Succession Planning: Insurance for the Organization's Future - Report Example

Succession Planning: Insurance for the Organizations Future Table of Contents 0 Executive summary 3 2.0 Definition of Succession Planning 4 3.0 Importance of Succession Planning 4 3.1 Knowledge Transfer 4 3.2 Meeting Employee Needs 5 3.3 Reaction to Uncertainties in Labor Market 5 3.4 Reaction to a Competitive Market 6 3.5 Changing Demography 6 4.0 Considerations in Succession Planning 8 4.1 Effective Succession Plan 8 4.2 External and Internal Succession Planning for Key Leaders 9 4.3 Organizational Size 11 5.0 Conclusion 12 6.0 References 13 1.0 Executive summary This report provides an analysis of the role played by succession planning as insurance for an organization’s future. The report is based on available literature on succession planning and its importance in ensuring maintenance of knowledge and skills during leadership transitions. Succession planning is important for sustainability of the organization because of enabling the transference of knowledge from the senior leaders to potential leaders, adapting the organization to the needs of strategic employees with a developed plan for their professional growth, cushioning the organization against future uncertainty in the job industry and adapting organization to the changing demographic composition of employees. The importance of succession planning means organization should invest on effective plans for succession. This effectiveness can be met though assessment of suitable succession planning based on both internal and external sources of knowledge and skills, organizational size and future needs for growth. 2.0 Definition of Succession Planning Dodd and Simons (2005) perceives succession planning as the process that sustains the future success and vitality of an organization by developing key individuals who will carry forward organizational vision. Sambrook (2005) perceive succession planning in terms of replacement where a process is created to cover any vacant position that might result from retirement, serious illness, death, promotion and the creation of new posts in an organization. Therefore, literature on succession planning provides various definitions but all of them agree that the motive for initiating the process is to ensure sustainability of the organization through creation of a smooth transition process that will a position is not left vacant when the occupier leaves the organization or is promoted. Groves (2003) notes succession planning has continued to evolve and now represents much more than the replacement of a number of key leadership within an organization. Groves (2003) claim the role of succession planning in the contemporary world has transformed to become that of managing knowledge and change, developing leadership potential, form smart teams, and retaining and deploying employee talent in a way that the organization can continue to perform to its greatest potential. 3.0 Importance of Succession Planning 3.1 Knowledge Transfer The importance of succession planning in insuring organization’s future is seen in the ability of the organization to use it as a tool for managing the transfer and diffusion of knowledge. Organizations that have the capacity to overcome current and future competition are one that protects available knowledge whether tacit or codified. Therefore, having a succession plan that keeps existing knowledge and talent within the organization while also having the ability to attract more from competing and related organizations will prepare an organization for future changes in the leadership positions. To achieve this end, Koc-Menard (2009) advices that organizations should implement strategic interventions which might include having in operation a relaxed retirement arrangements in addition to the initiation of an alumni program to manage existing knowledge. It is also worth noting that succession planning must not always be focused on maintain hard skills within the organization but can also be used by key leaders mentoring incoming leaders through instructions on skills such as communication skills for effective interaction. This will provide the necessary ground for senior organizational leaders to undertake the necessary training and mentoring programs for potential successors (Appelbaum, Benyo, Gunkel, Ramadan, Sakkal and Wolff, 2012). 3.2 Meeting Employee Needs Given the identification of succession planning as an endeavor that has the potential of influencing overall operations of the organization, it is essential for organizations that wants to insure future operations to undertake the process as soon as possible. Research on succession planning has identified future benefits that organizations might gain when implementing pre-determined succession plan. Fink (2010) points out that most employees nowadays are increasingly strategic in planning their career development and job searches to suit their future needs of employment and progression through career. Organizations that seek future sustainability must adjust their employment and employee retention policies to be in line with such changes in the job market in order to attract and retain the best employees in the marker. 