Integrating Recruitment and Succession Planning: Part 1

While these issues may seem like opposing forces, recruitment and succession planning go hand-in-hand and should be taken with an integrated approach to ensure that a company is effectively improving its bench strength by bringing in new talent and developing internal talent. When viewing an integrated approach, three main issues come to light: the ratio of internal to external recruitment, job posting versus management promotion and determining the optimal sources of external talent. A series of three articles will cover these issues in more detail.

The first issue, internal succession planning versus external recruitment, is often a hot topic amongst HR professionals. While some sources maintain that a fixed quota of internal candidates to external is the correct approach, i.e., firm x hires 20% of its leaders external and promotes 80% from within, more recent knowledge suggests that the ratio is different for each company—it is the justification for the particular balance that is important. To integrate both sources of talent and create a justifiable approach, clearly define the advantages and disadvantages of each talent source. For instance, outside candidates may bring in fresh approaches but may be a more difficult cultural fit. Whereas internal candidates may require less training but can easily become entrenched in the status quo. After defining these pros and cons, each individual position should be evaluated to determine the proper source of talent.

This task is difficult to do with an HR department alone. Therefore, HR must work closely with line managers to receive their feedback and collectively decide the proper source for a particular position. Keeping track of a position’s talent needs is best accomplished by the use of a succession planning template, e.g., here.  Once a track record has been established, HR can begin to feel out the most effective ratio for internal succession planning vs. external recruitment. Keep in mind, however, that as the business’s needs and its environment shift, this ration may shift as well.

Succession Planning: Best Practices 2 – Developing a Comprehensive Plan

As numerous practitioners and academics point out, succession planning is more than just an event. The process revolves around an comprehensive strategy of maintaining and anticipating the optimal deployment for a firm’s human resources in the short and long term. More concretely, that means: finding the next generation of leadership talent, developing that talent and accurately matching that talent to a particular role. Each best practice listed is focused on one of these critical goals.

Best practice 1: Finding New Leadership Talent with Assessment Centers

Assessment centers are not a new invention. In fact, they’ve been used for the better part of 50 years to determine the talent levels and leadership capabilities of incoming recruits. However, they are also an important tool for discovering leadership qualities within a firm’s current ranks. While a recruitment assessment center focuses on more mundane tasks such as the classic “overflowing inbox” test, leadership assessment centers put high potentials into real-world situations that they’d likely experience. Here, test should revolve around scenarios such as dealing with a major environmental incident, negotiating a massive new contract, merger or acquisition for the business or determining funding for various R&D projects shortly after their inception. These type of scenarios provide quality insight into a candidate’s leadership potential, especially under high stress conditions. Assessment center design and implementation is unique to every business, learn more about it with this book.

Best practice 2: Developing New Leadership Talent with Talent Pools

Talent pools break up candidates that have been tested in assessment centers into varying degrees of potential or ability. There are no hard rules on how to design them, but they should help to develop a potential successor’s skills and leadership qualities. Furthermore, it is essential that talent pools reach lower levels of management as well. In this way, a firm can ensure that its young talent is not being lured away due to lack of challenges or upward potential.

Talent pools give members a chance to prove and hone their skills with a variety of stretch projects, special workshops or networking events. The concept is best explained with an example. In TreadCo, high potential middle brand managers are gathered into a talent pool. In a stretch project, far outside their normal duties, individuals are tasked with developing an innovation measurement system and using change management techniques to “sell” this system into the company. At the same time, assigned mentors help to provide feedback and guidance along the way. This stretch project gives the talent pool an opportunity to exercise their talents while profiting the company. At the same time, through a series of innovation and change management workshops, the talent pool can further develop its leadership skills. Talent pools are well documented and more information can be found in this book.

Best practice 3: Matching Talent and Roles with Succession Planning Templates

After general leadership skills have been developed, firms must rescan their talent pools to find the best matches for specific positions. This can be a daunting task, especially for firms with large numbers of employees. Keeping track of your position information and the required competencies as well as the potential candidate’s strengths and weaknesses in one location makes the process much easier. Here, succession planning templates provide a easy-to-use way to track all relevant information about, candidates, positions and competencies. Find out more here.

Succession Planning: Best Practices 1 – Creating the Business Case

A succession plan is vital to the long-term survival of any business. Ironically, the majority of firms don’t seem to realize this and often do not take the process seriously. Therefore, it’s useful to start a best practices section at the true beginning: creating the business case for succession planning.

