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Why Succession Planning Can't Wait

January 25, 2002
Related Topics: Workforce Planning, Featured Article, HR & Business Administration

In the early morning hours of September 11, the world watched in horror as commercial jetliners crashed into the World Trade Center twin towers and the Pentagon. The loss of life and the destruction of property were incomprehensible.

Even before the dust had settled and anyone had a chance to grieve, several companies had to face the sobering fact that they had lost key executives who were on the planes or in the buildings. The list of organizations most severely affected includes Sun Microsystems, Cisco Systems, Cantor Fitzgerald, Oracle, AON Insurance, 3Com, Marsh & McLennan, Akamai, Raytheon, BEA Systems, MRV Communications, and the Fire Department of New York.

Suddenly, these organizations and others faced a very different future. They not only had to confront the reality that key talent and brainpower were gone forever, but they also had to cope with gaping holes in their management structure. They immediately had to identify positions, competencies, and skills that they needed just to stay afloat.

There's no way to plan for a disaster of the magnitude of the World Trade Center attacks. But there are specific things that organizations can do to prepare for unexpected events. Not surprisingly, many organizations are taking a close look at what's required to keep a business running if key executives suddenly depart -- because of death, illness, or changes in the business. "Without a well-designed succession management system, an organization can find itself thrown into chaos and confusion," says William C. Byham, CEO of the consulting firm Development Dimensions International, in Bridgeville, Pennsylvania.

Succession planning is no simple task. Mapping out the future involves more than an organizational chart displaying the corporate hierarchy. It's essential to know which employees have the particular skills and competencies required to assume positions higher on the corporate ladder, what talents will be required in the future, and how best to train employees for management positions, or hire from the outside. Succession planning can include the use of anything from a spreadsheet or simple database to sophisticated software for tracking skills, competencies, and 360-degree feedback data.

"Succession planning has evolved, and the methods that were used in the past aren't necessarily effective in today's environment," says Nancy Monson, a senior consultant for Hagberg Consulting Group in Foster City, California. Best-practice organizations use succession planning to prepare for potential problems and disasters, she notes, but they also rely on such plans to develop and maintain the strong leadership that's required under normal conditions. A succession plan can help an organization keep pace with changes in the business, industry, and overall marketplace. It can help the enterprise focus on organizational excellence.

Despite the obvious need for a succession plan, many companies neglect the task. According to a survey by the National Association of Corporate Directors, 45 percent of boards at companies with sales of more than $500 million have no meaningful process for grooming potential CEOs. And, remarkably, 24 percent of Fortune 500 companies don't consider succession planning a top priority.

What does it take to develop a succession plan that's suited to an organization's specific needs? How should an enterprise structure a plan? And what role should human resources play in the process? "An effective succession plan requires a careful examination of business strategy," says Ilene R. Gochman, a practice leader in organizational effectiveness for the consulting firm Watson Wyatt in Chicago. "An organization must understand where it is, where it wants to go, and what route it should take to get there. Only then is it prepared for all the various events that can occur in the course of doing business."

Succession from the Outside In

Although succession planning focuses heavily on developing talent from within, it's almost a certainty that a company will find itself looking for outside talent from time to time. Recruiting has become a multibillion-dollar industry. "Today, many companies use recruiting to fill positions at all management levels," says Kevin Butler, managing partner for the healthcare practice at the executive recruiting firm Heidrick & Struggles, in Greenwich, Connecticut.

The more prominent a position is, of course, the tougher it is to find a suitable candidate. And the riskier it is, too. Nancy Monson, a senior consultant for Hagberg Consulting Group, points out that cultural and political influences can create problems for outsiders -- particularly at the "C" level. "There are times when it is appropriate, even desirable, to look outside," she says. "But too much of a reliance on outside talent can come at the expense of developing leaders from within and the strength that comes with it."

Success with succession
In decades past, developing and promoting talent was a fairly simple proposition. The CEO or board of directors simply decided who would be slotted into a senior management position -- a decision usually based on hunches, instincts, and intuition. If the CEO or president died or became seriously ill, the number two person almost always assumed the top post. In most instances, the person next in line knew ahead of time that the company was grooming him or her for the job.

