Strategies for Effective Succession Planning

Strategies for Effective Succession Planning Abstract Most managers know that talented people are hard to find. If managers try to replace current employees, they often find that recruiting comparably qualified employees from outside the company may cost much more than keeping current employees. Companies will face problems when employees retire and take with them the knowledge and experiences. Succession planning is about filling the organizations talent pipeline and building internal bench strength. This paper through qualitative analysis, literature research and inductive methods of analysis, based on this study constitute the framework of dissertation. In this paper I try to explain effective succession plans and how to institute a succession plan. By citing some cases of some popular companies to explain why companies need succession plans and how these plans affect companies. Succession plan helps to ensure leadership continuity in key positions, retain and develop future intellectual and knowledge capital. Companies may face seri ous human resources crisis. By writing this research paper I realize no matter I am an employee or employer, I should always consider the future. The world is changing fast, only if I prepare for the change in the future can I chase the pace of the world. Keyword: succession planning, continuity, replacement, effect, HR crisis Introduction More and more managers are complaining that they cannot find satisfied employees to fill the void in working positions. When some excellent employees leave their companies, its hard to recruit new employees who are competent to the jobs. In todays fast-paced world, organizations cant miss a beat, especially when it involves their people. The reason that these organizations are facing this dilemma is they dont prepare well for the future. Its a disaster when organizations cannot get the right people to replace the positions in time. However, some famous companies like Microsoft, Intel and Apple; they seldom face this kind of problem. Lets take a look at how these well-know corporations deal with this. Steve Jobs, the CEO of Apple, has always had to leave his job because his health state. Usually a company will be affected by the absence of its CEO. However, during his absence, Apple maintained operated smoothly and successfully. Even nobody has questioned: What will Apple do without Steve? Over the last 40 years, Intel has maintained a high level of growth and creation while it has transited through five CEOs. Paul Otellini, Intels current CEO, had been working at Intel for more than 30 years before becoming CEO, and his supervisors have devoted their whole careers time at this company. Innovation and predictability have become the characteristic of the Intel. On the other hand, the replacement of Bill Gates at Microsoft was a schemed case that cost Microsoft more than eight years to complete. The long-term strategy would give Microsoft a chance to absorb new managers into the management level and provide the guarantee which both customers and investors are looking for. (Douglas Welton, 2009) In fact, not only these companies, all the successful companies use a helpful tool to maintain high-quality continuity in leadership. This wonderful tool is calledsuccession planning, thats the key point why they can operate successfully all the time. Main body Background In previous years, labor in the United States was plentiful and taken for granted. Managers had lots of time to evaluate and prepare employees for advancement over long time spans and to overstaff as insurance against surprise losses in key positions. That was true in that time because most jobs did not require comprehensive prequalification. Seniority (sometimes called job tenure), as measured by time with an organization or in an industry, was sufficient to ensure advancement. Succession planning and management activities mainly concentrated on leaders at the peak of tall organizational hierarchies because organizations were controlled from the top down and were thus heavily dependent on the knowledge, skills, and attitudes of top management. However, as time changed, few organizations have the luxury to overstaff in the face of drastic global competition from low-cost labor abroad and economic restructuring efforts. That is particularly true in high-technology companies where several months experience may be the equivalent of a years work in a more stable industry. At the same time, products, markets, and management activities have grown more complex. Many jobs now require extensive prequalification, both inside and outside organizations. Its not just for positions, leadership competency have become important factors fewer employees compete for diminishing advancement opportunities. As employee authority has broadened the extend of decision makers, leadership influence can be exerted at all hierarchical levels rather than limited to those few granted authority by virtue of their lofty titles and managerial positions. (William J. Rothwell, 2010) Unfortunately, United States is facing a demographic crisis. From these two charts of US population by age, we can see from 1965-2025, people who are 55 or older is the most fast growing group and they make up the main population of US, Whereas the population of other groups is maintaining nearly the same. Baby Boomers started leaving their positions in 2008. Its supposed that Gen X will replace Baby Boomers positions. However, the population of Gen X is much smaller than Baby Boomers; most of them are too young to be qualified to some managing positions, so Gen X cannot fill the void which results from Boomers leaving. The average retirement age in US was 62; it means the number of people who are not working is becoming larger. From 2010 the growth rate of labor force will fall dramatically from 12% to 2%. Projected labor force change by age shows huge hole in future