Developing a Succession Planning Capability -...

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Catalog No.: 070-240-201

� 2000 Corporate Executive Board

CORPORATE LEADERSHIP COUNCILLITERATURE REVIEW

Developing a Succession Planning Capability

January 2000

Research Findings

x What is the business case for creating a succession plan?

x What strategies guide contemporary succession plans?

x How should companies identify individuals to be included in a successionplanning pool?

x How do organizations implement succession plans?

CORPORATE LEADERSHIP COUNCILCORPORATE EXECUTIVE BOARD

__________________________________________________________________________________________________

2000 Pennsylvania Avenue, N.W. Washington, DC 20006 Telephone: 202-777-5000 FAX: 202-777-5827


TABLE OF CONTENTS

CREATING A BUSINESS CASE FOR SUCCESSION PLANNING 2

RECENT CORPORATE TRENDS 2DEMOGRAPHIC TRENDS 2CASE STUDY HIGHLIGHT: UNUM CORPORATION 3

SUCCESSION PLANNING STRATEGIES 4

DIFFERENCES BETWEEN TRADITIONAL AND INTEGRATIVE SUCCESSION PLANS 4THREE ORGANIZATIONAL LEVELS OF SUCCESSION PLANNING 5FOUR GENERATIONS OF SUCCESSION PLANNING 6CASE STUDY HIGHLIGHT: DOW CHEMICAL COMPANY 7

IDENTIFYING HIGH POTENTIAL INDIVIDUALS 8

LEADERSHIP GAP ANALYSIS 8CORE COMPETENCIES FOR SUCCESSION PLANNING 9CASE STUDY HIGHLIGHT: GENERAL ELECTRIC COMPANY 9ASSESSMENT TOOLS FOR CONDUCTING COMPETENCY EVALUATIONS 10CASE STUDY HIGHLIGHT: SMITHKLINE BEECHAM 11

SUCCESSION PLAN IMPLEMENTATION 12

TACTICS FOR IDENTIFYING SUCCESSION PLANNING NEEDS 12STEPS FOR IMPLEMENTING A SUCCESSFUL SUCCESSION PLAN 13CREATING A SUCCESSION PLANNING COMMITTEE 14FREQUENCY OF THE REVIEW PROCESS 15SIZE OF HIGH POTENTIAL CANDIDATE POOL 15OPEN VERSUS CLOSED SUCCESSION PLANS 16CASE STUDY HIGHLIGHT: BOEING CORPORATION 17TRACKING SUCCESSION PLANNING DATA 18

DEVELOPING A SUCCESSION PLANNING CAPABILITY PAGE 2JANUARY 2000


RESEARCH FINDINGS

Section One—Creating a Business Case for Succession Planning

Establishing a plan to fill important management positions is imperative for companies that face sharplyescalating recruiting costs and a shrinking pool of available talent. Prior to 1985, succession plans weremerely replacement tools in the event of sudden death or resignation1. In the past decade, however,corporate downsizing and reengineering trends have challenged traditional succession planning activitiesin the following ways:2

Recent Corporate Trends

i Downsizing efforts have left companies with fewer middle managementpositions, and thus, a greater need to develop leaders from lower ranks of thecompany.

i Rapidly changing organizational structures have abolished explicit careerpaths in many companies, making it far more difficult to accurately predictfuture management needs and competencies.

i External recruiting of talent has led to the poaching of management ranks.

i New emphasis on “managing your own career” has gained widespreadpopularity, reducing a firm’s ability to implement long-term career plans forhigh-potential employees.

i Reduced budgets have forced companies to streamline and taperdevelopmental resources for optimal return on investment.

Demographic Trends

Furthermore, recent demographic trends have exacerbated the leadership shortage for manyorganizations, as presented below:3

1 Shari Caudron., “Plan Today for an Unexpected Tomorrow,” Personnel Journal (Septmeber 1996): 42.2 John Beeson, “Succession Planning: Building the Management Corps,” Business Horizons (1 September 1998) 61.3 Robert J. Grossman, “Heirs Unapparent,” HRMagazine (February 1999): 36.

“The number of 35- to 45-year olds in the United States,currently in the early stagesof their careers, is projectedto decline by 15 percentbetween 2000 and 2015,reducing the talent pool fromwhich new leaders willemerge.”

