Without new leaders ready to take over for those who resign, retire or are let go, business performance can suffer.
High-profile leadership departures from some of the world’s largest and best known organizations seem to be in the headlines almost daily lately. Consider the much-publicized senior leadership departures such as Ron Johnson from Apple and Ann Livermore from Hewlett Packard in June and Jonathan Rosenberg from Google in April, to name a few. It appears that boards, investors, analysts, media and even general management are dissatisfied with the quality and scope of succession planning. And as research conducted by the American Management Association (AMA) Enterprise highlights, this dissatisfaction comes with good reason.
As many as one in five organizations are unprepared to deal with the sudden loss of key leaders, according to an online survey of 1,098 senior managers and executives conducted in December by AMA Enterprise. Only 14 percent said they were well prepared, while 61 percent are somewhat prepared (Figure 1).
The findings point to a looming management succession crisis among Canadian and American companies. Only a small minority of organizations seem ready to manage a top-level succession in an emergency, which means most companies are taking huge risks by failing to address their bench strength issues.
Without new leaders identified to fill the gaps of those who resign, retire or are let go, business performance likely will suffer. Objectives get put on hold, development dollars can be misdirected and customer satisfaction may wane, or worse, customers may start to wander to competitors.
The survey data provide an unvarnished perspective of current management succession preparedness. Respondents didn’t hesitant to share their thoughts on the issue. Only 3 percent claimed to not have an opinion.
Similarly, survey respondents were critical of their organization’s leadership pipeline. Less than half believe their company’s bench strength is even adequate, and only 10 percent think it is robust (Figure 2).
Planning for a smooth management succession is more critical than in previous years, according to the findings. A significant majority of respondents — 71 percent — said these transitions are more important now than in the past, 27 percent said smooth succession is about the same in importance, and less than 1 percent said they think it’s less important. Yet, despite that 71 percent, many organizations neglect to sufficiently plan for sudden leadership departures.
The survey findings are not surprising. Getting top leadership to focus on management succession is a perennial challenge. Even great leaders may not want to consider a worst-case scenario. Further, finding, growing and retaining leadership in waiting is not easy. It requires continual effort, dedicated resources and efficient execution on a programmatic and strategic level.
Thanks to the recession, senior management has been focused on cost cutting and survival for the past several years. But now it’s time for leaders to invest in employees who will create organizational sustainability and competitive advantage, which must be based on talent. Having the best people in pivotal leadership roles, prepared to step in at any time, is essential for future success and to avoid the performance issues that follow sudden key leadership departures.
Yet, according to the AMA Enterprise study data, many North American companies seem to be at odds about whether or not they should embark on succession management strategies. As many as one in three organizations is considered genuinely committed to succession planning, the survey found, while for another 43 percent, the commitment is merely intermittent. Further, 14 percent of companies think senior management is just paying lip service to this type of succession planning (Figure 3).
Talent managers may want to bring these findings to senior management’s attention. Not only is there little consensus on what succession planning actually is, or even what it ought to be, this uncertainty also comes at a time when the overwhelming majority of companies are grappling with the competitive nature of a global economy and fast-changing business conditions. Smooth management succession is more important than ever before.
The ambivalence to succession planning is reflected in the data by the degree to which companies promote from within. While 43 percent report they seldom recruit from outside the organization, one-third often does (Figure 4).
The data seems to indicate leadership commitment to succession planning as a business imperative is lackluster at best. Fourteen percent of respondents said their senior leadership is not committed at all to promoting from within. Some 51 percent say leaders are somewhat committed, and 32 percent of firms surveyed said their senior management was very committed. Further, 23 percent of respondents believe succession planning to be the sole responsibility of HR, which may mean respondents think someone else should have ownership of succession practices. Whoever manages succession, this talent-driven process should align with strategic objectives. But according to survey data only 8 percent of respondents’ organizations actually do so (Figure 5).
The most robust succession management programs develop leaders throughout the organization and focus beyond the top level of executives. People often stay with an employer and are more engaged and committed to function at optimum performance levels when they are developed. Employees need to see the role they can play in the organization’s future and know how they can best contribute. Further, they need to know their contributions are valued, and that they have a place within the organization’s strategic growth plans.
When the leadership pipeline is strong, deep, wide, well-defined and well-communicated, it is considerably easier to promote from within and enhance overall employee engagement, reduce turnover and the inevitable costs due to lost productivity associated with acculturating new hires.
Organizations have been preoccupied with survival strategies and cost cutting. It’s now time for them to play catch up in talent retention and development efforts, and an effective management succession plan is integral to achieving this. Top people will stay if they are valued, have meaningful development opportunities and see potential for advancement. On the other hand, ignoring the need to build a leadership pipeline sends a loud message that current employee talent is taken for granted. That’s why the strongest employees may look elsewhere for their next career step.
Talent managers need to elevate this issue to senior management and get their buy-in and participation. Succession plans often fail without support and commitment from the senior leadership team.
Sandi Edwards is a senior vice president at AMA Enterprise. She can be reached at email@example.com.