Ten Key Steps to Effective Succession Planning By William J. Rothwell, Ph.D., SPHR Rothwell & Associates, Inc.

There are two forces at work today that are driving organizations to consider some form of succession planning as a component of an overall talent strategy. Namely, these forces are: the aging of the workforce; and a shortfall in the skills possessed by those available for . Both are projected to become more pressing.

But what is succession planning and how will it address these human resource issues? What are the best practices being applied by successful companies today? How does succession planning differ from replacement planning? When do leaders know that their organization needs a succession planning and management program? What are talent pools, and how are they used? What ten key steps are tied to effective succession planning? What common mistakes are made in establishing succession planning, and how can they be avoided? This white paper answers these questions. By doing so, it provides a starting point to help decision-makers and HR practitioners alike contemplate the ins and outs of a practical succession planning program.

What Is Succession Planning, and Why Is It Needed? Succession planning, sometimes called succession management to emphasize the active and continuous nature of the effort, is a process for preparing people to meet an organization’s needs for talent over time. As I defined it in my book Effective succession planning (2005, p. 10), succession planning “is perhaps best understood as any effort designed to ensure the continued effective performance of an organization, division, department, or work group by making provision for the development, replacement, and strategic application of key people over time.” Geared to developing the internal bench strength of an organization, succession planning is usually part of a larger talent management program that is intended to attract the best through recruitment, keep the best through effective retention practices, and develop the best people through well-targeted talent development efforts.

Why is succession planning needed? There are many answers to that question. One of the most important is the aging workforce. Demographers have long been aware that the U.S. workforce is aging, a result of population change. According to labor economist Douglas Braddock, “over the 1998-2008 period, more job openings are expected to result from replacement needs (34.7 million) than from growth in the economy (20.3 million)” [Occupational employment projections to 2008 (1999, p.75)]

What are the practical consequences of this massive shift in the average age of the workforce? Consider:

• One in five of all senior executives in theFortune 500 is eligible for retirement now.

• About 50% of the entire U.S. government workforce is eligible to retire now.

• 55% of today’s registered nurses can be expected to retire between 2011 and 2020

2 Ten Key Steps to Effective Succession Planning Equally threatening is the current difficulty in finding qualified hires. A January 2006 study by Manpower [Talent Shortage Survey (p.2)], finds that 44% of employers are experiencing difficulty today finding employees with the right skills – in particular, there are shortages filling the following roles:

1. Sales Representatives

2. Engineers

3. Nurses

4. Technicians Equally threatening is the current difficulty in finding qualified hires. A January 2006 study by Manpower [Talent Shortage Survey (p.2)], finds that 44% of employers are experiencing difficulty today finding employees5. with Accountants the right skills – in particular, there are shortages filling the following roles:

1. Sales Representatives6. Administrative Assistants & PA’s 2. Engineers 3. Nurses 7. Drivers 4. Technicians 5. Accountants8. Call Center Operators 6. Administrative Assistants & PA’s 7. Drivers 9. Machinists 10. Management/Executive 8. Call Center Operators 9. Machinists 10. Management/Executive How Does Succession Planning Differ from Replacement Planning? HowAsk Does a CEO Succession to define Planningsuccession Differ planning. from Replacement There is a good Planning? chance that, if you do that, you will find that the

Askaverage a CEO to CEO define confuses succession replacement planning. There planning is a good and chance succession that, if you planning. do that, you But will findthey that are not the same. the average CEO confuses replacement planning and succession planning. But they are not the same. Replacement planning assumes that the organization chart will remain unchanged over time. It usually identifies Replacement“backups” planning for top-level assumes positions, that the organization as they are chart identified will remain unchangedon the organization over time. It chart,usually and stops there. A typical identifies “backups” for top-level positions, as they are identified on the organization chart, and stops there.“replacement A typical “replacement chart” will chart” list will about list about 3 people 3 people as as“backups” “backups” for for each each top-level top-level position position and and will usually indicate how willready usually each indicate person how ready is to eachassume person the is torole as sumeof the the current role of the job current incumbent. job incumbent. (See Exhibit 1) (See Exhibit 1)

SuccessionSuccession planning planning, in contrast,, in contrast, focuses on focuses developing on peopledeveloping rather thanpeople merely rather naming than them merely as naming them as replacements. replacements.Its goal is toIts buildgoal is deepto build bench deep bench strength strength throughout throughout the the organization so so that, that, whenever whenever a vacancy occurs, the a vacancy occurs, the organization has many qualified candidates internally that may be considered for organizationadvancement. has many qualified candidates internally that may be considered for advancement.