—Robert J. Grossman,“Heirs Unapparent”

“We interviewed 150 Fortune500 companies and the resultswere sobering. The averagecompany expects 33 percentturnover at the executiveranks in the next five years,and fully one-third saidthey’re not confident that theywilll be able to find suitablereplacements.”

—William Byham, CEO ofDevelopment Dimensions

International, a human resourcesconsulting firm

i Older executives are retiring at a younger age, increasing the number ofavailable leadership positions within most organizations. This hasresulted, at least partially, from the strong stock market, which has madeearly retirement more financially feasible. For example, when AT &Toffered an early retirement package to a group of 62,000 middlemanagers, 15,300 managers left the company, almost 50 percent morethan the buyout was designed to attract.

i Middle-aged managers are decreasing in number, as the number of 35-to 45-year-olds is projected to decline by 15 percent within the next tenyears.

i Younger employees, between the ages of 25 to 34, will also becomemore scarce in the next decade. Additionally, companies may not knowhow to identify and develop high-potential employees in this age bracketto prepare them for future leadership roles within the organization.



Section One—Creating a Business Case for Succession Planning (continued)

The leadership crisis at UNUM Corporation, a Massachussetts-based insurance agency, demonstrateshow recent cost-cutting, downsizing and demographic trends have heightened the importance ofsuccession planning for many organizations:

4

4 Robert J. Grossman, “Heirs Unapparen,” HRMagazine (1 February 1999): 36.

CASE STUDY HIGHLIGHT: UNUM CORPORATIONDEMONSTRATING THE BUSINESS NEED FOR EFFECTIVE SUCCESSION PLANNING

Massachussets-based UNUM Corporation is currently experiencing a talent shortage in the wake ofmassive corporate restructuring during less profitable times. The company eliminated entire layersof middle management during the early 1990s and is now having a difficult time identifying anddeveloping leadership talent for the company to grow. Tammie Snow, UNUM’s manager oftraining, notes the following about UNUM’s leadership crisis:

Furthermore, the following factors have impaired UNUM’s ability to recruit and retain effectiveleadership from inside and outside the company:

“A lot of companies are realizing that middle management was a lot moreimportant than we thought it was. Today, there just aren’t enough managers tomeet the demand. Skills like good old critical thinking are hard to find. Peoplewho can take responsibility, who don’t need hand-holding and who can makedecisions quickly are at a premium.”

HighRecruiting

Costs

The costs of recruiting outside of the company have reached anall-time high, so that companies like UNUM have a difficult timeaffording search firms to assist them in finding qualified talent.According to the CEO of Development Dimensions International,William Byham, “the average one-year estimated replacement cost[of finding an executive] is $750,000.”

Low ExecutiveLoyalty

Executive loyalty is low in a climate of constant job transition.This has made executive retention a struggle for manyorganizations. According to Matt Paece, practice leader ofexecutive development at Development Dimensions International,“75 percent of executives are currently marketing themselves insome active way—sending out resumes, in contact withheadhunters or the like.”



Section Two—Succession Planning Strategies

As corporate organizational structures flatten and companies reinvent themselves in a rapidly changingeconomy, it becomes necessary to employ succession planning techniques as a way to increasemanagement depth and ensure longevity for the organization. In order to accomplish these objectives,literature suggests that individual organizations must develop their own succession planning tools inorder to “define the executive roles and associated competencies they need to reach their ultimatebusiness objectives and conduct a census of who’s available within their organization.”5

Companies have moved from a traditional to a more integrative approach to succession planning in orderto accomplish the following goals:6

; Meeting the demands of more fluid organizational structures; Identifying and grooming candidates for increasingly demanding leadership positions; Preparing the organization for demographic trends that will sharply decrease leadership ranks

The differences between these two approaches are profiled in the chart below and on the following page:7

DIFFERENCES BETWEEN TRADITIONAL AND INTEGRATIVE SUCCESSION PLANNING

5 William C. Byham, “Bench Strength,” Across the Board (1 February 2000): 34.6 Ibid p. 347 Tim Orellano and Janice A. Miller “Succession Planning: Lessons from Kermit the Frog.”

http://shrm.org/whitepapers/documents/61203.asp (June 1999).

Traditional Integrative

DevelopmentalFocus

Orientation

Employee/EmployerRelationship

The company’s “best and brightest qualify foraccelerated, individually tailored developmentcurriculum.

Focused on developing leaders for the future;identifying and building competencies toensure that the leadership pipeline ismaintained.

