Succession planning is the process of developing talent to replace executive, leadership or other key employees when they transition to another role, leave the company, are fired, retire or die. It is relevant to all companies, from the largest to the smallest, in both the for-profit and not-for-profit sectors. The planning process is meant to create a talent pipeline of successors that will keep the organization running with little to no interruption when inevitable staff changes occur.
Effective succession planning works by assessing staffing needs that may arise and creating long-term goals and strategies to manage those gaps, including through leadership development. The HR department, sometimes referred to as the human resources management (HRM) department, is typically a key driver in the succession planning, which is sometimes referred to as replacement planning, although support from top leadership and other stakeholders is critical to success.
Different uses of the term succession planning
It's important to note that succession planning is often used narrowly in reference to the CEO or executive director, or slightly more expanded to include board members, key leaders or the C-suite. However, extending the concept of succession planning to a broader range of employees is also gaining widespread traction, especially through the use of HR software, generally, or talent management software, specifically. Succession planning may also be used to indicate the passing of company ownership onto employees.
When used only in the sense of replacement plans for the top leader or leaders, succession planning has specifics that may not apply when used more generally. For example, if referring to the CEO, the board of directors must be involved, whereas this will be less likely when discussing role replacements farther down the corporate ladder.
Still, while the top executive is a key factor in a company's performance, taking a wider lens to the concept of succession planning is increasingly seen as critical, particularly in the current challenges facing talent management in companies today.
Reasons for and benefits of succession planning
When an employee leaves, there is a ripple effect. It may be most evident when the key leader leaves, but the hole created when an employee leaves his or her position can be profound, even at lower levels. Replacing employees can be a difficult task, especially in industries with noted talent shortages and skills gaps, and it can be a lengthy process to get a replacement employee to full productivity.
In addition, there are specific business issues facing companies today that strongly point to the need for succession planning in a more widespread way, not just for the CEO, executive director or C-suite. Regardless, numerous studies have found that far too many companies fail to create a succession plan, even for their highest executive. This lack of planning can especially sink smaller businesses and family businesses, which don't have the sheer candidate numbers from which to choose. In addition, employees may serve in multiple capacities and have a wider array of corporate knowledge known only to themselves, which leaves when they do.
The need for succession planning and its benefits are closely related, with benefits speaking to the reasons succession planning is necessary. As to the latter, those reasons include:
- The time needed to find an employee's replacement costs lost productivity, time and money. For the top executive at a large public company, this can run upwards of $1 billion, according to a 2016 article in Harvard Business Review.
- More baby boomers are retiring, and fewer employees are available with the skill set to replace senior executives.
- During periods when a candidate-driven market exists, companies must compete for a scarcity of talent, particularly for top talent, which makes hiring desired candidates more difficult.
Succession planning helps to manage these factors and provides numerous benefits, including:
- boosting employee engagement through career development and making workers feel valued;
- helping the organization create a better reputation as a talent destination;
- saving money by filling key roles more quickly and providing for smoother business operations and delivery of uninterrupted excellence;
- helping to align HR and the vision for the organization, and supporting HR and managers in creating and supporting proactive programs; and
- supporting cross-functional cooperation.
Succession planning strategy and process
Depending on the size of the organization and its goals, the strategic planning and process for success planning can vary wildly. However, fundamentals include the following:
- gaining the support of key stakeholders, including the CEO or executive director;
- assessing positions (and individuals) and deciding which ones to focus on;
- identifying high-potential employees for key leadership positions and creating learning and development plans tailored to a wider range of employees for more expansive succession plans;
- assessing the extent to which internal candidates can fill roles (likely with development), who will be more familiar with company culture and processes and which roles HR should look externally for the right talent pool;
- creating effective learning and development processes that support the succession strategy, especially experiential development, such as job shadowing and cross-functional moves; and
- determining which HR software will be used in support of the succession planning strategy and process.
Real-world succession planning example
For several years before Steve Jobs stepped down as CEO of Apple in 2011, he had groomed successor Tim Cook to take the top leadership role. This included Cook working a wide range of operational roles and directly with Jobs for CEO-specific experience. Cook also stepped in to lead day-to-day operations twice when Jobs was on sick leave.
In addition to a succession plan for the top leadership role, Jobs also founded Apple University in 2008 as a way to provide a leadership curriculum based on Jobs' experiences and business savvy.