Succession Planning

Succession planning is the systematic process of defining future management requirements and identifying candidates who best meet those requirements. Succession planning involves using the supply of labor within the organization for future staffing needs. With succession planning, the skills and abilities of current employees are assessed to see which future positions they may take within the organization when other employees leave their positions. Succession planning is typically used in higher-level organizational positions, such as executive-level positions; however, as the authors of Building Tomorrow's Talent (2007) note, “Many companies start both their high potential nomination and succession planning programs at the executive level, and then add additional layers of the organization to this process over time.” In theory, succession planning can be used at all levels of an organization.

Succession planning is a critical part of the human resources planning process. Human resources planning (HRP) is the process of having the right number of employees in the right positions in the organization at the time that they are needed. HRP involves forecasting, or predicting, the organization's needs for labor and supply of labor and then taking steps to move people into positions in which they are needed.

GOALS OF SUCCESSION PLANNING

Succession planning is aimed at promoting individuals within the organization and thus makes use of internal selection. Internal selection, as opposed to hiring employees from outside the organization, has a number of benefits and drawbacks. With internal selection, the organization is aware of current employees' skills and abilities, and therefore is often better able to predict future performance than when hiring from the outside. Because of access to annual performance appraisals and the opinions of the employee's current managers, the company can have a fairly accurate assessment of the employee's work capabilities. Additionally, the organization has trained and socialized the employee for a period of time already, so the employee is likely to be better prepared for a position within the organization than someone who does not have that organizational insider experience. Finally, internal selection is often motivating to others in the organization—opportunities for advancement may encourage employees to perform at a high level.

STEPS IN SUCCESSION PLANNING

There are several steps in effective succession planning: human resources planning, assessing needs, developing managers, and developing replacement charts and identifying career paths.

Human Resources Planning . Engaging in human resources planning by forecasting the organization's needs for employees at upper levels is the first step in succession planning. Some staffing needs can be anticipated, such as a known upcoming retirement or transfer. However, staffing needs are often less predictable—organizational members may leave for other companies, retire unexpectedly, or even die, resulting in a need to hire from outside or promote from within. The organization should do its best to have staff available to move up in the organization even when unexpected circumstances arise. Thus, accurate and timely forecasting is critical.

Assessing Needs . The second major step for succession planning is to define and measure individual qualifications needed for each targeted position. Such qualifications should be based on information from a recent job analysis. Once these qualifications are defined, employees must be evaluated on these qualifications to identify those with a high potential for promotion. This may involve assessing both the abilities and the career interests of employees. If a lower-level manager has excellent abilities but little interest in advancement within the organization, then development efforts aimed at promotion will be a poor investment.

To determine the level of abilities of employees within the organization, many of the same selection tools that are used for assessing external candidates can be used, such as general mental ability tests, personality tests, and assessment centers. However, when selecting internally, the company has an advantage in that it has much more data on internal candidates, such as records of an employee's career progress, experience, past performance, and self-reported interests regarding future career steps.

Developing Managers . The third step of succession planning, which is actually ongoing throughout the process, is the development of the managers who are identified as having promotion potential. In order to prepare these lower-level managers for higher positions, they need to engage in development activities to improve their skills. Some of these activities may include:

• Job rotation through key executive positions. By working in different executive positions throughout the organization, the manager gains insight into the overall strategic workings of the company. Additionally, the performance of this manager at the executive level can be assessed before further promotions are awarded.
• Overseas assignments. Many multinational companies now include an overseas assignment as a way for managers to both learn more about the company and to test their potential for advancement within the company. Managers who are successful at leading an overseas branch of the company are assumed to be prepared to take an executive position in the home country.
• Education. Formal courses may improve managers' abilities to understand the financial and operational aspects of business management. Many companies will pay for managers to pursue degrees such as Masters in Business Administration (MBAs), which are expected to provide managers with knowledge that they could not otherwise gain from the company's own training and development programs.
• Performance-related training and development for current and future roles. Specific training and development provided by the company may be required for managers to excel in their current positions and to give them skills that they need in higher-level positions.

Developing Replacement Charts and Identifying Career Paths . In the final step of succession planning, the organization identifies a career path for each high-potential candidate—those who have the interest and ability to move upward in the organization. A career path is the typical set of positions that an employee might hold in the course of his or her career. In succession planning, it is a road map of positions and experiences designed to prepare the individual for an upper-level management position. Along with career paths, the organization should develop replacement charts, which indicate the availability of candidates and their readiness to step into the various management positions. These charts are depicted as organizational charts in which possible candidates to replace others are listed in rank order for each management position. These rank orders are based on the candidates' potential scores, which are derived on the basis of their past performance, experience, and other relevant qualifications. The charts indicate who is currently ready for promotion and who needs further grooming to be prepared for an upper-level position.

PROBLEMS WITH SUCCESSION PLANNING

Despite its many advantages, internal selection can also have some drawbacks. While the opportunities for advancement may be motivating to employees who believe that they can move up within the organization at a future date, those employees who feel that they have been passed over for promotion or are at a career plateau are likely to become discouraged and may choose to leave the organization. Having an employee who has been trained and socialized by the organization may limit the availability of skills, innovation, or creativity that may be found when new employees are brought in from the outside. Finally, internal selection still leaves a position at a lower level that must be staffed from the outside, which may not reduce recruitment and selection costs.

