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Succession Planning - Published March 2008
Creating Consistency:
Enterprise-Wide Succession Plans
by Agatha Gilmore
When its CEO left, the Northeast Georgia Health System (NGHS) celebrated his 40 years at the company.
When its COO left, the company celebrated his 27 years at the organization.
When several other 20-plus-year executives left, senior executives at NGHS started to panic.
"We went from a 40-year CEO with a community-minded culture to a growth plan that really just defies the imagination," said Jack Fulbright, vice president of human resources at the NGHS. "It's amazing."
The plight of the NGHS isn't unique. In fact, the scenario might become commonplace during the next few years. With more than 70 million baby boomers eligible to retire and not enough skilled workers to fill the ranks, the U.S. Department of Labor estimates the workforce will be short 10 million employees by 2010.
And according to research from the Aberdeen Group, fewer than half of organizations surveyed for the 2007 report "The Looming Leadership Void: Identifying, Developing, and Retaining Your Top Talent" currently have a succession planning strategy in place, though this number is expected to jump to 75 percent by the end of 2008.
"Succession planning, once reserved for the most senior positions at organizations and considered a component of leadership development, is being viewed more holistically across the organization and its stakeholders," wrote Aberdeen Research Director Kevin Martin.
Further, the concept of a successful succession plan has evolved. Gone are the days of the hush-hush, case-by-case replacement process. Today's market requires organizations to look at succession planning as a visible, integral, enterprise-wide part of their overall business strategies, plot out projected growth and be clear with employees about how they fit into the equation.
The Push to Promote From Within
"One of the reasons succession planning is so key is the way that we work is changing," said Ilene Ringler, principal of Ilene Ringler Associates, a consulting firm based in Phoenix. "So to have the right people ready to move when you need them is more critical than ever before."
This certainly became clear to those at the NGHS, who, without an integrated succession plan, had to wait until longtime employees retired before scrambling to find replacements.
"The organization knew these people were going to retire, and yet we still had to go out and replace the executives that we lost," Fulbright said.
This resulted in external hires of more than 60 percent in top executive jobs. Recruiting talent externally — perhaps one of the most costly and unwieldy side effects of not having an enterprise-wide succession plan — can have a debilitating effect on a company's bottom line.
For example, research done on CEO succession by the Hay Group showed hiring externally can result in shorter employment terms, less stable company culture and morale and compensation-related costs, as organizations often have to bump up pay to attract external hires.
The cost of recruiting new talent also is a factor, regardless of organizational level.
"The financial repercussions — and forget about the downtime of making a bad decision on the placement, in terms of lost business opportunity — just looking at the replacement costs, are significant," said Ron Garonzik, vice president of leadership talent at the Hay Group in New York. "Internal candidates are more likely to succeed because organizations that have figured it out have time to develop the candidates and to address the risks that they pose in relation to critical positions."
To help lessen the extent of external hiring in the future, the NGHS has since begun to implement an enterprise-wide succession planning strategy whereby each employee identifies three potential in-house successors, estimates how long it would take those successors to work into the positions and then helps create specific development plans for them.
"We just can't afford to have the inconsistency and the silos that existed in the past," Fulbright said.
Succession as Business Strategy
The push to promote from within also has helped highlight the fundamental connection between succession planning and key business goals around development and retention.
"Succession planning isn't this stand-alone thing," said Kevin Martin at Aberdeen. "It's something that feeds recruiting, performance management, learning and development."
For this reason, the first step in creating a successful succession plan is to think of it as a fundamental element of a dynamic business strategy. The plan should not only identify potential gaps within the organization, it should explicitly define current and future job roles.
"First and foremost, succession is about ensuring your business has the organizational capability in place to prosper," Garonzik said. "That means looking at the business context and strategy very carefully and understanding in terms of strategic requirements what the operating model needs will be going forward. How is the organization going to run to generate the revenue it requires?"
To fill these well-defined job roles requires a high level of openness and transparency within the organization.