3.3 Reaction to Uncertainties in Labor Market Organizations that operate in both public and private sectors have in the past been faced by crises when they have a sudden need for human resource to cover a specific requirement within the organization (Fink &Brayman, 2006). Fink and Brayman, (2006) note the future success of an organization does not depend on reactionary policies in the replacement of talent. This is because suitable qualified candidates for vacant employment positions will not always be ready and waiting. Therefore, the realization of future uncertainty that might result from aspects such as death, illness and resignation means organization should not presume their promotion and recruitment policies will adequately cover their future human resource needs. The importance of having succession planning to cover uncertainties was seen in the circumstances surrounding the health of former Apple founder and CEO Steve Jobs who had gone on a medical leave due to poor health but was later on decided to step down and took a position as the chairman of the board. Consequently, Timothy Cook who had been with the company for some years as the second senior most official was chosen as the next CEO (Aguilar, 2012). Such events as experienced by Apple demonstrate that having a succession plan ensures organizations are not reactive but proactive in their identification and development of qualified talent with potential of being summoned to take up any vacant position that might arise from both expected and unplanned succession events. 3.4 Reaction to a Competitive Market Succession planning ensures the organization adapts to the current and future trends in knowledge and talent maintenance and development especially when considering the volatility of political economy (Griffiths, 2012). This situation has been made critical by the intensifying international competition for the best knowledge and talent in the job market in addition to the organizational need to be cost effective in recruitment and retaining employees (Griffiths, 2012). Therefore the having a proper succession planning will result in cost saving when filling available positions while also attaining the synergies required for the organization to prosper in business environment that characterized by rapid changes. 3.5 Changing Demography Even as organizations continue to strategize for the future based on attraction and development of the best skills and knowledge, the demographic composition of human resource also calls for a rethink of future transitions. The current demographic composition of human resource inmost organizations shows a number of organizations are bound to face a an increased rate of turnover as some of the leaders born between the period of 1945 to 1964 prepare to step down from their posts in the coming years (Appelbaum et al., 2012). This group that is often referred to as ‘baby boomers’ have an extensive wealth of knowledge due to the experience accrued over the years of service in various organizational capacities. Succession planning should target harnessing of this wealth of knowledge and ensure there is no loss of knowledge and skills when the younger generations take up the key leadership positions. The transition crisis that organizations without effective succession planning might face in future due to the retirement of the ‘baby boomers’ has been made more real by the past global economic recession which made many senior managers to reconsider their retirement goals. Due to economic insecurity caused by the wiping out of large portions of savings, senior managers in most organizations decided to push forward their plans to retire in order to regain their economic status before choosing to leave their position. This has been helped by making the compulsory age for retirement flexible due to the recognition of the benefits that this group of employees can afford the organization especially in terms of their accumulate wealth of knowledge that is built on years of experience (Luna, 2012). Although organizations are benefiting from this trend at the moment, authors such as Leland, Carman and Swartz (2012) have warned that these benefits are only short term. In the long run, the organizational leadership pipeline is disrupted as the risk of leadership vacuum might arise. Sustainability of an organizational depends on having in place effective succession planning mechanism that ensures the organization is protected from possible future leadership crises especially when a key leader leaves without prior arrangements for replacement. It is therefore paramount that organizations initiates strategies for an effective succession planning to avoid a situation whereby an urgency to select and develop key leaders forces the organization to rely on reduced group of applicants who will also require extensive training and orientation into the organization culture (Leland, Carman and Swartz, 2012). 4.0 Considerations in Succession Planning The realization of how important succession planning is to the future of an organization calls for organizations to put in place a process for transitioning knowledge and talent from one leader to another. Successful transitioning of leadership within an organization needs to fit a number of specific criteria for future sustainability. Therefore, to insure the future of an organization, the succession plan should take care of the needs of the organization in terms of effectiveness of the plan, organizational size, and transfer of knowledge and replacement of key leaders (Rothwell, 2010). 