Many companies organize their management training and development efforts around succession planning. However, not all organizations take a formal approach to it, and instead do so very informally, using the opinions of managers as the basis for promotion, with little consideration of the actual requirements of future positions. Informal succession planning is likely to result in managers who are promoted due to criteria that are unrelated to performance, such as networking within and outside of the organization. Organizations would be better served by promoting managers who were able to successfully engage in human resource management activities and communicate with employees. Poor succession planning, such as just described, can have negative organizational consequences. Research indicates that poor preparation for advancement into managerial positions leaves almost one-third of new executives unable to meet company expectations for job performance. This may have negative repercussions for the newly promoted manager, the other employees, and the company's bottom line.

Succession planning is typically useful to the organization in its human resource planning, and when done properly, can be beneficial to organizational performance. However, there are potential problems associated with the use of succession planning: the crowned prince syndrome, the talent drain, and difficulties associated with managing large amounts of human resource information.

Crowned Prince Syndrome . The first potential problem in succession planning is the crowned prince syndrome, which occurs when upper management only considers for advancement those employees who have become visible to them. In other words, rather than looking at a wider array of individual employees and their capabilities, upper management focuses only on one person—the “crowned prince.” This person is often one who has been involved in high-profile projects, has a powerful and prominent mentor, or has networked well with organizational leaders. There are often employees throughout the organization who are capable of and interested in promotion who may be overlooked because of the more visible and obvious “crowned prince,” who is likely to be promoted even if these other employees are available. Not only are performance problems a potential outcome of this syndrome, but also the motivation of current employees may suffer if they feel that their high performance has been overlooked. This may result in turnover of high quality employees who have been overlooked for promotion.

Talent Drain . The talent drain is the second potential problem that may occur in succession planning. Because upper management must identify only a small group of managers to receive training and development for promotion, those managers who are not assigned to development activities may feel overlooked and therefore leave the organization. This turnover may reduce the number of talented managers that the organization has at the lower and middle levels of the hierarchy. Exacerbating this problem is that these talented managers may work for a competing firm or start their own businesses, thus creating increased competition for their former company.

Managing Human Resource Information . The final problem that can occur in succession planning is the concern with managing large amounts of human resource information. Because succession planning requires retention of a great deal of information, it is typically best to store and manage it on a computer. Attempting to maintain such records by hand may prove daunting. Even on the computer, identifying and evaluating many years' worth of information about employees' performance and experiences may be difficult. Add to that the challenges of comparing distinct records of performance to judge promotion capability, and this information overload is likely to increase the difficulty of successful succession planning.

Succession planning is one element of successful human resource planning. Unfortunately, many organizations do a poor job of succession planning or no succession planning at all. According to a 2006 report, two-thirds of major firms do not have a succession planning process despite the clear need shown by such statistics as the following, cited in “Succession Planning: Current Trends” (2006):

• 57 percent of executives are in job transition
• 28 percent of executives are actively in a job search while employed by someone else (up from 22 percent in 2004)
• Fortune 500 companies experienced a 23 percent increase in their turnover of chief financial officers between 2003 and 2004
• The chief markets at the top 100 branded companies change on average every 23 months

Even when it is done properly, succession planning has some potential problems that can harm employee motivation and the company's bottom line. Effective succession planning, however, is likely to improve overall firm performance and to reward and motivate employees within the organization.

SEE ALSO Employee Screening and Selection; Entrepreneurship; Human Resource Information Systems; Human Resource Management; Management and Executive Development

BIBLIOGRAPHY

Dessler, Gary. Human Resource Management. 10th edition. Upper Saddle River, NJ: Prentice Hall, 2004.

Goldstein, Irwin L, and J. Kevin Ford. Training in Organizations: Needs Assessment, Evaluation, and Development. 4th edition. Belmont, CA: Wadsworth/Thomson Learning, 2002.

Gomez-Mejia, Luis R., David B. Balkin, and Robert L. Cardy. Managing Human Resources. 5th ed. Upper Saddle River, NJ: Prentice Hall, 2007.

Heneman, Herbert G., III, and Timothy A. Judge. Staffing Organizations. Boston, MA: Irwin/McGraw-Hill, 2005.

Noe, Raymond A. Employee Training and Development. 4th ed. Boston, MA: Irwin/McGraw-Hill, 2007.

Noe, Raymond A., John R. Hollenbeck, Barry Gerhart, and Patrick M. Wright. Human Resource Management: Gaining a Competitive Advantage. 5th edition. Boston, MA: McGraw-Hill/Irwin, 2006.

Sims, Doris, and Matthew Gay. Building Tomorrow's Talent: A Practitioner's Guide to Talent Management and Succession Planning. Bloomington, IN: Authorhouse, 2007.

“Succession Planning: Current Trends.” Insala, 1 February 2006. Available from: http://www.insala.com/Articles/succession-planning/succession-planning-current-trends.asp.