Employers share the succession plan withemployees, with the understanding that there isno implicit guarantee of promotion withoutmeeting developmental goals.

Individuals in the succession planning pool arereviewed frequently through 360-degreeevaluations and leadership templates to assessprogress relative to developmental goals.

Very little development focus, if any;traditional succession planning moreconcerned with replacement thandevelopment.

Focused primarily on the present;concerned with finding effectivereplacements for open positions.

Employers do not share the sucessionplan with employees; the document iskept completely confidential.

Employees are evaluated by means oftraditional annual performance reviews;these assessments have little to do withdevelopmental objectives.

AssessmentTechniques

Number ofCandidates

Traditional succession planning onlyincorporates the top ranks of theorganization.

Integrative succession planning targetshigh-potential talent at all ranks of theorganization (see page 6).



Section Two—Succession Planning Strategies (continued)

Companies that have moved towards more integrative succession planning processes have started toincorporate individuals throughout the organization into the succession planning process. Whiletraditional succession planning activities are limited to candidates in line for top-level positions, moreadvanced succession plans identify and develop candidates at the following three levels:

THREE ORGANIZATIONAL LEVELS OF INTEGRATIVE SUCCESSION PLANNING

Source: Tim Orellano and Janice A. Miller. “Succession Planning: Lessons FromKermit the Frog.” http://shrm.org/whitepapers/documents/61203.asp

Promising Candidates in Lower Levels of Organization

Potential Candidates Outside FunctionalArea

Key Management Positions

Candidates are identified for immediate backup of key managementpositions, and development activities are individualized foremployees

Potential candidates are identified outside of the functionalarea and development activities are designed that emphasizepreparation for movement regardless of function, departmentor entity.

Promising candidates are identified at lowerlevels of the organization and developmentactivities are designed to increase theirunderstanding of the organization and broadentheir career knowledge




Developing an integrative succession plan is a long-term process, which requires a great amount of focusand dedication, and must be tailored for organizational needs. In general, companies that have movedfrom traditional to integrative succession planning programs have undergone a progression ofgenerations, as outlined below.8

FOUR GENERATIONS OF SUCCESSION PLANNING

Generation One: Replacement Planning for CEO/Top ExecutivesTypically used as a risk-management tool, this tactic focuses on the current direction ofthe corporation and its immediate needs. Generally there is only one employeeearmarked to replace an executive. Even in large companies, there are only a handful ofexecutives at this level; as such, this type of succession plan “can take an afternoon” tocomplete.

Generation Two: Replacement Planning for Middle ManagersThis succession planning stage is also geared primarily towardsrisk-management, keeping the corporation at its current skill level by fillingavailable positions in middle management and above with employees who havesimilar skill-sets. This stage is also “replacement-focused;” concentrating onchoosing appropriate candidates for established positions.

Generation Three: Competency IdentificationCompanies that advance to Generation Three use competencyidentification in the succession planning process, integrating thesuccession plan with employee development and creating a talent poolfrom which the company may draw the needed competencies. At thislevel, companies start “grooming people from within,” looking todevelop future leaders to meet organizational needs.

Generation Four: Internal and External Candidate SelectionGeneration Four companies focus on identifying potentialcandidates from outside the company as well as developinginternal talent. For example, a company that outsources asignificant amount of work might look to an organizationalleader within the outsourced function to fill future roles.

According to William J. Rothwell, a professor of human resource development at Pennsylvania StateUniversity, “most Fortune 500 companies are in generations three and four while most small businessesare not even at generation one.” In addition, for companies new to the succession planning process,Rothwell emphasizes the importance of starting with a simple replacement plan. “Even an organizationalchart that shows two to three people to fill each position and what you need to do to get them ready isuseful. Just the exercise of completing such a chart can be an eye-opener.” 9

8 Carla Joinson, “Developing a Strong Bench,” HRMagazine (January 1998) pg. 92+.9 Ibid.

Traditional

Integrative




Dow Chemical Company exemplifies how a company can modify the “four generations” of successionplanning to meet its own needs.

CASE STUDY HIGHLIGHT: DOW CHEMICAL COMPANYINTEGRATING THE GENERATIONS OF SUCCESSION PLANNING

Dow Chemical Company combines two of the aforementioned stages of successionplanning on an as-needed basis, differentiating between the 50-60 positions identified as“corporate critical roles,” and the 200-300 roles earmarked as “needing continuity.”Kenneth Pederson, global process leader for staffing and selection, provides the followingrationale for this practice:

Pedersen also heeds the following cautionary words about potential pitfalls in thesuccession planning process:

Source: Joinson, Carla. “Developing a Strong Bench.” HRMagazine (January 1998): 92.

