Plan for Succession

Provided by Management Magazine 

Succession planning is a lot more than the latest HR buzz phrase – it is increasingly business critical. So why doesn’t it get the attention it deserves?

By Vikki Bland from Management Magazine

Goodbye to Telecom’s Theresa, and hello to – whom? By now we may know, but Telecom isn’t expecting to make the announcement until late June. Nor was it clear who would succeed as leader of another publicly listed company after the resignation of its CEO and the appointment of a reluctant interim CEO who admitted he “didn’t want the job”.

Poor succession planning can breed uncertainty and other offspring like lowered staff morale, loss of competitive momentum, loss of shareholder confidence, staff shortages leading to burnout and low retention, and reduced productivity. For the record, Telecom says it does have succession planning and the appropriate protocol and systems in place for the appointment of a new CEO, but in general, business analysts and consultants say succession planning is not getting the attention it deserves from New Zealand businesses.

In part, this is because many organisations don’t understand what succession planning is – and there are reasons for that.

How the term ‘succession planning’ relates to an organisation depends on its size, what its owners or shareholders are trying to achieve, and whether the organisation is in the public or private sector. For large enterprises though, ‘succession planning’ usually refers to the ongoing development of potential successors from within the business to ensure a smooth transition and minimum loss of efficiency when management vacancies occur.

In smaller organisations, it generally refers to the development of a financial and people management strategy that will allow the owners to exit, handing over the business to either external investors or to leaders within the business who have managed to accomplish a management buy-in.

Either way succession planning means identifying the talent and abilities of individuals within a business and figuring out who has the potential, and inclination to succeed current leaders, or keep a business running smoothly for a new owner. And that requires the commitment of the entire management team along with external consultants and advisors. It is not a job for HR alone, nor is it easily accomplished by small business owners who want to exit in a hurry.

Barriers to success Kevin Gaunt, chief executive northern region for the New Zealand Institute of Management (NZIM), says succession planning arises from the strategic need to have the right people in the right place at the right time, and to develop from within to achieve that – however, organisations are often unable to grapple with those strategic needs, he says.

“Barriers include managers who prevent people from gaining wider experience by moving around the organisation because they want to keep those people to themselves. The [flip side] is area managers not interested in having people work for them only for development and experience,” says Gaunt.

As you might expect, Gaunt says a CEO and board need to give senior managers and everyone else in the organisation the message that identifying talent and investing in the ongoing development of potential leaders is a critical factor for the future success of an organisation, whatever its size. What you might not expect, is that boards and CEOs often pay lip service to that without following through.

“Most organisations don’t do succession planning well or they do it patchily. The point we are at and haven’t recognised is that a high level understanding of people management has traditionally been the role of the most senior HR person but management theory and practice tell us the CEO is tending to think and behave more like that high level HR practitioner. The reason is that people have become incredibly important. People are why [technology company] Apple survived, because there is no logical reason Apple should have survived at all,” says Gaunt.

Joan Mather, organisational development consultant for Sheffield, says mapping a capable candidate to a specific future job is a narrow focus that will not enable an organisation to close the gap between the current talent it has and the talent it needs. She says the leadership talent challenge is best addressed through implementing a structured talent management system, driven by the CEO and facilitated by HR specialists.

“This can be defined as the selection, development, promotion, and retention of people; planned and executed in line with an organisation’s current and future business goals,” says Mather.

She says potential talent management traps include holding HR (rather than operational leaders supported by HR) solely accountable for developing talent, and senior executives that only pay lip service to the need for talent management. Again, Mather says CEO support is the key – when organisations develop leadership success profiles they need to ensure the leadership attributes they have outlined meet business strategy. Building a pipeline or pool of ready leaders is more successful than matching and preparing individuals with specific future roles, says Mather.

“It can be a mistake to rely on subjective data when making decisions about people and to not take into account potential personality ‘derailers’ when making placement and promotion decisions. Development programmes that are one dimensional will not necessarily tell senior managers enough about individual potential – a mix of development options including classroom, targeted projects, new challenges, coaching, and ongoing research is a better approach,” she says.

