve reached their capacity cap.
Focus on existing roles
We’ve said it once and we’ll say it again: Don’t just look at your current roles. Effective succession planning ensures future business priorities are considered.
“The best time to plant a tree was 20 years ago. The second best time is today.”
Planning for a future bench improves said bench’s strength almost two times over. This is because your training plans develop capabilities needed for likely future scenarios, giving your organisation the gift of preparedness. It also contributes to morale; training helps employees feel skilled to meet changes in their responsibilities and the industry.
Many see succession planning as replacement planning. But effective succession planning ensures more than availability of potential leaders. A succession plan:
- Creates processes to identify and develop key positions and key employees
- Puts the right people and skills in the right jobs
- Ensures organisational health isn’t dependent on a few charismatic executives
- Empowers fair and inclusive talent decisions.
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