In mostIn most cases, cases, organizational organizational leaders recognizeleaders recognizethat it is wiser that to focusit is wiserbeyond to replacement focus beyond planning replacement to planning to succession successionplanning planning to build to buildthe long-termthe long-term sustainability sustainability and and viability viability of the of organization.the organization.

Exhibit 1: A Sample Replacement Chart Exhibit 1: A Sample Replacement Chart

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When Do You Know That Your Organization Needs a Succession Planning and Management Program? Several common symptoms, if they appear in an organization, may indicate the need for a more systematic approach to succession planning. Among them:

• The organization has conducted a retention risk analysis, a process of estimating the projected departure dates for each individual in the workforce or work group, for reasons of retirement or otherwise.

• The organization has no way to respond quickly to sudden, surprise losses of key talent. If a key person is suddenly lost due to death, disability or resignation, it may take a long time to find a suitable replacement.

• The time it takes to fill positions—what is called the time-to-fill metric—is unknown or is perceived by managers to be too long.

• Managers at one or many levels complain that they have trouble finding people ready for promotion or else have trouble finding people who are willing to accept promotions as vacancies occur.

• Workers complain that promotion decisions are made unfairly or capriciously.

• Women, minorities, and other groups protected by law are not adequately represented at various levels and in various functions throughout the organization.

• Critical turnover—that is, the percentage of high potential workers leaving—is higher than the number of fully successful (average) workers leaving.

What Are Talent Pools, and How Are They Used? A talent pool is a group of people being prepared for more challenging responsibilities. Individuals to be placed in talent pools may be surfaced by various means. One approach is to ask managers to assess and nominate people. Another approach is to apply objective assessment methods—such as multi-rater full-circle assessments to identify individuals who are likely to be worthwhile to develop for future responsibility.

Talent pools dramatize the difference between replacement planning and succession planning. In replacement planning, individuals are usually identified as “backups” for specific positions.

But replacement planning encourages promotions only in “silos” of specialization. In contrast, succession planning encourages managers at all levels to regard talent in any part of the organization as a possible successor for positions immediately above them. Hence, talent pools may be identified underneath each “level” on the organization chart but are not tied to specific positions at the next higher levels. See( Exhibit 2)

In many cases, talent pools are filled from the bottom up. High potential candidates being prepared for possible promotion are placed in talent pools. Of course, no promises are made to people who enter pools that they will actually receive promotions. Instead, the organization commits to help individuals prepare themselves to qualify for higher levels of responsibilities. But it is up to individuals to continue to perform well in their current jobs while also preparing themselves to meet the new challenges at higher levels of responsibility. Successfully implemented, when a vacancy occurs, the organization will have a pool of internal candidates ready to meet the challenge.

4 Ten Key Steps to Effective Succession Planning Exhibit 2: A Sample Talent Pool Chart Exhibit 2: A Sample Talent Pool Chart What Ten Key Steps Are Tied to Effective Succession Planning?

ThinkWhat of implementing Ten Key systematic Steps succession Are planni Tiedng as making to Effectivea long-term organizational Succession change. Planning? Succession planning requires more of a commitment to a longer-term, strategic view of how to meet talent needs than short-term, and sometimes panic-driven, efforts to fill vacancies as they occur. It can be establishedThink of andimplementing operated using systematic ten key steps succession that have been planning field-tested as making in many aorganizations, long-term organizational change. Succession industries,planning and requires economic more sectors. of a (See commitment Exhibit 3.) to a longer-term, strategic view of how to meet talent needs than short-