Sector specific barriers Alan Cassidy, manager executive development for the Leadership Development Centre (LDC), says the way in which HR managers define succession planning differs; some see it as ‘replacement planning’ where the emphasis is on risk management in case someone leaves or dies; others see a need to be proactively accelerating the development of people. Different HR people would be at different points along that curriculum, says Cassidy, and while awareness is growing, it’s patchy.

It’s a sad indictment on the HR industry in New Zealand which has been confined to managing employee relations and things like payroll instead of strategic direction. The rhetoric is changing – HR is about equipping your organisation with the people to face tomorrow’s challenges – but the action needs to follow,” says Cassidy.

He says organisations in the public sector face similar succession planning challenges to private sector businesses – there’s competition for people talent and an urgent need to adapt to changing demographic trends. In addition, he says the remuneration component of public sector employment makes it harder to succession plan, and attract and retain talent – as does the ‘fishbowl aspect’ of public sector leadership.

The LDC works with public sector organisations on succession planning strategies and delivers an executive leadership programme for senior public servants. Cassidy says such programmes help a public organisation to see talent because in the public sector an individual’s output is more diffused by the nature of the sector, making it harder to see individual performance.

As a result, it’s a challenge to find replacement leaders and too many public sector chief executives are employed from outside the sector and from other countries.

The public sector is a harsh environment under public scrutiny. So you are looking first for people with mastery rather than potential because that is less risky. The step between the CEO role and tier two roles is also too big and an unintended consequence of ’80s and ’90s restructuring which saw the CEO role became bigger. It then became harder for others to get the type of experience and exposure they needed [to grow],” says Cassidy.

Nor is succession planning well understood or executed in the small and medium business sector, says David Irving, chairman for small business incubator organisation The Icehouse. Irving says the biggest obstacle to small business succession planning tends to be an owner manager who knows everything about the business and is having trouble with the idea of letting go and handing the business over to internal or external investors.

Small businesses need to develop more strategic behaviour and different leadership skills, and the business owner may not be the person most suited to do it.

“When you are on the inside, [small business] succession planning looks terribly difficult, but from the outside it’s not that difficult at all. The first thing I would do is get a small business advisor able to look for the people who have the capability to take the business on. Sometimes those people exist within the business and haven’t been grown properly; sometimes they may need to be bought from the outside. The next thing is how the business owner is going to get his money out and what he wants to do with his life going forward,” says Irving.

Martin Brennan, area manager for Westpac Business Banking, says many small business owners have a relaxing Christmas then turn up to work in the New Year and say they want to get out as soon as possible. He says that’s a pity, because successful succession planning tends to start with the question ‘where does the business want to be in three to five years, and what does the owner want from it’, and go from there.

“Where a business owner wants to be in three to five years clearly has an impact on how a bank will structure the finances of the business, and how it will help the business to meet its succession planning goals. Everyone should be planning for an exit even if they not planning to go; it’s simply about putting the infrastructure in place,” says Brennan.
Aaron Wallace, director of business improvement and succession planning consultant Hayes Knight, says good small businesses sell quickly in the current economy, mostly to national buyers as international companies are less exposed to small business opportunities. But he says many small business owners miss out on sale opportunities because they are poor at tying up loose ends for potential investors, and have little idea what an ideal succession planning strategy looks like.

“So many small businesses run by the seat of their pants even though they might be turning over $13 million. Succession planning needs to start at least three years ahead of an owner wanting to get out; there needs to be a process of removing reliance on the owner; accounts may need to look healthier, and legal and supply contract issues tidied up,” says Wallace.

Getting it right Technology solutions company IBM appears rather good at succession planning. It even has a ‘Talent Executive’ for its Australia and New Zealand businesses; Sarah Brown. Brown says succession planning is a great concept, but “terribly challenging”.

“When HR people ring me up and say ‘I want to pick your brains about X’ it is typically about succession planning or about talent management – organisations and HR managers really struggle to understand it,” says Brown.