“If a role is unique, we use a list of ready-now candidates.If we have jobs in which two or more roles have similarcompetencies, we will cluster roles and build a pool ofready-now candidates. Depending on availability, any ofthem could step in.”

Planners may lose focus, producing too many candidates for too few spots Lists of potential candidates may be ignored or relegated to the back shelf Candidates may resemble current management too closely, precluding

transformation within the organization



Section Three—Identifying High Potential Individuals

The initial stage of any high-potential identification process involves the development of a frameworkfrom which the company can assess the talents of employees. This often occurs throughout the creationof a “leadership profile” or a list of core competencies of the organization. After developing this list ofcore competencies, organizations measure the skills of the current talent pool and develop employees tocreate future leaders in the organization.

Gap Analysis

In order to define the leadership experiences and competencies the company should focus upon in thesuccession planning process, many companies perform leadership gap analyses to assess theirorganizational capabilities and to identify the most pertinent leadership competencies. Leadership gapanalyses identify leadership competencies and “bench strength” necessary to meet future corporate goals.The steps to a successful and effective leadership gap analysis are presented below:10

10 Corporate Leadership Council, The Next Generation, Washington: Corporate Executive Board, (1998),12-27.

Step #1 Determine the future strategic direction of the organization

i Three- to five-year strategic plan outlines specific goals and targetachievements of the organization

i Future strategic objectives provide a framework for the discussion of gaps inthe executive ranks and below

Step #2 Assess the capabilities of the organization

i Senior management identifies key organizational capabilities required for thesuccessful execution of the strategic plan

i “Gap analysis” reveals discontinuity between current abilities and futureorganizational needs, securing senior management buy-in regarding theimportance of executive development programs

i Company isolates critical skill areas in order to prioritze where to expendlimited resources

Step #3 Identify the most pertinent leadership competencies

i HR correlates the most pressing capability needs with the most relevantleadership competencies

i Resulting competencies describe individual skills and the characteristicsrequired to build executive leaders that will fill the leadership gap

Step #4 Build individual leaders

i Company’s HR team incorporates leadership competencies into individualdevelopment plan

PRACTICE IN BRIEF: LEADERSHIP GAP ANALYSIS



Section Three—Identifying High Potential Individuals (continued)

Core Competencies

As a rule, core competencies are highly dependent on organizational needs. Often, the high-potentialemployee is evaluated for future potential, rather than against the requirements of one specific role.11

That said, many organizations also measure more functional skills, such as business knowledge orfinancial awareness. Key characteristics or criteria HR staff and senior management often use to identifyhigh-potential employees include the following:12

COMMON LEADERSHIP COMPETENCIES� Business effectiveness � Personal effectiveness� Communication � Risk taking ability� Decision making ability � Strategic thinking� Flexibility � Teamwork effectiveness� Leadership effectiveness � Technical skill� Learning capability � Workforce diversity� Motivation

General Electric has done an especially noteworthy job of identifying core competencies in future leadersthat are essential to organizational growth; details are presented below.

11 Corporate Leadership Council, The Management of High-potential Employees, Washington: Corporate Executive Board

(December 1998). 7.12 Corporate Leadership Council., Succession Planning, Washington: Corporate Executive Board (1997).

CASE STUDY HIGHLIGHT: GENERAL ELECTRIC COMPANYDEFINING COMPETENCIES FOR FUTURE LEADERSHIP

General Electric, a business leader in succession planning practices, has tailored the corecompetencies it is seeking to meet its organizational needs. A composite sketch of futureleaders at General Electric includes the following characteristics:

In addition, Dennis D. Dammerman, General Electric’s chief financial officer notes theunique leadership competencies sought at General Electric:

Source: Robert J. Grossman. “Heirs Unapparent.” HRMagazine (February 1999): 36-44.

; Integrity; Intelligence; Global and diverse business experience

“These individuals…will have what we call the three ‘E’s’—high energy, theability to energize others and something called the ‘edge’—the courage toremove from the organization those who can’t or won’t buy in.”