The business case for succession planning requires some ground work, but once the pieces have been put together, it becomes clear. For instance, create diagrams that show how many people in your organization, and especially in key, strategic positions, will be retiring in the next 10 years. The baby boom exodus in these ranks may surprise you. In addition to the replacement of key strategic employees, succession planning also ensures that the best and the brightest talent from lower ranks is developed into tomorrow’s leadership force. Furthermore, succession planning will help to ensure that decisions about the generation of leadership are made based on fact and performance—helping to avoid underperformers from being grandfathered in.

On a hard-factor side, succession planning will ensure that an organization’s strategy can be successfully carried out in the future—and also by the most capable people in its workforce. Finally, succession planning can help increase employee morale, reduce turnover and encourage employees to develop themselves while increasing their own performance.

Overall, if succession decisions are left to chance or to individuals, the probability of poor decision-making increases drastically. While it may be difficult to quantify the exact costs of these mistakes in the present, leaders should be able to acknowledge their consequences and understand why succession planning is therefore necessary.

Rothwell’s book, “Effective Succession Planning”, does a great job of explaining this process in more detail.  It is available here

Creating a Method For Identifying Successor Talent: Part 2

Unfortunately, many of the proposed best practices for identifying successor talent are stated in a ambiguous manner, e.g., stretch targets or leadership soft skills.  While they may sound good on paper, identifying that talents that are critical to your industry, customers and business itself requires careful analysis of the current situation and a methodology to justify your succession decisions.  Of course, these factors and criteria will not be the same for every business, and no consultant or expert will be able to offer you a one-size-fits-all solution.  With this is mind, it’s useful to review literature examples or other companies’ solutions and then tailor them to fit your needs.

When identifying the particular set of leadership skills for which you’d like to test, set clear targets and define unambiguous criteria for candidates to fulfill.  Here are some examples:

  • Define your own criteria to define what constitutes a “stretch project” or leadership opportunity for a candidate at a particular level in the business.  Then, measure how often candidates specifically ask to be involved in such projects and track their success rates over time.  Such a metric would give HR managers a concrete dataset to evaluate a candidate’s willingness to lead and develop themselves.
  • Run multiple crisis scenarios at irregular intervals, e.g. every 2 or 3 months.  Scenarios should be unique during each test to allow companies to observe how candidates develop over time.  The tests should be graded with a combination or quantitative and qualitative criteria, e.g., response time, financial impact or calmness when dealing with the situation.
  • Track personal responsibility events.  Although it may sound trite, measure how often candidates attempt to push their failures or mistakes on to other team members.  This can give HR managers a powerful look into someone’s true personality.
  • Measure a candidate’s commitment to the business.  This can be a difficult task to accomplish with metrics, but an easier task with mentors.  Although completely qualitative in nature, a mentor’s assessment of a candidate’s commitment to the business can be priceless in determining their future success.
  • Openness and propensity for innovation.  Change is the only constant—while it sounds like a cheap cliché, it happens to be the rule for modern businesses.  HR managers should spend time in brainstorming sessions and board meetings to track how often candidates create and foster innovative ideas or processes.  For instance, a candidate who constantly shoots down ideas which are not his/her own would be considered a warning flag for the future.

While this article has merely scratched the surface of thousands of possible criteria, the moral is in the details.  Judging successor talent on qualitative factors alone will result in grey decision making that only the jury can understand.  Be creative and come up with specific criteria for your business that can measure soft factors like openness or personal responsibility.  While it may not be the only basis for your successor decisions, it will serve as a starting point and a clear method for comparing candidates.

Creating a Method For Identifying Successor Talent: Part 1

While there are a multitude of ways to go about identifying candidates who possess future leadership potential, the means by which HR conducts evaluations must be systematic.  Too many companies have gotten stuck in the trap of confusing charisma, current performance or likeability with leadership potential.  Here are some potential signs that candidate has leadership ability that can be developed for the future:

  • They show passion, curiosity, courage and most importantly, integrity
  • The foster others’ opinions and listen in an open-minded fashion
  • The are risk-takers.  However, they are the first to assume responsibility for their mistakes
  • They show respect to all and are respected by all
  • Humility and authenticity are the foundation of their personalities

Obviously, this list does not account for all leadership qualities.  Yet, the lesson is clear: develop criteria by which HR departments can measure candidates on more than a hunch.  Doing so will lead to more accurate and justifiable succession planning decisions in the future.