She says IBM is big on identifying critical roles using whatever criterion is meaningful. But rather than developing bench charts for roles and consulting with the management team regarding which people to pencil in beside them, Brown says an integrated talent programme that uses a range of different strategies to locate talent works far better.
“You need to know what your critical roles are; the ones you need to know you have secure supply of. Then you need to put in place planning that support pipelines of talent for those roles and the skills behind them. It needs to be a holistic process; you need to understand development priorities and know for some roles the talent pipeline might be external, not internal,” says Brown.

IBM uses an annual development planning process for all employees along with a formal talent management programme which accepts 10 percent of the total employee population and consists of candidates nominated by managers according to strict criteria. Brown says the performance/potential and leadership capability of individuals is monitored and developed, but both elements are never examined in isolation. Otherwise you might have a high performer who will never move into a more senior role through lack of leadership capability, she says.

Gaunt says that’s exactly right – organisations need to measure performance alongside observable behaviours because without that focus, the wrong type of person can move up through the organisation and “breed themselves”. He says if senior managers put their employees into four quadrants, they will find there are people with high performance and ‘high’ behaviour (the sort of people they want); those with low performance, low behaviour (those who are probably in the wrong job); those with high behaviour, low performance (people who need development); and those with high performance and low behaviour. The latter, says Gaunt, are truly problematic for any organisation.

“They seek to achieve at all costs, including at the expense of those they work with. Without active succession planning criteria, their high performance is then rewarded, they don’t see they are doing anything wrong and so they progress and recruit more people like themselves. I have worked for organisations that deliberately identified people in that quadrant, got rid of them and reaped a hugely positive impact,” he says.

Tools and tips Using valid predictors of potential – such as personality tests – does deliver greater succession-planning accuracy, says Stewart Forsyth, director for FX Consultants. It also allows organisations to invest development resource where it matters.

Generally, effective leaders will be conscientious and extroverted, but also emotionally stable. They model high standards and produce quality output, they build warm relationships, and they can perform and make decisions under pressure, says Forsyth.

He says personality measures may matter more for succession planning in New Zealand, because managers here tend to wrongly equate agreeableness with effectiveness. Yet a highly agreeable person will find it challenging to engage in tough negotiating or confront staff or suppliers over performance.

Of course, organisations can help agreeable people learn the relationship skills that will enable them to deal effectively with these challenges but before investing the business needs to find reliable indicators of employee capability. Forsyth recommends the ‘Development Centre’, a programme that measures performance aspects of higher level jobs, as well as potential measures such as personality tests. It simulates business situations such as board presentations, client’s negotiations, and making investment decisions.
“A lower-fidelity, but still useful approach is 360-degree measures, but in both situations it is important to be clear to employees about whether it is a development situation or a performance-review situation,” says Forsyth.

On the small business front, Wallace says owners should choose one succession planning option that will work, but have other options to fall back on.
“For example, you might prepare for a key manager to take over, then he or she has a heart attack and that option is removed. Get help; do internal due diligence. It’s better to go through that exercise first and expose everything – we call it a business WOF and it should be done at least once a year,” says Wallace.

Brennan says small businesses can take the simple first step of talking about succession planning. Often a small business advisor like a bank or accountant will know company A and company B and may be able to facilitate a management buyout. Similarly, Patrick Moodabe manager for GE Commercial Finance, says GE has significant asset management divisions and is able to give small businesses a “fairly robust kick of the tyres” to ascertain business health and status with a view to the release of value.

oftware tools also have a part to play in successful succession planning. Sonar6 is a web-based talent management system used by such companies as The Warehouse, The Body Shop and TradeMe. CEO John Holt says the Sonar6 system stores organisational thinking around talent in an online repository that’s visually easy to access.

He suggests organisations need a deeper awareness of where their critical roles and leverage points are and to identify people who could fit those roles. Also, medium sized business owners looking for an exit strategy will first need to show from succession planning that there are other people in the business that can carry it on – software and online services can help provide that view.

“Those people are not always in leadership and management roles but when they are identified are found to have a large general cultural knowledge of the organisation and its intellectual property,” says Holt.