workforce. What happens to work force if more and more employees are retiring with a low growth rate of work force? Definitely it results in a shrinking pool in workforce. Its a bad news to companies because they will suffer a lot if they cannot find the right person to fill the positions in time, especially when some skillful and experienced senior managers leave or retire from companies. For these reasons, organizational leaders must take proactive steps to plan for future talent needs at all levels and implement programs designed to ensure that the right people are available for the right jobs in the right places and at the right times to get the right results. The continuity of the organization over time requires a succession of persons to fill key positions. The best way to find talented individuals to fill roles in your organization is not the typical system of placing ads, making calls, and looking for individuals who might be unhappy in their current positions, and trying to do this during the two-week notice period of a departing employee is not going to help to find the best person for the position. (William J. Rothwell, 2010) Thats where succession planning comes in. Whats succession planning? Succession planning is a process for identifying and developing internal people with the potential to fill key leadership positions in the company. Succession planning increases the availability of experienced and skillful employees that are hopeful to undertake these roles as they become available. This process focuses on seeking the right person, not just the available person. Its built on the idea of recognizing the potential leaders in organization and developing them so that they are ready to move up when the opportunity arises. Its one of the best methods to promote recruitment and retention in organization. Although people often mix up replacement plans and succession planning, the latter goes beyond former planning because its focus is larger than one position or department. While often related to planning for senior executive replacements only, it is really broader than that can extend as far down the organization chart as managers want to go. It also differs from replacement planning because successors are considered by level on the organization chart. A talent pool is identified based on each level of management and a typical goal is to prepare as many successors as possible to be 80 percent ready for promotion to any position at the next level on the organization chart. The remaining 20 percent of development is provided when individuals have been promoted to higher level responsibility. Succession planning is usually based on the assumptions that: A goal is to identify a talent pool of many people who are willing to be considered for promotion and work to be developed for it. The future may not be like the past, and the competencies required at each level may be different in the future so that merely cloning past leaders is not appropriate. Development occurs primarily on the job rather than by off-the-job training experiences. (William J. Rothwell, 2007) Why succession planning matters? Some people question whether its worth to spend time and money on succession planning. They argue that, with many people losing their jobs and working below their skill level, it should be easy to find satisfied replacements for the reduced number of people who can afford to retire at a time that retirement funds with the stock market. But that thought is not true. The people who leave their work do not match perfectly to the people who will be replaced as retirements or job growth. For example, the job growth in health cares. How many workers leave from information technology can become accountants? The fact is that succession planning is needs whenever in good and bad situations. Organizations should consider the future; they should plan for change in the future. Competition for the talents is tend to be more and more intense, just rely on the external human resources will delay the development of organization. They should focus on the internal human resources planning to maximize the advantage of companys value. Succession planning is critical to the business because the high-potential employees will one day become the leaders of the Company. This is why they need to be provided with opportunities to learn widely in organizations. These candidates should also be trained to widen their experiences to look into the working environment so that they can get a good understand of what are they expected to be to remain successful. Another reason its important is the candidates recognized in the plan will eventually bear the responsibility for assuring the company is capable of meeting future challenges. These high potential candidates must be carefully selected and then provided training and development that gives them skills and competencies needed for tomorrows business environment.( Tom Bartridge,2005) It helps to improve employees commitment and retention, by given the opportunity to become high-potential leaders, employees will become more active in engaging the planning. To meet the career development expectations of existing employees, they will work harder to get the chance. The world is changing fast; the knowledge is exploding every day, so as the marketing organizations face. What is important today may become inferior next month. Organizations will be in trouble without plans for future change. To meet the responding flexibly to change, a succession plan is necessary. Succession planning does not belong to big companies only. Small business like family-owned firms also needs it. Succession planning is an important component of any business strategy process. Family-owned firms make 80% to 90% of all United States business, yet only 3% of all family businesses survive beyond the third generation. Succession planning will aid the business owners in preparing for the time when they