Human Resources
Human Capital Consulting Blog


Succession Planning: Mitigate Risk by Building the Pipeline


Loading

Jun 29, 2017 | by Sarah Foster


Since the introduction of the “Leadership Pipeline” in the early oughts, it is increasingly clear that a deep succession bench is a critical differentiator for the most successful companies (The Leadership Pipeline, by Ram Charan, Stephen J. Drotter and Jim Noel, Jossey-Bass Inc., 2001). Based on the work done in the 1970s at General Electric (Walter Mahler’s “Critical Career Crossroads”), Charan et al. built and validated a model for the leadership journey from individual contributor to the CEO. This model not only presents clear and tangible steps of the leadership journey, but introduces the incredible risks associated with colleagues who do not sufficiently “make the turn” to the next step of their leadership journey – a risk that compounds with each subsequent turn, with the ultimate consequence of elevating a CEO who can hardly manage people and thus cannot adequately run the business.

Rather than diligently guiding employees through the Leadership Pipeline, patiently instructing and rewarding the best practices for each turn of the leadership journey, organizations often take the easy way out – hiring an external CEO. While appealing in theory (“fresh blood!”, “new perspective!”, “proven track record at another company!”), this approach is a short-term solution to a long-term problem. Much more effective, however, is the approach advocated by Charan et al.: Build your leaders from the ground up and keep tabs on their readiness for the next big opportunity.

The Risk of Doing Nothing

It goes without saying that the lack of a deep succession bench introduces multiple business risks. At Aon, we would boil it down to four distinct risks that could occur in the absence of a robust succession management plan:

  1. Vacancy Risk: A senior leader leaves and there’s no one to fill the role
  2. Capacity Risk: Leaders are underdeveloped and not fully satisfying their role requirements
  3. Portfolio Risk: Leaders are not deployed correctly and optimally against business needs
  4. Transition Risk: External executive hires are poorly assimilated into the organization

Managing the Pipeline

Although senior executives at many organizations would agree that these risks should be mitigated – and fast – they often struggle with creating the plan itself. A vague understanding of building the succession bench is there, but best practices and proposed processes are few and far between. To lift the veil, Aon Hewitt Partners Seymour Adler and Jim Donohue recently published a white paper outlining succession management best practices. They highlight the process, generational considerations, and recommendations in depth in this piece. In sum, it boils down to a few solid principles:

  • Holistic. Succession management is more than just listing names in order of seniority. It involves a holistic process of identifying, assessing, developing, and transitioning potential successors. Aon’s Top Companies for Leaders research shows that strong practices in this area are triangulated and robust, considering the requirements of the position both now and in the future. 
  • Backed by Science. Despite the allure of subjective hallway conversations and political maneuvering, the most successful organizations trust the rigor of a scientific assessment process to determine successors’ fit for the role. These assessments go beyond performance reviews to understand a candidate’s potential in an objective manner to foster sound decision-making (i.e., interviews, multi-source 360-degree input, business-case simulations, personality assessments). Top Companies identify a leader’s current performance vs. potential for advancement, measure gaps in skills, and rate candidates as “ready now,” “ready soon,” and “ready later.”
  • Living and Breathing. A succession plan is not a task to be crossed off HR’s to-do list. Rather, true succession management requires periodic review and revision to determine whether successors are on track for their potential positions and whether the plan is keeping up with market realities and organizational evolutions. Top Companies review their talent at least once a year, proactively develop internal successor pools, and strive to have two “ready now” candidates for each critical role in the organization. This commitment to maintaining a sustainable plan pays off in big ways.

The Bottom Line

At the end of the day, succession management is a contingency plan in a VUCA world. As organizations navigate the volatile, uncertain, complex, and ambiguous business environment, senior leaders must stabilize mission-critical roles by building up their talent pool.  But it’s not just about doing it – it’s about doing it well. Click here to read the white paper outlining best practices.

 

 

About the Author