In today's fast-changing business environment, however, deciding who the future leaders will be over golf games and cocktail parties is no longer effective. Although senior-level positions remain a key to an organization's success, there's a growing realization that the entire management structure determines how a company acts and reacts to industry conditions and global events. Finally, as the events of September 11 indicate, a company's fortunes can change in a heartbeat. Bond-trading firm Cantor Fitzgerald lost about 700 of its 1,000 World Trade Center workers, including many top executives. At the Fire Department of New York, 343 employees died, including some of its top brass.

An executive interviewed in the Los Angeles Times last September expressed how overwhelming it is to face a future without a company's established leadership. Jimmy Dunne, a principal at investment banking firm Sandler O'Neill & Partners, was away from the office when the World Trade Center was attacked. Chief executive Herman Sandler and investment banking chief Christopher Quackenbush died in the building's collapse. Dunne suddenly found himself in charge. The problem was that he alone could not duplicate the strengths that each partner had brought to the firm.

The fact that different people bring different skills to the table isn't lost on experts. "Typically, the CEO of a company has a certain set of skills that leads to success," Monson says. "But the same person might not be so strong in other areas, and so might depend on others to fill in the gaps." A succession plan can help an organization identify its needs -- as well as those of individual managers and executives -- and ensure that it is hiring and training to fit an overall master plan. A plan can also help employees gain experience in diverse areas so that they're ready for an assignment when an opening occurs.

Putting a plan to work
One company that takes succession planning seriously is Cleveland-Cliffs Inc., an iron-mining firm headquartered in Cleveland. The average age of its workforce is 48, and many employees are approaching retirement age. In the next five to seven years, the company faces the prospect of losing up to a third of its workers, including key executives, says Lou Mineweaser, director of learning and organizational development.

Although the sudden loss of a key executive is always a possibility, the company is more focused on developing talent over the long term. "There is a tremendous amount of expertise at the company, and it's impossible to replace it overnight," Mineweaser says. "After looking at how the company functioned in the past and how it operates now, it became clear that we had to develop people who are capable of leading the organization into the future."

Cleveland-Cliffs turned to Professional Datasolutions, Inc., a Minneapolis-based enterprise and human resources software provider, for a 360-degree feedback instrument, and also used reporting tools from HRSoft in Morristown, New Jersey, to create a comprehensive succession planning system. It includes a skills and performance database that managers can search using numerous criteria, such as job function, proficiency for a specific skill, and experience. It then provides an organizational chart based on the desired factor. The company expects to have the system fully operational by early 2003. "The goal is to find high-potential people and prepare them for key leadership positions," Mineweaser says.

A well-designed succession planning system allows HR and senior management to adapt more quickly to rapidly changing business conditions -- including new roles and responsibilities for executives. Instead of senior management spending a great deal of time interviewing managers and supervisors, it's possible to immediately zero in on the best candidate. Then, when a position opens up, it's clear who is prepared to fill it internally, or whether the company should look outside for additional talent.

For Excel Communications, a Dallas telecommunications company with 2,300 employees and $1 billion in annual revenues, succession planning is an absolute necessity. In recent years, it has gone through two mergers as well as industry ups and downs. The company uses organizational charting software from TimeVision, Inc., to track information about employees and view changes -- and proposed changes -- across its intranet. "We are able to tap in to real-time HR data to identify trends and needs," says Jason Blair, senior manager of HR systems and information management.

Watson Wyatt's Gochman notes that there's no standard template for creating a succession planning system. It's a process that requires ongoing review and scrutiny -- and involvement from HR as well as the CEO and other department leaders. "It's important to understand what's required to run the company in the future rather than making decisions based on a past model."

When it's done right, succession planning is an investment in both the company and the human capital of the organization, says Lois Melbourne, president of TimeVision. "The entire organization can benefit by creating career paths and developing criteria to fill various positions." Then, whether a change is required because of normal business conditions or death, disaster, or defection, an organization is ready to act quickly, decisively, and effectively. Only then can a company know that it is able to conduct business as usual, even in the most unusual of times.

Workforce, December 2001, p. 34-38 -- Subscribe Now!

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