arrive retire, addressing extreme matters such as illness or death, securing the survival of the business through the transition of ownership, maximizing the return of the retiring owners investment and minimizing tax burden at transfer. Succession planning process Now lets look at one of the most famous business leaders, Jack Welch, who started his working at General Electric in 1960. As he raised his position in the organization he displayed leadership qualities that distinguished him from his peers. What did Jack Welch think about succession planning? One of his most admired skills was the ability to develop his subordinates so there was always someone ready to take his place when Jack was offered a promotion. How successful was his strategy? In 1981 he became the CEO of General Electric and served in that position until he retired in 2000. Furthermore, in 1991, Jack Welch stated: From now on, choosing my successor is the most important decision Ill make. It occupies a considerable amount of thought almost every day. Thats a very strong statement for someone who owns the prospective and leadership competency to increase the value of General Electric from $13 billion to $410 billion dollars during his tenure. Its clear that succession planning and development of future leaders does not exist lonely. It needs to reflect the companys strategic goal. For any organizations to implement an effective succession plan, a number of key issues that need to be considered: The succession planning program must have the support and backing of the companys senior level management. Identify what skills the organization will need in 5, 10 or 15 years. Identify high-performers that are almost ready to step into those critical positions. Analyze the workforce and identify who will be eligible for retirement within the next Critical positions must be identified and included in the Companys succession planning program. Succession planning must be part of an integrated HR process that includes training, development and performance appraisal. A system for communicating succession planning information to managers must be established. Managers need to identify the responsibilities, skills and competencies that will be needed by their replacements. A systematic approach for identifying, nominating and selecting potential successors must be established. Background information on potential successors, such as education, experience, skills, appraisals and potential should be reviewed. The training and development requirements of potential successors need to be determined. The skills of potential successors must be developed through work experiences, job rotation, projects and other challenging assignments. A system for monitoring candidates development plan progress by senior management should be established. Succession planning must include a system for providing feedback and encouragement to potential successors. Succession planning is basically a numbers game that requires good organizational skills and the ability to pay attention to details. Finally, the succession plan must belong to the organization and not to the HR department in order to make sure it has the attention it deserves.( Tom Bartridge, 2005) Any succession planning will be organized to integrate all its components and emphasizes the internal development of existing employees in the organization. (Rothwell, 2005a) A succession planning starts from preparation. The first priority in the preparation is deciding members of succession planning team. This group will determine the scope of the entire project by formulating how many levels of management will be concluded. Here is an overview of the basic steps of the succession planning process: Preparation Get commitment Assess the organization. Determine key positions. Identify competencies for key positions. Identify and assess candidates. Create development plans. Measure, monitor, report, and revise. Preparation A succession planning starts from preparation. The first priority in the preparation is deciding members of succession planning team. This group will determine the scope of the entire project by formulating how many levels of management will be concluded. Get commitment No succession planning program can operate without managers and employees at all levels totally understanding why a succession program is needed. At the same time, executives, managers, supervisors and employees must clearly understand their role in the program. Organization should also link strategic and workforce planning decisions connect succession planning to the needs and interests of senior leaders. (William J. Rothwell, 2007) Assess the organization During this step, constitutors should assess current problems and practices or organization, whats situation around organization and analyze the strength, weakness, opportunity and threat (SWOT) of organization. Whats more, they will analyze present work requirements and individual performance to get overview of organization. Determine key positions. Decisions makers should analyze the gaps by determining current supply and anticipated demand. They should check whether the positions arrangement is reasonable and what modification should be done to make the operation more efficient. At the same time, future conditions should be considered, whether the organization needs some new positions to meet the changes in the future. Identify competencies for key positions. In this stage decision makers identify core competencies and technical competency requirements of those key positions, they align the organizations strategic objectives with the work and competencies need to realize those objectives. At the same time, they will identify the future work requirements and individual potential. The future will not necessarily be like the past. The organizations future requirements should be driven down to each level, job and function. The result should be expected future job