"You have to know how the organization is going to grow and be really clear on what people need to know and need to be able to do to be successful in that future state," Ringler said. "And that's not just hard skills. It's how people like to work, what motivates them. It's, 'Do they want to be a part of the organization's growth?'"
While many organizations have high-potential programs, they often don't delve deeper to find out what the individuals themselves are interested in pursuing, Garonzik said. This depth can be particularly helpful when considering multigenerational workforce preferences.
"What we're really pushing companies to consider is, 'High potential for what, exactly?'" he said.
A consistent succession plan helps employees understand where they fit in the organization, as well as where they might want to grow. It also helps foster a culture of understanding that might assuage the effects of external hiring, Ringler said.
"If the culture is one of full disclosure, which many cultures are not, people know who the higher [potentials] are, so it helps people to know how the organization goes about doing its decision making," Ringler said. "And that helps the hi-pos know, or anybody know, 'How can I be part of the succession planning process?'"
This sense of employee empowerment has become a crucial advantage in today's market. Organizations that offer workers the opportunity to track their own progress will recruit the best talent, Martin said.
"It's no longer a nice to have. It really becomes a need to have," he said. "It becomes this holistic recruiting, developing, retention type of strategy."
It's also at this learning and development stage of succession planning that applying technology can vastly improve results.
"The automation brings consistency, it brings facilitation, it brings the ability to leverage that data into another system," Martin said. "[It] provides so much greater insight; it provides greater access organizationally to talent."
Dynamic Learning and Development
With such a deep-reaching organizational impact, the succession planning process might start as an human resources function, but ultimately would be taken over by department heads as it became fully integrated into the business strategy, said Mike Reingruber, group vice president at Plexus Scientific, a technology consulting company.
Additionally, other aspects of succession planning, such as knowledge capture and information sharing, would become dynamic, applied processes rather than one-time deals.
"[When an employee retires], you've got a very limited time period to extract what you can know from that person," Reingruber said. "[And] it's tough for someone who's now in your footsteps and doing your job to say, 'Let me check the lessons-learned repository and see what's there.' You don't self-prompt to go and look. A lot of the agencies are looking to replace antiquated systems with something a lot more proactive because it's actually applied."
Reingruber pointed to the Air Force as an example. Before engineers begin the design process for airplanes, he said they are prompted to read through closeout packages or after-action reports on similar projects. When they complete their projects, they are encouraged to make submissions into the knowledge database.
"You've kind of got to embed this idea of capturing these knowledge nuggets throughout their lifetime as an employee, so when they do leave, it exists somewhere, it's used proactively and the other folks — regardless of skill set or time within the organization — can access it," Reingruber said.
The use of technology at this point also is incredibly useful, Reingruber said. A lot of companies are experimenting with intelligent agents or digital repository systems. The program pulls up appropriate stored knowledge and processes for an employee who has just entered a new phase of a project. The employee then has the opportunity to review and apply the relevant information.
"Now, for the first time, we've actually got a requirement that's driving everybody to look at [intelligent agents], and we've got the technology to support it," Reingruber said.
Looking Ahead
Ultimately, the benefits of a consistent, enterprise-wide succession plan are vast and varied. Namely, organizations can adapt to the potential talent crisis by doing more with fewer resources.
"It's allowing the folks that are there to work more efficiently," Reingruber said. "As these folks retire, you may find out you can do just as well by having the information available with fewer resources."
Additionally, a company's ability to plan succession can have major effects on marketplace perception, as well as on the bottom line, Ringler said.
"From a customer service perspective, if the organization doesn't have that kind of solid planning in place, the potential loss to business is very large," she said. "Creating strategic partnerships has a lot to do with succession planning, [as does] creating good customer relationships, building your business base. All of those external profit benefits are in many ways based upon the organization's ability to run itself internally."
In the case of the Northeast Georgia Health System, which is set to open several additional centers as well as a whole new hospital in 2008, establishing an enterprise-wide succession planning strategy was a no-brainer.
"The need is recognized," Fulbright said. "This is going to be a significant cost-saving strategy in the long run