He says while general business intelligence software can also deliver information to support a succession planning strategy, making talent management a ‘vertical’ software tool delivers CEOs or boards the same measures and metrics that they would put alongside a balance sheet.

“We have a number of clients with less than 50 employees who get use from it, but really, we find the mind of leaders tends to wander [from talent management] around the 50-60 employee mark,” says Holt.

Managing succession planning While identifying and nurturing talent is obviously beneficial, it’s important to avoid misunderstandings around what being part of a talent management programme can mean. For example, organisations need to communicate that participation in a talent management or succession planning programme is not, in itself, a guarantee of promotion.

Plus it’s important to be flexible, says Marc Burrage, executive general manager for Hudson New Zealand.

“Organisations need to decide how many people they will succession plan for, to understand the behaviours that create the desired results, and to be prepared to be flexible in order to hold on to talent. The company has to know what they and the individual will do together and over what timeframe. Timing is essential in succession planning because high potential people are not always prepared to wait on the employer’s timing. The employer’s intentions need to be transparent,” says Burrage.

He says New Zealand organisations also need to take care to avoid the ‘tall poppy syndrome’ and get on with the business of identifying people with potential. This may include identifying the future of the organisation by succession planning for roles that may not exist now. It’s important to look at robust stretch opportunities and for people who can stretch to meet new roles, says Burrage.

Forsyth says when you get right down to it, good talent management is about identifying some people as more valuable than others – problem is, how does that make everyone else feel?

“There is the risk you are going to turn some people off. The best thing to do is to say ‘these are the requirements for our fast track and if you make these moves this is where you can be too’. What you don’t want to do is to give someone the perception they are ‘dead wood’ because that’s going to limit their motivation,” says Forsyth.

IBM’s Brown says it’s more difficult to succession plan for roles with a specialty element or roles that appear suddenly in response to a market shift. Then, the organisation may need to invest in a programme to accelerate development and increase the experiences and opportunities people require.

“You can take a really academic approach to succession planning, but operationally you need to be flexible. The bigger you are, the more you have an opportunity to do this stuff well,” says Brown.

In addition to structured succession planning criteria, which may be supported by software systems designed to make people information more accessible, management teams also need to sit down and share information about the people who work in their area, says Gaunt.

“So I might say ‘I have Fred working for me; he’s a qualified accountant, he’s been in this role for five years and his aspiration is to move into a sales and marketing role long term. I find him excellent, and I am holding him back in a way – so it’s over to you guys.’ That leaves the CEO free to act,” says Gaunt.

10 steps to succession

1. Clearly identify business goals and strategies for the future – this helps to determine quality and quantity of talent needed.
2. Build “success profiles” for key roles and levels and check capability in relation to current and future business goals.
3. Determine the talent gaps – what and where? Once you know the kind of leadership talent (“success profile”), you need at various target levels, eg, strategic, determine how much talent you need at this level.
4. Identify your “high potentials”. Consider current performance – high performance in current roles is a prerequisite. Then determine which individuals have “potential” – those with most promise who will take best advantage of the development investment. Create a “talent” or “acceleration” pool, made up of the people who meet criteria at various levels within the organisation. Communicate the criteria for staying in the “pool” eg, ongoing performance, living the values of the organisation.
5. Assess readiness for leadership transitions. On an individual level, ensure a number of assessment options are available eg, “a day-in-the-life” behavioural assessment. At the organisational level, a “talent audit” will assess groups and indicate capability to execute the desired strategy.
6. Accelerate development by giving individuals feedback following assessments, agreeing clear development goals and providing the right amount of support and coaching.
7. Drive accountability for talent management through your performance management system. Think about linking achievement of talent development goals with variable pay incentives.
8. Sustain a high-retention environment to reduce the risk of losing great talent locally or globally.
9. Keep it ongoing! Talent management is not an event. It’s a process that must continually deliver the (sometimes changing) mix of skills and capabilities that will help the organisation achieve its goals.
10. Communicate your talent management successes.

Steps courtesy of Sheffield New Zealand

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