4.1 Effective Succession Plan Literature about organizational management of talent and knowledge for sustainable future highlights the importance of developing an effective succession plan. There are a number of critical aspects will distinguish an effective succession planning from that which does not achieve the full potential of such policies. Among such aspects includes being proactive in formulation and designing. An effective succession plan is one that fits into the broader organizational strategic plan for how to achieve future goals (Rothwell, 2010). Such plans for succession are initiated much earlier before the need arises therefore being characterized by adequate time for preparation that makes all the involved parties ready for the conceived changes. Effective succession planning is that which is implemented concurrently with other aspects of organizational improvement or restructuring plans and includes all the roles and responsibilities of the parties involved in the development of knowledge for future success (Hargreaves and Fink, 2006). Such an approach ensures the succession plan receives support and commitment from top management who are tasked with the communication of organizational strategy to the rest of the human resource. Distinguishing between a succession plan and an effective succession plan is only a section of ensuring functionality of organizational strategies. It is also necessary that assessment of barriers successful implementation is made. Therefore, an effective succession plan will isolate barriers to its effectiveness that might include organizational culture, lack of initiative from top management and key leaders, insufficient resources for development and implementation and inadequate reward mechanisms for future leaders. These barriers threaten the implementation of succession plan as the initiative will lack the necessary support to implement desired objectives. However, organizations can transcend these barriers when the top managers bring the entire concerned groups together and explain the dependence of future success on smooth transition and detainment of skills and knowledge. 4.2 External and Internal Succession Planning for Key Leaders Literature on succession planning recognizes the role of succession planning in transitioning of key leaders within an organization (Hargreaves and Fink, 2006). Having in place a proper organizational strategy for succession becomes even more important when the strategy plays a role in the transitioning of the organization’s key larders such as the CEO. Of greater concern is where to source for the key leader from internal ranks of the organization or to search externally with focus being on the impact the chosen criteria will have on strategic change and organizational performance (Hutzschenreuter, Kleindienst and Greger, 2012). Each of the two criteria has its own strength and weakness that calls for the analysis of both short term and long term impact of the chosen criterion. The benefit of sourcing for key leaders from outside the organization are becomes important when there is a need for significant change in organizational strategy. The new leader arrives into the organization with new ideas about the necessary changes to be implemented on specific areas of need. The changes introduced by a new leader in the organization has a higher chance of being successful since there are no social ties between those previously in the workplace and the new leader (Hutzschenreuter, Kleindienst and Greger, 2012). However, sourcing from outside the organization might result in resistance to change as other employees might want to stick to their established organizational culture. Another consequence might be a higher turnover of other executive members whose ideas might not be in line with those of the new leader while others might feel they have been passed over in favor of an outsider. Therefore, sourcing from outside the organization calls for adequate preparation to distinguish aspects of organizational culture that needs transformation so that employees are prepared for the coming changes. This can be exemplified by the approach taken by American Express Company where there exists a “Nominating and Governance Committee” whose function is to deliberate on various concerns about business strategies, process of identification and evaluation of a potential candidate. It is this committee that has a say on the overall say in the making of key management succession decisions (Aguilar, 2012: p. 15). Internal succession plan may therefore be the option for organizations that wants to ensure continuity of organizational culture. Internal succession plan prepares the next leader for the propagation of the established organizational norms. The new leader is able to use the established knowledge of the organization and developed social relationship to rally the human resource to support achievement of further success basing on the past achievements. This method also develops organizational loyalty as the rest of the employees feel committed to their responsibility when they perceive the organizational willingness to support upward mobility to the top ranks (Hargreaves and Fink, 2006). However, this does not imply internal succession plan has no faults especially when there is perception of favoritism with specific individuals being seen as heir apparent (Ibarra, 2005). Fellow worker might not support such succession plans especially when the successor had a close personal relationship with the predecessor (Luna, 2012). This implies internal succession plans will only translate into future success of the organization when it is implemented with utmost fairness and based on identified knowledge and talent to suit the position. 