Making Talent Management More Strategic

Talent management is a rather ambiguous term.  Some view it as normal HR processes, some see it as succession planning and others understand it as a catch-all for hiring practices.  Regardless of the term’s definition, talent management must be examined in connection with strategy to ensure one’s efforts deliver results.

To do this, one must consider talent management’s ability to create sustainable competitive advantages.  Assuming that a company is already using talent pools, i.e., has segregated their workforce from an HR perspective based on performance, HR departments should concentrate on three metrics when making decisions on who to promote, when and who to train.

  • Impact – How changing or developing certain talent pools affects a company’s ability to carry out its strategy
  • Effectiveness – The degree to which training measure create the desired changes in a talent pool
  • Efficiency – The amount of impact generated against the investment

To create maximum impact, HR managers must examine talent pools where small incremental increases in performance can create competitive advantages that are hard to imitate.  This may mean redesigning roles to increase their uniqueness while making sure they add maximum value to the customer.  At the same time, effective training measure must be adapted to target only those talent pools where a change results in a positive impact.  Finally, efficiency should be measured relative to impact and effectiveness.  Common across-the-board metrics like cost-per-hire or trainees-per-session carry little weight when they are not targeted to create competitive advantage.

To sum things up in plain English, think about and plan out how your talent management efforts can directly increase your company’s ability to carry out its strategy better than the competition while creating jobs and employees which can’t be copied. The succession planning process makes a perfect intervention point for HR managers to change roles, reevaluate talent pools and create uniqueness while tracking these changes with succession planning templates.

Some of the ideas from the post were adapted from Lewis/Heckman, Talent Management: A Critical Review, 2006

Growing Your Own Leaders Versus Hiring From the Outside: Possible Consequences

A fundamental issue in succession planning deals with talent management.  In an ideal world, hiring from the outside or inside would be balanced, both would be cheap and “bench strength”, i.e., the combined talent of possible successors would be high.  Unfortunately talent management is not such an easy process, and many HR professionals and executive boards have to face the decision: develop from within or hire from the outside?  While some literature treats this as a clear-cut decision, the answer is, like many things in business, situational in nature.  The following lists attempts to highlight some of the possible positive and negative consequences of both scenarios

Internal Staff Development

+ Generally fewer corporate culture conflicts

+ Clearer track records of a candidate’s strengths and weaknesses

+ Sends positive message throughout the workforce

– Expenses for development programs can be high

– Higher tendency to think within the current corporate culture’s bounds

– Close political ties and alliances within the company

Hiring from the Outside

+ Fresh, new perspectives

+ Can foster diversity in workforce

+ Intimate competitor knowledge

– Corporate culture conflicts

– Lack of clear indicators of candidate’s strengths and weaknesses

– Recruitment costs can be high

Obviously, there are many more potential consequences, but one should keep in mind that the answer to the develop or hire question is not always clear.  When checking bench strength and designing your talent management programs, ensure that the pros and cons of each scenario are played out in detail.

Family Business Succession Planning: Why It’s Neglected

As research has shown, over 70 percent of family businesses fail to successfully transition to the next generation.  Part of this tendency can be explained through a general lack or unwillingness to plan for succession.  Obviously, it’s a sensitive issue that can easily escalate into sibling rivalries, political power plays and tax hurdles.  That, however, is exactly why it needs to be well planned and well communicated.  Unfortunately, there are many reasons why the succession planning process is still neglected.  Drawing on findings from Fager and McKinney’s 2007 family business planning book, the common reasons for neglecting succession planning can be broken into seven overarching categories.

  1. A “Good Times High” – When things are going well, most people have a tendency to ignore difficult and pressing issues.  Clearly, it’s more pleasant to think about maintaining success while one is still in control than trying to ensure it after one is gone.
  2. More Pressing Issues – Businesses firefight every day: the plant is broken, employees have been stealing, the accountants found mistakes.  While these short-term issues must be sorted, the long-term implications of ignoring succession planning will most definitely cripple the company’s chances of success.
  3. Immortality Complex – An immortality complex is an often documented downside to successful entrepreneurs.  It is difficult to face the reality of sickness or death; most people just ignore it.
  4. Employee and Family Feud Fears – Succession can easily become emotional and overly political—a veritable land-grab if the situation is mismanaged.  Because of these dangers, many incumbents choose to ignore the process all together instead of managing for eventualities.
  5. Difficulty Leaving the Business – Entrepreneurs should be proud of what they’ve built.  Those years of sweat and hard work, however, also make it difficult to even think about leaving it all behind.  Furthermore, many ask themselves, “what will I do when I’m not running this place anymore?”
  6. Tax Hurdles – Tax issues are complex and confusing when it comes to handing over or selling a family business to the next generation.  Therefore, they’re often swept under the rug to deal with more “urgent” problems.
  7. Faith in the Successor – While the successor may be able to take the business to new heights, there is always in air of uncertainty in such transitions.  This unpleasant realization causes many incumbents to merely ignore the succession planning process.

