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Ensuring leadership continuity and renewal – succession planning January 3, 2011

Posted by Alan Yu in Leadership, Leadership and management, Management.
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At this time of the year, it’s customary for companies to evaluate the performance of their staff.  The purpose of performance appraisal is to understand how staff can improve personal performance in their current jobs, and how they can step up or across to other jobs.  This latter objective is part of succession planning, a broader activity which addresses improvement in organisational performance. 

In most large to mediumsize organisations, succession planning is a regular and well-understood process.  In fact, there are many books on the market which purport to make the process effective.  One example is Effective Succession Planning by William J. Rothwell.  Although I have not read this book, it appears to be a compendium of everything you need to know about the topic. 

During the past few weeks, however, two unconnected events have led me to wonder whether succession planning genuinely delivers its intended outcome, and the factors that enable organisations to derive maximum benefit from the process. 

The first of these events is chancing upon the review by Alan Murray in the Wall Street Journal of a new book by Bill Conaty and Ram Charan entitled The Talent Masters.  The second event is sitting at dinner next to a fellow graduate from my university, a few years senior to me, who tells me how she is retired in the comfortable knowledge that the business she started almost three decades ago is in good hands.

According to Murray, The Talent Masters is as much a celebration of the Welch Way, management practices established by Jack Welch, former CEO of GE, as it is an exposé of why perhaps we need a “new icon for the rapidly evolving world of business management”.

In addition to recounting the three principles that characterise the Welch approach to management – focus, differentiation and candour – the book also documents a number of interesting examples from industry.  By far the most dramatic example revolves around Larry Johnston, head of GE’s appliance business, who decided to leave to head up Albertsons.  GE was apparently able to agree on the successor to Johnston and “three other slots down the chain of command” within half a day of his resignation.

Succession planning is obviously easier with the depth of talent and the elaborate processes possible in a large corporation such as GE.  Yet I was struck by the visionary approach my fellow graduate takes to ensuring that the small PR consultancy firm she started could continue after her retirement.  As I think about succession planning in light of these two events, it seems that a few factors determine how much benefit we derive from it:

Succession planning works only if people let go

It’s all very well for us to go through an elaborate process of identifying and nurturing talented people in the organisation to take over our jobs, but we have to accept that the jobs have to be vacant before the successorscan prove whether they are ready to take over.

John Howard and Tony Blair, Prime Minister of the Australia and the UK respectively, highly competent and effective leaders in their own right, both tacitly accepted that their finance chiefs, Peter Costello and Gordon Brown, would succeed them eventually.  Both, unfortunately, overstayed their welcome.  In the end, Costello never got the chance to prove himself; and Brown spent a woefully short time on the job before the electorate booted him out.

By contrast, my schoolmate decided early that she was going to retire by a certain time. She had recruited, several years before she even came to that decision, a few talented young people into the organisation.  When she felt the time was right, she stepped back, taking an advisory position and coming to the office half a day for four days.  She made it clear to her successors that they were running the show, although she would be available as a sounding board for important decisions.

In recent American corporate history, Anne Mulcahy handing over the reins to Ursula Burns as CEO of Xerox is a case study in smooth implementation of succession planning.  Mulcahy was only 56 when she stepped down, and having rescued the company from near bankruptcy might have felt entitled to bask a little longer in the glory of success.  BusinessWeek quotes her confessing how hard it is to give up power, but she is also wise enough not to overstay her usefulness: “To have stuck around until I was 65 would be a disservice to Xerox, a disservice to my successor”.

It is a huge challenge for leaders, especially successful ones, to decide consciously to hand over power.  They tend to believe, with a lot of help from sycophants around them, that nobody can do the job better.  Talented successors also tend to be fairly ambitious, and are not prepared to wait in the wings for too long.  When they decide to accept an opportunity that beckons in another company, all the effort in succession planning will have been wasted.

Succession planning is taking risks with people

Very often, candidates identified to have potential to succeed a certain position lack some skills, experience or track record to be either suitable or even credible.  For example, someone who has done a brilliant job in the domestic market may be considered successor to a position with global responsibilities.  Her cultural insensitivity is thought to be a weakness that needs to be tested.  Putting her through an international market may do more harm than good.  Nevertheless, if we are serious about her candidacy we have to take the risk and coach her along the way.

I have personal experience in having identified a highly skilled and competent marketing manager as a future marketing and sales director.  For her to succeed in a broader role, she has to demonstrate to the sales force, who were notoriously entrenched in their traditional way of doing things and somewhat hostile to analytical marketing types, that she could hold her own and lead this rather recalcitrant group into the future.  When a vacancy in the sales area came up, I decided to give her the assignment, warning her about the pitfalls.  She acquitted herself well in the challenge, and eventually eased seamlessly into the broader position a few years later, having won the respect of everyone on the team.  It was a wise move in hindsight, but at the time it was risky.  She could have totally flunked and made a fool of herself.

Personal needs have to align with business needs

Younger generations of executives have different needs from their baby boomer generation predecessors.  Work-life balance, health, family and community are important considerations given less weight a couple of decades ago.

Besides, candidates with good potential are usually high-flying go-getters not prepared to wait in the wings for too long.  A marketing executive earmarked for a general management position may not want to spend a couple of years in the operational wilderness in order to move ahead; a domestic high-flier may not want to leave the domestic power base for experience in an international market.  We have seen many cases of potential candidates passed over for the CEO job joining another organisation to leap-frog their careers.

Since personal as well as corporate circumstances change constantly, no succession planning can assume that potential candidates are even available when the positions for which they are successors become vacant.  All succession planning, therefore, needs to address a number of “what if” scenarios.

In summary, leaders can maximise benefits from succession planning by handing over power when the organisation is ready, rather than when they are; by taking risks with potential candidates early; and by anticipating contingencies.  The first is obviously the hardest to do.