After establishing the core competencies needed for leadership development, an organization mustdetermine where talent already exists. Following are five assessment tools used to measure managementcompetencies in current employees:13

ASSESSMENT TOOLS FOR CONDUCTING COMPETENCY EVALUATIONS

Details of Practice Case Study

13 Eve Golden, “Nothing Succeeds like Succession,” Across the Board. (June 1998): 36.*Corporate Leadership Council, Executive Development at Small- and Mid-Sized Companies, (February 1998).

360 degreeevaluation

Multi-raterfeedback

“Needs”template

Yearly reviews

Externalassessment

tools

“Once individual managers have identified theirhigh-potential people, the managers get togetherin their functional areas and determine thehighest trajectory employees within eachfunction”

—Charlotte Damron, director of HR, Kraft Foods

“Let’s say you’ve gone through a competencyworkshop and find you need to strengthen yourleadership skills. In the next year, you may begiven the chance to lead a task group. At the endof the project, other members of your team wouldbe asked for feedback on how you’d led them.”

—Anthony Taylor, director of HR, BestFoods/Europe

“We at Weyerhaeuser developed a templatealigned with our company and supplemented thatwith dimensions from researchers that may not beon our own radar screen.”

—Bill Maki, director of HR, Weyerhaeuser

“We have…the HR review, done annually. Weask our business line managers…what skills arenecessary to meet their business goals and fillany gaps that may exist; then we ask them toidentify key replacement candidates for thosepositions.”

—Frank Ashen, senior VP of organizationaldevelopment, NY Stock Exchange

“In a small company, one or two performanceproblems can pigeonhole a talented employee as abad performer. The external assessments… ensurewe really know where our talent is.”

—Director of Organizational Development,Company B*

x Overview from all sides—manager orsupervisor, co-workers, subordinates andcustomers

x Employees rated by some combination ofmanagers, supervisors, peers and directreports

x In most cases, raters’ input used fordevelopmental purposes only

x Specially created template of “ideal”candidate, used to target promisingemployees

x Template can be created internally(through mission statement and 360degree reviews) and externally (throughconsultants and researchers)

x Performance reviews conducted annually,based on a changing template

x Assesses past performance, behavior,stability of tenure, intelligence andadaptability of employees

x External consulting firm performspsychological and cognitive assessmentsof each employee

x Human Resources uses the externalassessment in tandem with 360-degreeassessments




The aforementioned competency assessment and identification tools can be used successfully inconjunction with each other. SmithKline Beecham has successfully integrated a 360 degree reviewprocess, a standard performance review and a group discussion to identify and develop futureorganizational leaders, as described below:14

14 Corporate Leadership Council, Best Practices in Identifying and Developing High-Potential Employees, Washington:

Corporate Executive Board (August 1997).

CASE STUDY HIGHLIGHT: SMITHKLINE BEECHAMINTEGRATING COMPETENCY ASSESSMENT TOOLS

SmithKline Beecham’s Leadership Planning Process (LPP) is designed to identify and develop thefuture leaders of the organization. There are two stages to the LPP:

Discussion groups then begin at the lowest level at which LADRs occur with high-potentialperformers; the results are then filtered up through the system towards the senior managementreview committee.

SmithKline Beecham has found that these meetings are invaluable for improving the decisionmaking process and raising the profile of the high-potential employees.

� Leadership and Development Review (LADR)—A process that utilizesstandard forms to set up a dialogue between employees and their managersregarding competencies, aspirations and development plans. Informationfrom this process is fed into a company-wide database.

� Group Discussion—A facilitated conversation among the supervisor andhis or her peers who review the skills, competencies and 360 degreeappraisal results of the direct reports.



Section Four—Succession Plan Implementation

Implementing a Succession Plan

There are a multitude of succession planning techniques available for organizations. In fact, the onlystandard rule of succession planning is that the system should be tailored to the specific needs of theorganization. Whereas a hierarchical organization may require the establishment of a simple,straightforward succession plan, a more flattened organization may call for horizontal as well as verticalcareer paths. In addition, very generalized leadership abilities may be suitable for promotion in someorganizations, while other companies require specific functional skill-sets.15

Before an HR executive starts the succession planning implementation process, there are a number ofconcrete ways to identify organizational issues and to develop a succession planning process tailored tobusiness needs:

TACTICS FOR IDENTIFYING SUCCESSION PLANNING NEEDS� Obtain feedback from employees on attitudes and expectations� Benchmark best practices in successful companies� Identify and develop a pilot program� Develop a long range HR plan that emphasizes executive

resource needs� Draft a pro forma statement

15 Author Unknown, “Five Tips,” The Orange County Register (1 February 1999): pages unknown.

Developing a Pilot Program

This is an excellent method of gainingcommitment and demonstrating businessneed for a succession plan.

