In 2006, corporate America experienced a dramatic increase in high-profile turnover at the C-Level. Many executives resigned amid poor corporate performance or corporate scandal, and others simply retired.
In fact, several of these household-name companies — including BJ’s Wholesale Club, Gateway, The Home Depot, Radio Shack, Sun Microsystems, UnitedHealth Group and Williams-Sonoma — lost their CEO last year. Some of these companies were able to quickly and effectively identify, appoint and transition a new CEO based on long-term succession plans that had been established. Others scrambled to place interim executives until a permanent successor could be named.
When a succession is fractured, it becomes front-page news. When succession planning achieves the intended or desired result, the transition is smooth and not necessarily newsworthy.
When evaluating best practices for succession planning, organizations often associate successful succession management with Jack Welch’s tenure at General Electric (GE) and how his leadership shaped and elevated GE’s philosophy, practice and legacy of growing leaders by grooming talent from within the organization.
Welch served as CEO of GE from 1981 until he retired in 2000. In a 1991 speech, he stated, “From now on, choosing my successor is the most important decision I’ll make.” GE has continued to define itself as an organization strongly committed to developing leaders within its own employee base. The company’s commitment to this philosophy has yielded positive results — for both employees and for GE — and it is a major reason its leadership development programs have been so widely emulated at global organizations.
Effective managers always anticipate the need for successors, and they are prepared. Because organizations cannot assume the mere existence of a talent pool guarantees the succession neatly will fit into place, effective succession management requires careful planning, mentoring and grooming.
Developing Critical Talent from Within
When considering talent acquisition, retention and replacement within an organization, it is important to keep in mind all employees and positions, not just high-level executives.
Organizations tend to focus the majority of their succession planning efforts on high-level talent, primarily “C-level” executives. Although those might be the highest-visibility positions, organizations must engage in succession planning at every level. Because the critical skills and knowledge that fuel corporate success can reside in any or all levels, effective succession plans must analyze and identify the critical talent needed for success, then anticipate, address and plan accordingly for vacancies and shortages across the entire company.
Today’s forward-thinking organizations are re-evaluating their strategies for building the workforce, by “farming” rather than “hunting” for the right skills and planning ahead for succession. As these organizations achieve better balance between acquiring and developing talent, they will keep skilled employees longer, avoid the risk of vacant mission-critical positions, decrease training costs, and reduce or eliminate hiring cycles.
The benefits and rewards of a well-designed and strategically executed talent management strategy are already apparent, according to a study by Aberdeen Group and the Human Capital Institute (HCI) of more than 165 organizations.
It found that companies mastering the human capital capabilities they consider critical to their success achieve about 45 percent higher workforce productivity and almost 40 percent higher revenue generation over their peers. To support these strategies, companies are adopting enterprise talent management solutions to make the process easier to implement, manage and measure.
Leveraging Technology for Succession Management
Succession planning provides a systematic process to identify, assess and develop employees as organizations seek to grow and prepare for the future. Because succession plans are generated based on information that resides in a variety of talent management applications, strategic and effective succession planning must be part of an integrated process that includes performance appraisals, training, career development and competency management.
For example, when a COO is building a succession plan for an operations director, the COO needs visibility into:
From a technology standpoint, a succession-planning solution should be part of an overall talent management suite that favors a holistic approach to career and development planning, learning management, performance management and succession management.
Still relatively new, talent management software and solutions endeavor to actualize and automate this approach by integrating data from each application into a single system and making that information available across the full talent management suite.
For example, with an integrated talent management system, employee data stored in the learning management system could be accessed and used by the performance management solution to determine whether an employee has taken the necessary training courses and achieved the proper performance ratings to be promoted.
This information also can populate a succession plan, so that when a position is vacated, a manager can see which employees are the most qualified to fill that role, based on performance ratings, tenure, experience and relevant training completed.
Taking a Holistic Approach
Companies looking to implement a talent management solution need to look critically and objectively at their own business processes and visualize how the solution will support the ways in which they actually operate, as well as the goals they seek to meet. They need to ask such questions as:
Succession management serves as an interface between human resources and the strategic direction of an organization. It is a continuous process and a vital resource for helping managers and executives anticipate the needs of the organization. Once these needs have been determined, succession management enables managers to identify, assess, develop and monitor the critical talent required to drive the organization’s strategy and success.
But looking through only the corporate lens is not enough — to meet current and future needs, a talent management solution must work as a unified, holistic solution, not as a collection of separate modules. Companies also need to consider whether the selection will help employees grow and achieve their career goals.
Organizations that expand their talent base organically can protect against a talent crisis. When developing an effective talent management strategy, critical consideration should be given to the following questions:
Organizations that derive the greatest long-term value from talent management initiatives are those that have embraced a holistic strategy. A truly effective solution has no barriers between the components of the system — thus ensuring seamless business processes, whether that process involves the CEO communicating annual objectives to the entire organization, or whether it’s a line worker developing a personal career plan.
When succession planning is integrated with other critical talent management functions rather than deployed as a stand-alone process, the plans are more likely to be based on accurate, up-to-date information. They also are likely to result in successful and smooth transitions, and they ultimately will drive greater business success by linking performance with corporate strategies.
Succession plans that also are tied to employee career plans improve morale and productivity. Organizations that support career development by encouraging employees to explore new opportunities within the organization and provide flexibility for employees seeking job mobility are more likely to have employees who participate actively in their career development.
The employees understand the company is truly vested in their career path and in taking an active role in their education, growth and advancement. As a result, employees are more likely to seek opportunities within the organization, thus improving employee satisfaction and retention while reducing the knowledge drain that can decrease the loss of critical knowledge.
Aligning Succession Planning to Business Strategy
To mitigate the looming talent crisis, forward-looking organizations are adopting strategies to cultivate their existing talent. They are embracing talent management solutions to support new practices such as better communication of goals and performance expectations across all levels of the organization, as well as career and succession planning that encourages talent to look for growth opportunities in-house rather than at another company.
The large corporations that experienced high-profile changes in 2006 are sure to be evaluating their own succession plans in 2007. As GE has recognized, the future of an organization often lies within its own walls. Strategic succession planning, executed as part of an integrated talent management strategy, based on best practices and supported by best-of-breed technology solutions, will enable companies to retain their top performers while growing leaders for tomorrow.
Shelly Heiden is executive vice president for global field operations at Plateau Systems, where she is responsible for all customer-facing operations, including marketing, sales and services. She can be reached at email@example.com.