Stepterm, One and: A firstsometimes step for any panic-driven, systematic succession efforts toeffort fill is vacanciesto clarify the assenior they leaders’ occur. expectations It can be established and operated using andten preferences key steps for that a succession have been program. field-tested After Sar inbanes-Oxley, many organizations, corporate Boards industries, have become and moreeconomic sectors. See( Exhibit 3.) active in succession planning. A fundamental mistake, and a formula for disaster, is to dump the responsibilityStep One: for A thefirst succession step for effortany onsystematic the Human succession Resources department. effort is to clarify the senior leaders’ expectations and Whilepreferences the Human for Resources a succession function program. or other parts After of theSarbanes-Oxley, organization must corporate participate, Boards the have become more active in responsibilitysuccession for planning. succession A planning fundamental rests with mistake, the CEO. and If he aor formula she does fornot disaster,favor systematic is to dump the responsibility for the succession planning, it cannot be successful. succession effort on the Human Resources department. Step Two: A second step is to establish competency models by talent pool considering the positions that willWhile be fed the by Humanthat pool. Resources A competency function model is or a narrativeother parts description of the of organization the knowledge, must skills, participate, attitudes, the leadership responsibility and other abilities that lead to exemplary performance. Competency models provide blueprints of the talentfor succession to build at present planning and in reststhe future. with In the short, CEO. a competency If he or she model does describes not favor "what systematic should be" forsuccession planning, it cannot be suchsuccessful. hierarchical levels as executives, managers, supervisors, salespersons, technical professionals, or other groups. Alternatively, competency models may be created for specific departments. AStep recent Two: innovation A second in some step corporations is to establish has been competency to articulate the models organization's by talent ethics, pool values considering and code the positions that will of conduct and then rate individuals against that as well as against competencies. Ethics, values and codesbe fed of conductby that provide pool. Aa basiscompetency by which tomodel assess is individuals a narrative against description a dimension of thatthe goesknowledge, beyond skills, attitudes, and other whatabilities it takes that to get lead good to resultsexemplary on the performance.job Competency models provide blueprints of the talent to build at present and in the future. In short, a competency model describes “what should be” for such hierarchical levels Step Three: A third step is to conduct individualized multi-rater, full-circle assessment. The idea is to assessas executives, individuals againstmanagers, the competencies supervisors, required salespersons, for success technical in an organization. professionals, The results or ofother a groups. Alternatively, multi-rater,competency full-circle models assessment may be usually created indicate for gapsspecific between departments. what competencies A recent an individual innovation in some corporations has been currentlyto articulate possesses the andorganization’s what he or she ethics, should values possess and to be code successful. of conduct and then rate individuals against that as well as against competencies. Ethics, values and codes of conduct provide a basis by which to assess individuals against a dimension that goes beyond what it takes to get good results on the job

Step Three: A third step is to conduct- individualized4 - multi-rater, full-circle assessment. The idea is to assess individuals against the competencies required for success in an organization. The results of a multi-rater, full-circle assessment usually indicate gaps between what competencies an individual currently possesses and what he or she should possess to be successful.

Ten Key Steps to Effective Succession Planning 5 Rothwell & Associates, Inc.

Step FourStep: A Four:fourth A step fourth is stepto establish is to establish (or reenginee (or reengineer)r) an organizationalan organizational performance performance managementmanagement system. One fact system. ofOne life factis that of individualslife is that areindividuals seldom eligible are se forldom promotion, eligible advancement,for promotion, or advancement, other developmental or other opportunities if they developmentalare not opportunitiesperforming successfully if they are in not their performing current jobs. su Individualsccessfully mustin their thus curr beent measured, jobs. Individuals as objectively must as possible, thus be measured,against the performanceas objectively expectations as possible, for againsttheir current the performancelevel of responsibility. expectations for their current level of responsibility.

Exhibit 3: A Step-By-Step Model to Establish and Maintain a Systematic Succession Planning Program Exhibit 3: A Step-By-Step Model to Establish and Maintain a Systematic Succession Planning Program

Step Five: A fifth step is to assess individual potential for success at higher levels of responsibility. Unlike past or : A fifth step is to assess individual potential for success at higher levels of responsibility. Unlike Step Fivepresent-oriented performance management, potential assessment focuses on the future. Some means must exist past or present-oriented performance management, potential assessment focuses on the future. Some means mustto examine exist to the examine talent available the talent for futureavailabl possibilities--ande for future possibilities--and advancement. Regular advancement. potential assessmentRegular provides the potential meansassessment to do just provides that. the means to do just that. Step Six: A sixth step is to establish a means of regular, ongoing individual development planning. Once it is clear Step Six: A sixth step is to establish a means of regular, ongoing individual development planning. Once what present and future gaps exist for individuals as a result of performance assessment and potential assessment, it is clear what present and future gaps exist for individuals as a result of performance assessment and potential someassessment, means should some be means established should to behelp established them prepare to forhelp the them future prepare by narrowing for the those future gaps. by To that end, narrowingindividual those gaps. workers--and To that end,their immediateindividual supervisors--deviseworkers--and their a immediate plan to help superv individualsisors--devise develop themselves a plan to and help individualsthereby developprepare for themselves possible future and promotions.thereby prepare for possible future promotions.