4.3 Organizational Size Succession planning will only translate into future success of the organization when it is undertaken based on the development needs of the organization. Consequently, it is essential that future leadership roles are developed bead on the assessment of organizational size in the present situation while also having future prospects for growth in mind (Zepeda, Bengtson and Parylo, 2012). Succession planning needs to take into consideration the expectations of that the organization might achieve moderate to high rate of growth or expansion in the coming days. This leads to a better insight into the kind of skills and knowledge necessary that will be required in the future in order for the organization to sustain the level of success. This future success is only achievable when the predetermined roles are filled by employees who are willing and able to assume the new roles. While organizations might find it safe to work within the current organizational needs because of such constrains financial requirement or the uncertainty in future market trends, succession plan that is based on prospects for future growth might work to stimulate an increase in output as future leaders work to make the realization of growth a reality. Naveen (2006) warns that big organizations might be faced with high costs when succession planning depends on external candidates to fill existing and future key leadership positions. The high cost incurred by large firms during succession planning stems from the required resources to prevent competitors from taking the best available knowledge and skills. Further costs must also be faced when transferring organization-specific knowledge to the successor through training aimed at aquatinting the new entrant with the philosophies and culture of the organization 5.0 Conclusion From the foregoing, succession planning is at the center of organization success in the future due to the ability of creating organizational mechanisms that will adopt the organization to the future needs. It has also been determined that succession planning benefits the organization in a number of ways including the transference of knowledge from the senior leaders to potential leaders. The organization is also able to adapt to the needs of strategic employees who have a well-developed plan for their professional growth. Succession planning has a critical role of cushioning the organization against any future uncertainty in the job industry which might result in shortage of specific skill and knowledge. The changing demographic composition of employees in the workplace with a number of leaders expecting to retire in the near future also highlight the importance of having an effective succession plan. The future success of an organization will depend on the effectiveness of the succession plan to match the current organizational needs with those of the future. The organization is also faced with the decision over whether internal or external succession planning will meet the requirement for new leadership. The current organizational size and future needs for growth also informs the succession policy since it is what determines the leadership role to be created. In conclusion, having in place an effective succession planning will insure the future of an organization as it creates a framework for transitioning of knowledge and skills to the new generation of leaders. 6.0 References Aguilar, M (2012). CEO Succession Planning: Current Developments, Shareholder Activism, and Disclosure Practices. The Conference Board, Research Report 1492, 2012. Available at http://www.conference-board.org/retrievefile.cfm?filename=TCB-DN-V4N12-12.pdf&type=subsite. Accessed 14 April 2014. Appelbaum, S., Benyo, C., Gunkel, H., Ramadan, S., Sakkal, F. and Wolff, D. (2012). Transferring corporate knowledge via succession planning: analysis and solutions, Industrial and Commercial Training, 44(7), 379-388. Dodd, K. & Simons, C. (2005). Succession planning – securing your organization’s future. Home Health Care Management & Practice, 17(5), 401-402. Fink, D. (2010). The succession challenge: building and sustaining leadership capacity through succession management. Sage: Thousand Oaks. Fink, D. and Brayman, C. (2006). School leadership succession and the challenges of change. Educational Administration Quarterly, 42(1), 62-89. Griffiths, M. (2012). Effective succession planning in nursing: a review of the literature. Journal of Nursing Management, 20, 900-911. Groves, K. (2003). Integrating leadership development and succession planning best strategies. Journal of Management Development, 26(3), pp. 239-260. Hargreaves, A. and Fink, D. (2006). Sustainable Leadership. Jossey-Bass: San Francisco. Hutzschenreuter, T., Kleindienst, I., &Greger, C. (2012). How new leaders affect strategic change following a succession event: A critical review of the literature. The Leadership Quarterly, 23(5), 729-755. Ibarra, P. (2005). Succession planning: an idea whose time has come. Public Management, 87 (1), 18-24. Koc-Menard, S. (2009). Knowledge transfer after retirement: the role of corporate alumni networks. Development and Learning in Organizations, 23(2), 9-11. Leland, S. M., Carman, J. G., & Swartz, N. J. (2012). Understanding managerial succession planning at the local level: a study of the opportunities and challenges facing cities and counties. National Civic Review, 101(2), 44-50. Naveen, L. (2006). Organizational complexity and succession planning. Journal of Financial and Quantitative Analysis, 41(3), 661-683. Rothwell, W. (2010). Effective succession planning: ensuring leadership continuity and building talent from within, 4th edition. New York: American Management Association. Sambrook, S., (2005). Effective succession planning. New York: AMACOM. Zepeda, S., Bengtson, E. and Parylo, O. (2012). Examining the planning and management of principal succession. Journal of Educational Administration, 50(2), 136-158. Read More