The department that is experiencing themost turnover or the greatest need shouldbe the “test case” for the plan. The linemanager in this unit should “own theprogram,” taking credit for programsuccess. This will help sell the process tosenior management for organization-wideimplementation.



Section Four—Succession Plan Implementation (continued)

Once organizational needs for succession planning have been identified, literature suggests that there arenumber of key tactics for the actual implementation process. Eight steps for introducing a successfulsuccession plan are presented below.

STEPS FOR IMPLEMENTING A SUCCESSFUL SUCCESSION PLAN1

Step 1Obtain CEO Commitment—Ensure that the CEO and other senior executives arewilling to get involved in the succession planning process to create the vision for theinitiative within the organization.

Step 2Draft a Policy Statement to Be Reviewed by the CEO—Write the policy document inthe words of the senior management committee to establish the tone of the successionplanning program.

Step 3Establish a Senior Management Committee—Identify top executives from allfunctional areas of the organization to oversee the succession planning process.This committee must have decision-making authority.

Step 4Develop a Proposal for an Annual Cycle of Reviews—Draft a realistic successionplan that is attainable for the short-term; develop a more comprehensive plan after afew years of experience.

Step 5 Develop Forms and Instructions—Create basic succession planning forms that listpositions and high-potential candidates and plans for their development

Develop Training Needs and Programs—Provide training to ensure that managersunderstand the succession plan procedures as well as the steps for assessing thepotential of employees.

Step 6

Step 7

Step 8

Start the Process—Ensure that the CEO plays a pivotal role in the successionplanning process to increase the likelihood of success.

Evaluate and audit the process—Implement an audit process in the succession planthat tracks career paths, identifies supply and demand, and evaluates the plan




Creating a Succession Planning Committee

It is crucial to involve five key players shown in the graphic below to set up and monitor the successionplanning process:

KEY MEMBERS OF A SUCCESSION PLANNING COMMITTEE16

American Greetings Corporation’s executive development committee, responsible for maintaining a“talent pool” of company leaders, exemplifies this committee framework. This committee is made up ofthe following members:17

; President ; Senior VP of HR

; CEO ; Staffing Director

Additionally, the board of directors at many companies is intimately involved with the successionplanning process, and not only at the senior executive level. Many board members are interested inensuring that there is a “leadership pipeline” running through the organization, and want to play a role inthis process. At Corning, the board of directors reviews the company’s succession plan regularly andchecks on the status of particularly “high potential” employees.18

16 Carla Joinson, “Developing a Strong Bench,” HRMagazine. (January 1998): 92.17 Charles McConnell, “Succeeding with Succession Planning, Health Care Supervisor (December 1996): pages unknown.18 John Beeson, “Succession Planning,” Across the Board (1 February 2000).

HR INFORMATION

SPECIALIST

Monitors softwareprogram to track

process

DATA ENTRY

SPECIALIST OR CLERK

Manages data entryprocess

SENIOR HREXECUTIVE

Monitors the process

CHAIR, CEO OR

SENIOR EXECUTIVE

Sponsors the process

UPPER- OR MIDDLE-MANAGER

Collects data,manages the database

and creates reports




Frequency of Review Process

Companies should develop a regular review cycle to ensure that high-potential individuals areconsistently measured against developmental goals. The article entitled “Bench Strength” emphasizesthis point, noting that “ongoing evaluation ensures that individuals will be stretched to the extent of theircapabilities.” Regular review cycle intervals generally span between six and twelve months.19

Best-in-class companies use these review sessions for a number of additional objectives, including thefollowing:20

¾ Corning—Uses its succession planning reviews to determine the number of females and minoritiesin its leadership pipeline and to add visibility for diverse members of the employee population

¾ General Electric—Screens compensation packages during review cycles to ensure that highpotential employees are being properly recognized for their status and mobility within the company

