4 Top Benefits of Leadership Succession Planning

Darleen DeRosa — November 8, 2018 Follow @onpoint_llc

— November 8, 2018

Today’s organizations face many challenges in the dynamic global economy, some of which include technological disruption, rapidly shifting customer demands, and public pressure from activist groups. The average CEO tenure for publicly traded companies is only five years, with the average employee tenure close behind at seven years. As new generations eager for advancement opportunities enter the workforce, organizations need to think long and hard about strategies to create a strong pipeline of future leaders.

Succession planning helps companies identify high-potential candidates and prepare them to assume senior positions as they become available. Amazingly, only 15 percent of companies in North America claim to have a pipeline of such candidates in place. With the competition for talent bound to increase in the future as high employment rates keep the talent pool shallow, establishing a succession planning process is more important than ever before.

Succession Strategy Benefits

1: Reduced Costs

Perhaps the most immediate benefit of a talent succession process are the cost savings. While unexpected vacancies at the executive level get plenty of headlines, employee movement and departures throughout an organization can be quite costly to address. The company has to advertise the open position, evaluate candidates, schedule and conduct interviews, and sometimes even pay for third parties to conduct a search or perform background checks and assessments. Depending on whether or not the company has an internal human resources department to handle recruiting, the costs could be even higher due to outsourcing.

Hiring new employees is a time-intensive process, and one that doesn’t immediately translate into revenue. In fact, it carries significant hidden costs. A Harvard Business School study found that the typical mid-level manager needs 6.2 months to reach a “break-even point” in terms of cost and productivity. Setting aside the cost of hiring, integration, and training, new employees function at about 25 percent productivity after completing their training. Even after three months, the average employee is only functioning at about 50 percent productivity.

Effective talent succession planning can reduce much of these costs by identifying and preparing internal candidates to fill positions as they become available. Internal searches are more cost effective to conduct and since candidates will already be familiar with company policies, training costs will be reduced as well.

2: Continuity

One of the biggest challenges when an employee leaves unexpectedly is the threat of disruption. At the executive level, a sudden vacancy can leave an organization temporarily rudderless as it scrambles to find a replacement. Even when internal candidates are available, vacancies can create ripple effects that severely disrupt business operations. Losing a mid-level employee may not sound like a serious setback, but their absence often results in other employees having to divert time from their tasks to handle those of the vacated position until a replacement can be found. For client facing positions, an extended transition period can significantly damage relationships and undermine trust.

By establishing a firm succession strategy roadmap that identifies leadership positions and the potential candidates who might eventually fill them, companies can better anticipate the impact of sudden changes as employees depart or move throughout the organization. They can also ensure that potential candidates are prepared to step into new roles with minimal adjustment, allowing the business to continue to operate smoothly no matter what personnel challenges they’re forced to address.

3: Improved Engagement

One of the biggest challenges facing organizations is keeping their employees engaged. Highly engaged employees are more productive and have better retention rates than their peers, making them extremely valuable assets. People are more likely to be committed to an organization when they know they have a clearly-defined future. They see that they are important and valued, which encourages them to take greater ownership over their work.

Millennial and Generation Z employees, in particular, put a great deal of emphasis on opportunities for career development. A good succession planning process can help them see what their future can be in the organization, providing them with an advancement path rather than leaving them feel like they could be stuck in the same position for several years.

4: Better Results

Developing a formalized succession strategy forces organizations to consider what competencies are required for critical positions. These models help to identify and develop the characteristics effective leaders need for success, ensuring that potential candidates in the succession pipeline are better prepared for their roles. For organizations with shifting strategic goals, creating success profiles for key positions allows them to craft their development programs to prepare leadership candidates to focus on skills and competencies that will be relevant when they’re ready for promotion.

Succession planning also requires companies to bolster their assessment methods. Rather than basing hiring and promotion decisions on traditional categories like productivity, seniority, and charisma, they need to focus on identifying high-potential leaders early and often to set them on the appropriate development path. On average, this means that the succession pipeline will be filled with candidates who are more qualified and prepared to succeed in their new roles, which can deliver better business results over time.

Succession planning is valuable to any organization looking to avoid the disruption that comes from unexpected vacancies, but it also brings a number of other benefits. Establishing a robust leadership pipeline puts companies on a strong footing to deal with changing circumstances and adjust to challenges in the short and long term. While the work of putting the necessary assessment measures in place may seem like a substantial up-front cost, it’s an investment that promises to deliver positive outcomes in the future.

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