Step SevenStep: ASeven: seventh A seventh step is step to implement is to implement individual individual development development plans plans (IDPs). (IDPs). There There areare various ways ways by which by which toto do do that. that. One One way way is to is establish to establis in-househ in-house leadership leadership and management and management development development programs. A second way is programs.to Adevelop second competency way is to developmenus, in competency print or online, m enus,that provide in print specific or online, developmental that provide suggestions specific for individuals. developmentalExamples suggestions of developmental for individuals. suggestions Examples might include of developmental books to read, suggestionsclassroom courses might to include attend, booksonline courses to read, classroomin which to coursesparticipate, to on-the-jobattend, online assignments courses to in seek which out, to and participate, action learning on-the-job projects assignments that bring together to groups seek out,of and people action to solve learning practical projects business that problemsbring together while simultaneously groups of people permitting to solve the practical means by business which to build problemscompetence while simultaneously in new areas. permitting the means by which to build competence in new areas.

6 Ten Key Steps to Effective Succession Planning Step Eight: An eighth step is to establish a talent inventory. Increasingly, decision-makers must be able

- 5 - to find the organization’s talent on short notice. To that end, they must have information about the pools of talentStep thatEight: the organizationAn eighth isstep developing is to establish and has readilya talent on tapinventory. so that teams Increasingly, can be marshaled decision-makers on must be able to find shortthe notice organization’s to fight fires, talent seize opportunities, on short notice. outdraw To competitors, that end, theyand fill must vacancies. have information about the pools of talent that the organization is developing and has readily on tap so that teams can be marshaled on short notice to fight fires, seize As opportunities,part of this step, itoutdraw may also competitors, be useful to create and depth fill vacancies.and development As part charts of tothis show step, how it many may also be useful to create depth and people fall into different categories. Different HR strategies may be needed to manage individuals in differentdevelopment talent grids. charts An example to show of a how talent many grid appears people in fallExhibit into 4. different categories. Different HR strategies may be needed to manage individuals in different talent grids. An example of a talent grid appears in Exhibit 4.

Exhibit 4: A Talent Grid Exhibit 4: A Talent Grid Step Nine: A ninth step is to establish accountability for the systematic succession planning effort. Individuals—and Step Nine: A ninth step is to establish accountability for the systematic succession planning effort. Individuals--andtheir bosses—must their bosses--must be held be accountable, held accountable, for cultivatingfor cultivating their their taltalentsents over over time time and and closing closing developmental gaps. developmentalOtherwise, gaps. individual Otherwise, development individual development plans will plansnot be will realized. not be realized. Often, Often, financial financial incentives for talent development can incentives for talent development can help. For instance, individuals can be given bonuses if they achieve theirhelp. developmental For instance, objectives, individuals and supervisors can be cangiven be givenbonuses bonuses if they if thei achiever workers their achieve developmental their objectives, and supervisors developmentalcan be given objectives. bonuses Alternatively, if their workers periodic achievemeetings maytheir be developmental held in which individuals objectives. must Alternatively,report periodic meetings may on how well they are implementing their individual development plans, and senior executives may report to thebe CEOheld orin the which Board individuals on how well musttheir empl reportoyees on have how been well progressing they are implementingtoward realizing their their individual development plans, and individualsenior developmentexecutives plans.may report to the CEO or the Board on how well their employees have been progressing toward Steprealizing Ten: A tenththeir and individual final step developmentis to evaluate the plans. results of the systematic succession planning effort. Often, the time-to-fill metric is a key measure of success. How long does it take to fill positions with qualifiedStep applicants?Ten: A tenth While and not final directly step a financial is to evaluatemeasure, the timeresults to fill ofdoes the translate systematic into financial succession planning effort. Often, the terms. Productivity is lost, and so are opportunities, when vacancies exist in today’s right sized corporate settings.time-to-fill metric is a key measure of success. How long does it take to fill positions with qualified applicants? While not directly a financial measure, the time to fill does translate into financial terms. Productivity is lost, and so are opportunities, when vacancies exist in today’s right sized corporate settings.

