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Succession Progression

Done with the right technology, succession planning that reaches deep into the hierarchy can build a company's reputation as a great place to work and, perhaps most important, further strategic goals.
January 13, 2006
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Angela Braly might still be writing legal briefs if it weren’t for the succession-planning program at insurance giant WellPoint Inc.

    In 1999, she was the top attorney at a company that was later bought by WellPoint. But she had bigger ambitions. Braly now serves as executive vice president, general counsel and chief public affairs officer for Wellpoint. She reports directly to CEO Larry Glasscock.

    "I credit my success to the succession-planning process," Braly says of a program that includes computer software for tracking some 1,400 internal candidates as well as daylong conversations among executives about talent.

    WellPoint, an Indianapolis-based firm with more than 42,000 employees, is one of many big companies making succession planning a higher priority and a catalyst for broader talent development. Companies increasingly recognize that preparing for high-level turnover and grooming new leaders are crucial, in part because business conditions in many fields are growing more turbulent.

    The company, formed out of the 2004 merger between Anthem and WellPoint Health Networks, faces challenges such as hard-to-predict changes in health care regulations, potentially costly lawsuits and declining public sentiment toward health insurance companies. In this tough climate, it has outlined an ambitious five-year plan for making health care more affordable and becoming the most trusted partner in the field for consumers.

    As Braly sees it, the same program that helped her achieve personal goals is vital to keeping a steady bead on the company’s overall aims. Succession planning and strategic planning "go hand in hand," she says.

Work in progress
   
Succession planning at larger companies has gotten a shot in the arm in just the past few years, says human resources consultant Jim Walker. Firms have been transforming what in many cases were annual executive replacement plans done on paper into comprehensive leadership development programs that reach down into the ranks of middle managers, often with the aid of computer software.

    "It’s more a talent review," Walker says. "It’s not so much filling the job as it is about reviewing the leadership talent and helping it progress."

    Still, there’s room for improvement. Lack of sound succession planning for CEOs in particular amounts to a "crisis," consultant Ram Charan argued in a 2005 Harvard Business Review story.

    Recent research supports his view. In a 2003 study of succession management involving more than 270 organizations worldwide, the Corporate Leadership Council, a research firm, found that nearly 90 percent of the participants said succession management was "a top corporate priority for 2003." But just 6 percent said they were confident the systems they have in place "will do the job to build top-flight executive teams."

    And according to a survey of 20 CEOs at large companies conducted by the authors of a recent Harvard Business Review article, almost half had no succession plans whatsoever for vice presidents and above.

    Board members and CEOs tend to avoid the issue of succession planning, says Jeff Cohn, one of the authors of the Harvard Business Review article and managing partner at New York-based consulting firm Bench Strength Advisors.

    "It can be a tender subject for even a skilled board to bring up," Cohn says. CEOs "don’t like to plan for their retirement."

    Charan points the finger at the amount of time boards have been spending on governance and fiduciary duties. "A packed agenda is the chief culprit," he writes.

    Some companies, though, are putting succession management higher on the corporate agenda. For years, General Electric and IBM stood out as the standard bearers for smart leadership planning and development. Now such practices are proliferating. Energy utility Southern Co., for example, has juiced up its succession planning by identifying and grooming "high-potential" internal talent. In 2006, the company is moving its annual succession planning process from the end of the year--where it can get short shrift amid performance reviews and other tasks--to the spring.


"It’s more a talent review," Walker says. "It’s not so much filling the job as it is about reviewing the leadership talent and helping it progress."
--Jim Walker, HR consultant

    And auto parts and services chain Pep Boys revved up its succession planning about a year ago with a software service that helps the company standardize performance reviews and share talent across divisions. The software, from provider SuccessFactors, cost about $180,000 in its first year. But in the coming year, Pep Boys expects the figure to drop to $130,000 and for the technology to pay for itself through more hiring from within. External hires cost Pep Boys about $20,000 each, while internal hires cost about half as much.

    The expense of hiring external candidates, combined with increased turnover in the corner suites, is helping to fuel the new focus on succession management. What’s more, a recent study from consulting firm Booz Allen Hamilton concludes that "over their entire tenures, CEOs appointed from the inside tend to outperform outsiders" when it comes to returns to shareholders.

    Succession planning also has become a bigger deal because of anxiety about baby boomers leaving the workforce. At Southern Co., 50 percent to 60 percent of the leaders are eligible to retire in the next five to seven years. A decade ago, that number was closer to 20 percent. "Our business challenge has been to identify who is the next generation of leaders," says Jim Greene, the company’s director of talent development.