Size of High Potential Candidate Pool

The number of candidates selected for the succession plan is dependent largely on the size of theorganization. Small- and mid-sized companies may have only one pool of high potential candidates,which may include up to 10 percent of the employee population. Larger companies may have up to threeacceleration pools in which to include candidates at different ranks of the organization—one at theexecutive level, one geared for middle management and a third for particularly high potential individualsin the lower ranks of the organization.21

That said, it is crucial to emphasize the importance of “starting small,” especially for companies new tothe succession planning process. Mark Caruso, president of Success Associates, Incorporated, a humanresource consulting firm, notes the following22:

Additionally, organizations should still plan to populate 15 to 20 percent of their senior-level executiveswith individuals from outside of the company, even with an effective succession plan. This type ofoutside hiring ensures that there is some regeneration within the organization.23

19 William C. Byham, “Bench Strength.” Across the Board. (1 February 2000) 34.20 John Beeson, “Succession Planning,” Across the Board (1 February 2000) 38.21 Ibid 3622 Carla Joinson, “Developing a Strong Bench,” HRMagazine (1 January 1998) 92.23 Byham p. 34.

“There’s a big hump when you first do this. It’sbetter to work with 50-75 people and do the jobthoroughly, rather than try to do too much at once.”



Section Five—Implementing a Successful Succession Plan (continued)

Open versus Closed Succession Plans

One of the most controversial decisions for companies in the process of developing a succession plan iswhether to share the details of the plan with employees. In the past, companies were far more forthrightabout telling employees that they were being groomed for a promotion. In the wake of recent downsizingefforts, however, companies began to fear that open succession plans would turn into implied promises ofadvancement.24 There are strong reasons for and against open succession plans, as demonstrated in thegraphic below: 25

THE ADVANTAGES AND DISADVANTAGES OF OPEN SUCCESSION PLANS

24 Shari Caudron, “The Looming Leadership Crisis,” Workforce (1 September 1998): 72.25 Carla Joinson. “Developing a Strong Bench,” HRMagazine (January 1998): 92.

� Difficulty of keeping plans confidential—High-potential employees generally end upwith key assignments, a sure sign ofeventual promotion

� Retention of high-potential employees—Employees earmarked for promotions mayleave if they do not know of successionplans

� Reduced promotion mismatch—Executives avoid the possibility ofgrooming employees for a job in which theyare not interested

� Subjective decisions—Judgements aboutpotential are an “art” rather than a “science”

� Potential mistakes—There is bound to besome error in the determination of high-potential employees

� ‘Crown prince’ syndrome—People willbe resentful against the “chosen” employee

� Decreased performance—Employees whoare considered “high-potential” will nolonger have to prove themselves; otheremployees will have no real motivation toexcel

PROS CONS




Although two-thirds of companies currently opt to keep the details of their succession plansconfidential26, there are a few notable stories of companies effectively conveying succession plans toemployees, as profiled below.

26 Caudron, Shari. “The Looming Leadership Crisis.” Workforce (1 September 1998): 72.

CASE STUDY HIGHLIGHT: BOEING CORPORATION

SUCCESSFUL OPEN COMMUNICATION OF A SUCCESSION PLAN

After years of keeping the succession plan secret, executives at Boeing recently decided to expresslyacknowledge the 3% of the employee population considered high-potential. Although this decisionwas initially met with skepticism, this new, open style of succession planning has recognized someimmediate benefits:

Furthermore, Boeing has addressed concerns that an open forum brings to the fore; explicitlystating that designation as a “high-potential employee” is an annual selection process rather than apromotion guarantee, and determining that line managers will handle situations that occur whenindividuals are removed from the list of “high-potential employees.”

Other companies that have also recently decided to disclose succession plans to employees includethe following:

Source: Cope, Faye. “Current Issues in Selecting High-potentials” Human Resource Planning.(September 1998): 15.

; Increased respect for leadership development process by employeesand senior executives

; More rigorous succession planning process that can withstandscrutiny

i 3Mi Bank of Americai Westcoast Energy




Tracking Succession Planning Data

Today, many companies use software packages to support their succession planning programs. Suchsoftware is designed to track, monitor and update key positions and candidates. Some companies preferto develop their own software; others utilize systems developed by external companies. In either case,using an automated system presents a number of advantages for the implementation process of asuccession plan, as follows:

After implementing the type of software that will track and facilitate the succession plan, companiesshould track the following types of data:27

SUCCESSION PLANNING DATA TO TRACK

; Number of high-potential employees

; Percentage of high-potential to the total exempt workforce

; Number of new high-potential employees added to the succession planningpool since last review

; Number downgraded from last review

; Average age and average years of service

; Average number of physical moves per year

; Similar statistics for women and minorities

27 Orellano, Tim and Janice A. Miller. “Succession Planning: Lessons from Kermit the Frog. SHRM White Papers (June 1999).