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Ten Key Steps to Effective Succession Planning 7 Rothwell & Associates, Inc.

What Common Mistakes Are Made in Establishing Succession Planning, and How Can They Be Avoided? Many mistakes are commonly made in establishing succession planning programs. They are worth enumerating. It is also worthwhile to describe some ways to avoid these common mistakes.

Mistake #1: Assuming that Success at One Level Will Guarantee Success at Higher Levels. An individual’s success at one level is no guarantee of success at higher levels of responsibility. The reason is simple: the competencies required for success at each level are different. Hence, it is important to separate thinking about how well someone does his or her current job and how well he or she might do a job at a higher responsibility level.

Mistake #2: Assuming that Bosses Are Always the Best Judges of Who Is Promotable. A second mistake is to assume that, for purposes of succession planning, bosses are always the best judges of who is promotable. That is not always true. Bosses are self-interested players in the succession game. They have a stake in what happens to people.

Indeed, some bosses do not want to see their best people promoted for fear of an inability to replace them. Some bosses grade people by their own standards—with the result that some individuals who are quite unlike the boss are not considered for promotion. While the support of a boss is useful in developing individuals, more objective assessments, such as multi-rater assessment are excellent in aiding the manager’s assessment.

Mistake #3: Assuming that Promotions Are Rewards. Some employees have an entitlement mentality in which they feel that long service with an organization should always be rewarded with promotions. But business decisions must be based on who will do the best job, not who is “owed” a promotion because of greatest seniority. Workers must continually be reminded that doing jobs at each level requires different competencies, and the best way for them to compete is to prepare for future challenges rather than expect promotions for past performance at a different level of responsibility.

Mistake #4: Trying to Do Too Much Too Fast. The strong results-orientation of many organizations today emphasizes quick results. Senior leaders expect to see all the components of a comprehensive succession system in place immediately. That is not always realistic. It is advisable to think of implementing systematic succession in a phased way—either from the top down or else starting in specific divisions or locations with greatest need.

Mistake #5: Giving No Thought to What to Call It. A fifth mistake is to devote no time to considering what to call the succession program. As any marketer knows, product names do matter. It is not necessary to call a spade a spade. Many organizations choose alternative names--such as “leadership development program,” “human capital management program,” or even “talent program.” Mistake #6: Assuming that Everyone Wants a Promotion. A sixth mistake is to assume that everyone wants a promotion. That is not always true today. In many downsized organizations, workers have seen what pressures their bosses have to deal with. Some say “leave me out of that.” Hence, it is unwise to assume that everyone wants a promotion—or even to assume that money will convince everyone. It will not. Check first. Find out what people want to do. For that reason, many organizations launch both a top-down succession planning program and a bottom-up career planning program to galvanize development efforts both among managers and among individuals.

8 Ten Key Steps to Effective Succession Planning Conclusion The world faces a quiet crisis of succession. As the global workforce ages and the skills gap increases, increasing attention will be paid to establishing and maintaining effective succession planning programs. CEOs, managers, human resource practitioners and even individuals have important roles to play in that effort. There is a practical approach to the work that must be done if organizations are to establish and sustain systematic efforts to ensure that the right people will be in the right places and at the right times to do the right things so as to achieve the right results.

Author’s Biosketch William J. Rothwell, Ph.D., SPHR (see www.rothwell-associates.com) is Professor of Workplace Learning and Performance in the Workforce Education and Development program on the University Park campus of The Pennsylvania State University. He is also an active consultant specializing in succession planning and management and issues related to it. Among his best-known publications are Effective succession planning, 3rd edition (Amacom, 2005), Career planning and succession management (Greenwood, 2005), The strategic development of talent (HRD Press, 2003), The competency toolkit (HRD Press, 2000), building in-house leadership and management development programs (Quorum, 1999), and The action learning guidebook (Wiley/Jossey-Bass Pfeiffer, 1999).

Halogen eSuccession™ Halogen Software offers a practical and affordable automated succession planning tool that fully supports the advanced practices presented by Dr Rothwell and other experts in this area. Halogen eSuccession makes it easy for organizations to focus on developing people rather than merely replacing them. It helps organizations establish a larger number of promotable employees, who are more likely to stay with the company and who’s skills are better aligned with their strategic plans. Visit http://www.halogensoftware.com for more information.

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