descriptions and future competency models. Identify and assess candidates. Firstly, HR audits develop a pool of high potential candidates based on the requirements of positions, and then managers identify some high potential successors and their developmental needs. After observing their working for periods of time, their supervisors will evaluate those potentials. The candidates for promotion to higher level responsibilities should be considered against the background of the future. In other words, every individual who wants promotion is really working to be developed on an escalator because the competitive environment within which the organization performs is not static. Things are changing as individuals are being developed. It is not enough to suppose that successful performance in the past will make sure successful performance in the future. Instead, decision makers should find impersonal ways to determine how well potentials will perform at a future time or at a higher level of management. Create development plans To better help candidates improve themselves to make them qualified to the higher level positions; organizations should create development plans for them. This step focuses on closing developmental gaps found by previous step. To carry out this step successfully, managers should establish an individual development plan for each employee to narrow gaps between what the individual does now and what he or she must do successfully in the future to function at higher levels of responsibility. An individual development plan is like a learning contract. It is usually completed between an individual and supervisor. Candidates are inspired to take advantages of resources to help them build the competencies they need at higher levels of management. Resources may consist of training courses inside the organization, seminars or conferences outside the organization, internal job rotation experiences, and many other competency building efforts. (William J. Rothwell, 2007) Different plans apply to different level, job and function. Candidates should be given opportunities to express themselves. Not just tell them what to do, let them deal with problems by themselves to train them how to be a manager in the future. Measure, monitor, report, and revise The results of a succession planning program can be evaluated by measuring program success against the objectives established for the program in step B. By tracking selections from talent pools, listening to leader feedback on success of internal talent and internal hires, analyzing satisfaction surveys from customers, employees, and stakeholders and assessing response to changing requirements and needs. E. How succession planning works in hospitality Average turnover rate in hospitality industry ranges between 50-400% for employees and 25-200% for managers annually. Its pretty high when compared to other industries. For instance, in the electronics industry (well- known for its high turnover) the rate of turnover is only about 27%. High turnover rate is accompanied by high turnover cost; hotels have to spend a lot of money on recruiting new employees and managers, not to say the lose results from vacancies before the new candidates are selected. The profound changes that have occurred in the hospitality industry and the implications of these changes have affected the ways the hospitality industry hires, develops, and retains employees. It is critical for any hotels to pay attention on the aspect of hospitality human resources: managing the organizations human capital and retaining its professional employees. There are many departments in a hotel to satisfy different demands of customers. For example, front desk, food and wine, housekeeping and finance department they are all necessary to a hotel and any of them fail to operate properly will interrupt the integral organization. To avoid this kind of human resource crisis, succession planning is necessary to hospitality industry. A good succession planning in a hotel should develop different plans for different departments. The function and work of each department is distinctive, so plans makers should focus on each departments characteristic. When designing the talent pool for each department, decision makers should not forget the cross training. Cross training can provide hotels human resource backup to prepare for the peak season. Conclusion Succession planning is not something a good company can ignore because the consequences of not being prepared to replace key personnel will have a major impact on an organizations ability to achieve its goals and strategic targets. The succession planning process needs to be considered as part of the companys strategic planning process because it deals with projecting future changes by anticipating management vacancies and then determining how to meet these challenges. (William J. Rothwell, 2007) When it comes to hospitality people have to talk about the employees. Employees are the most important part of hotels operation. They have the strongest effects on customers who decide the success or failure of hotels. A succession planning is here to provide hotels with continuous talent pool to keep hotels run successfully and progressive. Succession planning should be approached with same conscientious objectives that one would benefit the management of any valuable asset. Retirement fund assets are invested in different vehicles depending upon an individuals appetite for risk. Investment yields are tracked. Investment strategies are modified when results do not meet expectations. Retirement fund managers are kept or fired based on portfolio results. Succession planning efforts should be managed similarly. Create a strict structure to gather assessment information, articulate goals, track progress and evaluate results. In this context, the people who should be at the top of your organization in the future will emerge as stars. (Richard Houston, 2007)