An aging population like we have in the US comes with inherent challenges. In fact, Fortune has called it a “smoldering crisis.” It puts pressure on healthcare, education, taxpayers…and businesses. By 2040, almost half the country will be 40-plus.
This can have a huge impact on your organization, one of which is that it means you need a real focus on succession planning. And yet, only 54% of boards are actively developing a successor to the CEO.
But why is succession planning so important?
1. As executive leaders look one or two levels below themselves, they see potential successors who are young and lack experience. It’s hard to predict if they’ll be ready to take on a more senior role in the longer term.
2. Because of this, organizations go to the market to find successors rather than promoting internally.
Recruiting externally can be counterproductive and harm employee retention.
3. In this article, I examine the challenges and risks of succession planning, as well as the enormous upsides to your organization.
Why does a lack of succession planning create challenges?
Poor succession planning impacts both your workforce and your bottom line.
These stats are pretty startling:
- Having a strong CEO succession plan in place can mean $112 billion in additional market value than the previous year
- Companies that lack or have poor succession plans tend to be in the lowest performance quartile
- The cost to replace a senior leader who doesn’t succeed in their new role is approximately 10 times their pay, and there’s a 50% chance of it happening
- There’s a clear financial risk to poor succession planning, which is concerning on its own. But then you have to look at your workforce, and they represent your second big risk. Why?
The impact of poor succession planning on your workforce
As Richard Branson famously said, “Train people well enough so they can leave, treat them well enough so they don't want to.”
When organizations consistently recruit externally for senior roles, the impact on your existing workforce is typically demotivational - especially if they feel they could fill the role themselves. Demotivation negatively impacts efficiency and productivity, and may put you in the position of losing a crucial layer of middle management.
But it’s not just recruiting externally that signifies poor succession planning. It can also happen when you don’t recruit the right people internally, or when you don’t provide enough support or training and development.
When you don’t identify the right people to bring upwards into executive positions, you’ll end up with someone who simply can’t fulfill their role adequately. I hear a lot that people in middle management get promoted because they’re good at their job, which sounds great on paper, but it doesn’t mean they’ll be a good leader. Perhaps they didn’t even want to be a leader in the first place.
Even if you have identified the right person, you can’t just throw them in at the deep end. If they’re not well prepared for this next step in their career, you’re setting them up to fail. It’s important to develop and grow individuals as early as possible before they take their next step, or they may not be able to adapt and succeed as you might expect them to (or as they may be expecting themselves).
5 benefits of strong succession planning to organizations and your workforce
Identifying and investing in your successors long before they enter a senior role provides ranging benefits both to your organization and the individuals themselves.
1. Good succession planning helps retention. Just the fact of having succession plans in place has an indirect effect across an organization.
2. When individuals make the step up after their development process, they’re better in the role as well as stronger leaders. This again has an indirect effect across an organization.
3. You’ll be building and investing in a strong talent pipeline. It’s reassuring to know that you have people ready to step up as soon as required.
4. Your leadership team will be full of individuals who know your organization inside out if they’ve worked up through the ranks - and that includes your clients.
5. Individuals on a succession plan are typically highly engaged with their organization - 94% of businesses say that having a succession plan positively impacts engagement levels.
6. Finally, these individuals also have a clear career path to aim for, and with that an inherent feeling of being valued and invested in.
I’ve mentioned a couple of times that it’s important to start individuals on their development plan as early as possible. But how early is that? Ideally, I think you should be looking at a three-year plan so that you (and the individual) have plenty of time to develop in line with your organizational objectives and with their own career path.
If you need support with succession planning and building your internal talent pipeline, contact me directly and let’s arrange a call.
