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Succession Planning for the 21st Century: 4 Essential Steps to Hiring Executives

Future leaders are groomed not born; nurture trumps nature. That’s why the most successful organizations invest heavily in succession planning, prioritizing nurturing internal talent over hunting for external hires.

And the stats are on their side.

In his aptly titled report ‘Paying More to Get Less’, Wharton professor Matthew Bidwell finds external hires earn 18% to 20% more than internal hires but get significantly lower performance evaluation scores over their first two years. How is that fair? 

That’s because external hires need longer to build an internal network and embed into your culture, while internal hires can become productive faster, but don't get anywhere near the same levels of pay through routine raises. We all know it: your only chance to get your worth is to switch jobs. 

To add insult to the injury, external hires are 61% more likely to be laid off or fired, and 21% more likely to leave of their own accord than internal hires. Which is unsurprising. Turnover is almost a foregone conclusion when it takes two years for external hires to reach productivity. 

That’s not good for anyone. 

What is good for everyone is nurturing talent internally so you have a ready-to-go succession plan of superstar successors who know your culture, your people, your business, and your challenges inside-out.

But you know that. That’s why Korn/Ferry’s 34th Annual Board of Directors Study found that 84% of Fortune 1000 directors believe a CEO succession plan is more important than ever.

But knowing and doing are two different things and to be frank? Your business is most likely one of the many than haven’t nailed succession planning.

Yet. 

Here are the 4 steps to future-proofing your business with a positive, proactive succession plan.

 

Start from Day 1

 

The early stages of the employee journey might not seem relevant to the succession planning conversation, but they are. Because that junior manager might become your CEO one day, but you won’t turn junior managers into CEOs if you start on the wrong foot.

That’s why one quarter of employees leave in their first year. And why as much as 20% of total turnover happens in the first 45-days of employment.

Think about how many of those lost employees might’ve eventually become business-critical leaders. Who do become business-critical leaders, for another business.

So take a ‘from day 1’ attitude to future leadership, setting the tone with a smart employee onboarding program that empowers employees to become their best selves. Not just this week, quarter or year but throughout their career. It all starts with onboarding.

Focus on employee retention

 

You can’t promote internally if all your promotion-worthy people have left.  

Which means employee retention should be a major prong in your succession battle plan (and not just because improving retention means you save money, boost your employer brand and future-proof recruitment).

Your aim should be to create a culture of employee retention, one where your people are happy, engaged, motivated and inspired. And subsequently available for promotion to help you grow, as opposed applying their talents to help a competitor grow. 

This becomes especially important in the C-Suite.

As HBR note, ‘effective succession requires offering incentives to these potential chief executives—including extra compensation—to retain their presence as CEOs-in-waiting if a well-performing chief executive still has ample energy in the battery’.

In other words, you need your top executives to stay happily in the sidelines so they’re ready to step into the top job if and when you need them. Despite the fact the best executives aren’t natural sideline dwellers, and the ever-present threat of poaching. 

This can be a delicate balancing act, and HR must dedicate enough time here.

(Which is one major reason HR leaders LOVE Talmundo. Because it outsources the online onboarding process to give HR more bandwidth to spend elsewhere. Like on coaxing your CEOs-in-waiting to keep waiting) 

Boost L&D investment

 

Consider employee retention in isolation and you get happy, engaged employees who’d love a promotion – but who you don’t want to promote because they’re just not ready.   

That becomes a real issue the further up the ranks you go. And if you don’t nip it in the bud, it can snowball into insidious and hard-to-solve issues like strategic indecision, whichever-way-the-wind-blows corporate direction and eventually, commercial floundering. 

The remedy is increased investment into L&D. After all, 74% of UK employees want more on-the-job training because they feel they’re not reaching their full potential.

You know the old adage. ‘What happens if we invest into employees and they leave? But what happens if we don’t, and they stay?’

That’s what’s at stake here. Because you don’t just want to keep employees. You want to keep the right employees. The people who have the vision, talent and ambition to lead.

McKinsey even name L&D as the first major component of succession planning:

“Are [internal candidates] progressing as expected? Are they getting the right type of experience? If, for example, an executive has excelled in one part of a company—marketing, say, or manufacturing—is it time to stretch that person by a transfer to a different field?”

Understand your ideal promotion profile and make sure people are nurtured towards it, empowered to grow so they can help the business grow. Improve your training program, not only to boost current job performance (a 10% increase in workplace education drives a 8.6% productivity gain) but to help potential successors prepare to step into their boss’ shoes.

To achieve that, L&D must be a priority for the business and not just a priority for HR. HR must get the investment they need to effectively develop their people.

Build fluid talent networks that include past employees

 

External hiring does have a role in succession planning, because looking external is sometimes the better choice. (And external benchmarking is, McKinsey warn, always vital if you’re not to become myopic). Like if you’re facing radical industry disruption, for example, you might feel internal candidates bring limiting legacy attitudes.

But when you do hire externally, it’s imperative you’re not kneejerk. If you wait until someone leaves to search for their replacement, you court uncertainty. 

Which risks your reputation, threatens shareholder value, jeopardizes employee engagement, gambles with retention and puts you on the back-foot for negotiations when you do find a prospective replacement.

To avoid uncertainty you need a long-term approach. One where you nurture relationships and build a talent network. Think bespoke headhunting, not recruitment.

And past employees should be an important part of that talent network. Not only because they might refer new hires, but as potential successors themselves. 

The thing is, employment today is no longer a discrete event but something fluid. Our attitudes to work have changed. (That’s what happens when you have five generations in the workplace, huh?)

Employees side-hustle, freelance or work part-time. They court potential suitors, even when they’re happily employed and job-hop more than ever. (Gallup report that 21% of millennials have changed jobs in the past year and 60% are open to a new job right now).

But that’s an opportunity, not a threat.

Because employees are building broader skills and gaining fresher perspectives than ever. And if you treat them well (that’s your employer brand, right there) and nurture the relationship, they might bring those skills back into the fold later in their career.

So you get the broader horizons of an external hire but the intimate knowledge and cultural fit of an internal hire.

Succession Planning Myopia Leads to Failure

 

Succession planning demands a mindset shift. Often we look at employees from a short-term perspective and expect near-immediate performance returns for training and development investment. 

Instead, we need a longer-term view that treats all employees as potential future CEOs – from day 1 onwards, even when they move onto their next career. That means succession planning comes hand-in-hand with creating a true-you culture and investing unreservedly in your people. 

A culture of long-term employee development starts from Day 1.

Find out how BNP Paribas Fortis uses Talmundo to drive global transformation, restructuring their culture around employee engagement, client engagement and employee advocacy.


Topics: HR
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