Advantages of Using an Automated System to Track Succession Plans

Comprehensiveness

Currency

Completeness

Consistency

Responsiveness

It is much easier to review an automated system than anything on paper; assuch, there will be greater oversight within an automated system.

Changes are made automatically and in “real time” on an automated system.

Due to the capacity for data storage, automated systems permit a greater levelof detail and range of information that is impossible to track manually.

Automated systems can accommodate large populations in a consistentmanner, in addition to linking to career and strategic planning systems

Data on an automated system is available promptly and to a wide audiencewithin the organization.



BIBLIOGRAPHY

Developing a Succession Planning CapabilityJanuary 2000

McConnell, Charles. “Succeeding With Succession Planning.” Health Care Supervisor(December 1996): pages unknown (Obtained through LEXIS-NEXIS,a division of Reed Elsevier Inc.).

Caudron, Shari. “Plan Today For an Unexpected Tomorrow.” Personnel Journal (September 1996): 42(Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Byham, William C. “Bench Strength.” Across the Board(1 February 2000): 34 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Beeson, John. “Succession Planning.” Across the Board(1 February 2000): 34 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Beeson, John. “Succession Planning: Building the Management Corps.” Business Horizons(1 September 1998): 61 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Joinson, Carla. “Developing a Strong Bench.” HRMagazine (January 1998): 92+(Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Author Unknown. “Five Tips.” The Orange County Register (1 February 1999): pages unknown(Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Stephenson, Rob. “Experts’ Views on Succession Planning.” Saint Paul Pioneer Press(21 February 1999): pages unknown (Obtained through LEXIS-NEXIS,a division of Reed Elsevier Inc.).

Orellano, Tim and Janice A. Miller. “Succession Planning: Lessons From Kermit the Frog.”http://shrm.org/whitepapers/documents/61203.asp (June 1999).

Corporate Leadership Council. The Management of High Potential Employees.Washington: Corporate Executive Board (December 1998)..

Corporate Leadership Council. Succession Planning. Washington: Corporate Executive Board (1997).

Corporate Leadership Council. The Next Generation. Washington: Corporate Executive Board (1998):12-27.

Grossman, Robert J. “Heirs Unapparent.” HRMagazine (February 1999): 36-44(Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Golden, Eve. “Nothing Succeeds Like Succession.” Across the Board (June 1998): 36(Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).



Corporate Leadership Council. Executive Development at Small- and Mid-Sized Companies.Washington: Corporate Executive Board (February 1998).

Author Unknown. “Guidelines for Coaching and Mentoring.” Training and Development(August 1997): 24 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Corporate Leadership Council. Succession Planning Strategies.Washington: Corporate Executive Board (January 1998).

Kaye, Beverly and Betsy Jacobson. “Reframing Mentoring.” Training and Development(August 1996): 45 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Grab, Wilson. “Succession Planning: How to Perpetuate Your Leadership.” Hospital MaterielManagement Quarterly (August 1996): 65 (Obtained through LEXIS-NEXIS,a division of Reed Elsevier Inc.).

Alber, Vicere. “Executive Education: The Leading Edge.” Organizational Dynamics(Autumn 1996): 75-79 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Cope, Faye. “Current Issues in Selecting High-potentials.” Human Resource Planning(September 1998): 15 (Obtained through LEXIS-NEXIS, a division of Reed Elsevier Inc.).

Corporate Leadership Council. Best Practices in Identifying and Developing High-potential Employees.Washington: Corporate Executive Board (August 1997).

The Corporate Leadership Council has worked to ensure the accuracy of the information it provides to its members.This project relies upon data obtained from many sources, however, and the Council cannot guarantee the accuracy ofthe information or its analysis in all cases. Further, the Council is not engaged in rendering legal, accounting or otherprofessional services. Its projects should not be construed as professional advice on any particular set of facts orcircumstances. Members requiring such services are advised to consult an appropriate professional. Neither CorporateExecutive Board nor its programs is responsible for any claims or losses that may arise from any errors or omissions intheir reports, whether caused by Corporate Executive Board or its sources.

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