As its failure rate highlights, family business succession planning is an often-ignored subject.  While that may be more comfortable for the short-term, the long-term ramifications of ignoring the process are great.  The next time you think about putting off succession planning for your family business, keep in mind the long-term consequences you’re creating for your family, your business and your employees.

Utilizing Cases and Other Resources to Simplify Succession Planning and Get Management On Board

HRM professionals face a multitude of challenges when it comes to succession planning. This post will highlight two of the largest. First, increasing succession planning efforts can sometimes be a hard sell. There aren’t generally immediate paybacks, and many managers have trouble directing their attention away from their “real” problems. However, as the massive succession rate failure points out (70% in many cases), the need is clearly there. Second, streamlining old approaches to succession planning or throwing away legacy methods can be an extremely daunting task. Succession planning has a methodology, but it is based off of many assumptions.

So, how does one combat these issues? Supplemental reading in the form of best practice books, checklists and case studies can make serious inroads as a start. For instance, while it may be difficult to translate academic cases into measurable action steps for your organization, books with down-to-earth case studiesand a pragmatic tone can arm you with invaluable insight and selling points for the process.  Think about it.  To lobby for increased efforts or budgets for succession planning, the most powerful tools on your side are other successful or disastrous examples.  At the same time, supplement your own knowledge by learning about best practices in succession planning and utilizing proven models and checklists.  There are plenty of others out there who have done the research for you.  Don’t reinvent the wheel when you can use a proven approach and modify it to fit your needs.

Invest in quality learning materials, and learn from other’s mistakes.

A great book to start with is “Effective Succession Planning” by William Rothwell.  It not only offers numerous case examples and methodologies, it also has the right blend of pragmatic advice and academic research.

Family Business Thoughts: Why Do Successors Not Join the Family Business?

This has to be one of the most addressed questions in family business literature. Obviously, it not only has implications for the company, but it also can create political and emotional turmoil inside of a family. I know this first-hand, as I had the chance to take over a family company. While there are many studies which attempt to tackle this topic, I’d like to focus on one in particular: life-stage match.

While it may seem logical, life stage match (or fit) empirically and anecdotally plays a very large role in a successor’s willingness to take over a family business. Life stage can be broken down into three rough categories:

  1. Exploration – the typical life stage during early adulthood.  Qualitative evidence shows that candidates have strong desires to strike out on their own, make their own rules and explore alternatives to the family business.
  2. Advancement – the typical life stage during middle adulthood.  This is characterized by strong goal-orientation, the need to show one’s prowess and an extreme desire to succeed.
  3. Balance – the typical life stage in 50+ year olds.  As the name implies, this life stage is connected with a need for stability, a general slowing down and the desire to spend more time outside the business.

The impact of life stage fit can manifest itself in varying ways.  For instance, many young successors actually feel more inclined to gain experience outside the family firm–that gives them a safety net.  However, it also decreases their willingness to take over.  In another example, successors in the achievement stage likely need to be satisfied with the amount of challenge and opportunity associated with the business.  If these people aren’t able to fulfill their desire to accomplish goals and succeed, they are less likely to take over.

As one can see, life stage fit is based on common-sense observations.  However, it is commonly ignored when incumbents are pondering why their offspring don’t want to become involved with the business.  Realize that for the successor’s willingness to take over to be high, he or she must also be in the correct life stage to enter the business.  Forcing the issue or ignoring these problems can seriously hamper succession planning.  At the same time, make sure that feedback from successors is open and clear.  If their personal needs for a particular life stage are not fulfilled, the chances of success stand against you.

*Some of the thoughts from this post have been adapted from Wendy Handler’s 1992 article: “The Succession Experience of the Next Generation”