Planning from the top
   
Company boards and officers should take planning for the future of the executive management team seriously and set the tone for a process that filters down to supervisors through­out the organization, says Bench Strength Advisors’ Cohn.

    Another key to smart succession planning, experts say, is an integrated program tied to a company’s overall strategy. Ad-hoc approaches to succession management or leadership development--such as unfocused executive training--can add little value.

    Installing software without taking a hard look at internal succession processes can be a wasted effort. On the other hand, companies seeking to extend succession planning to the mid-manager ranks all but require a computerized system with a database, Walker says. In the past, organizations may have wanted to track their lower leaders and create wise career development plans, he says, but with today’s software "they actually do it."

    WellPoint officials point to software from Pilat HR Solutions as one of the strengths of their program. Before the merger, Anthem lacked such a software system. That meant limited visibility for rising stars, says Judy Wade, who came from Anthem and is now WellPoint’s director for executive development and succession planning. "It was really hard for one of our executives in the Northeast to know who the really talented people in the Midwest were," she says.

    WellPoint asks its managers at the director level and above to enter into the Web-based system such data as educational background, what jobs they’d like a shot at and whether they’d be willing to move to various parts of the country. Supervisors of director-level and higher positions are asked to assess their direct reports’ potential and approve career development plans. They also consider each individual’s risk of leaving and the likely impact of their departure.

    Armed with such information, the company holds what it calls "talent calibration sessions" that focus on planning for departures as well as the development of up-and-coming leaders. The annual sessions start with CEO Larry Glasscock and his executive leadership team. Results from that review are reported to the board of directors. The sessions--which can last a day or more--then cascade down through four levels of management.

    Key to these discussions is candid talk about the company’s talent, which includes managers contesting ratings given by their peers. "You need honesty," says Jean Hopper, vice president of talent management and organization development at WellPoint. "Garbage in, garbage out in this system."

    WellPoint declines to provide details about the overall cost of its succession-planning program or the return on that investment. But the company cites an incident four years ago in which two top-level executive posts were filled internally thanks to the system. The company then "backfilled" each resulting vacancy with internal candidates, and used its succession-planning process to fill the cascading set of openings going down five management levels beneath the president. In part by avoiding external recruiting fees, WellPoint estimates it saved $1 million.

    The program isn’t perfect. About 15 percent of the company’s managers did not complete their online tasks in 2005, though Hopper expects the figure to get closer to the 99.8 percent compliance rate of WellPoint managers before the merger. In addition, Braly says the company can do more to allow people to win promotions without having to leave their home regions.

Maintaining strategic focus
   WellPoint’s succession planning and talent development likely will be tested in the coming years. The company, whose divisions include Blue Cross of California as well as dental and vision units, faces competition from rivals such as Aetna and Cigna. The health care field continues to be plagued by lawsuits. And ever louder calls for more government action on health care could lead to a dramatic business disruption for insurers like WellPoint.

    What’s more, even as it seeks to win the trust of health care consumers, the company is part of an industry viewed with increasing skepticism. In a Harris Interactive study published in 2005, just 40 percent of U.S. adults said health insurance companies do a good job of serving their consumers. That’s up four percentage points from 2004 but a far cry from the 55 percent that said the industry was doing a good job in 1997.

    WellPoint’s succession-planning process is key to keeping it focused amid tumultuous business conditions, Braly says. She also sees a positive side effect to the succession-planning program. Talent-review discussions foster better teamwork overall, she says, because managers build trust as they share frank comments.

    With examples like Braly, WellPoint’s succession-planning and career development efforts also have earned high marks from advocates for women’s advancement in corporations. For the past two years, the National Association for Female Executives has ranked the company in the top 10 firms for executive women. In 2005, it applauded WellPoint as being among the firms where the board of directors reviews succession planning with an eye toward gender equity.

    Without effective succession planning, potential leaders like Braly can be overlooked, and end up leaving. Long-term plans are less likely to be realized. Done well, however, succession planning saves money, furthers strategic goals and builds a firm’s reputation as a great place to work, Cohn says.

    Barbara Lewis, director of training and consultancy at the Institute for Personality and Ability Testing in Savoy, Illinois, says companies often expect leaders to sweep in and save the day even though research shows that companies succeed when a CEO has others to lean on and learn from. That’s what helps companies avoid falling prey to what she calls the myth of the hero CEO.

    Leadership is rarely a solo ride.

Workforce Management, January 16, 2006, pp. 31-34 -- Subscribe Now!

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Succession Planning