Succession Planning in Organizations
Appointive posts in organizations always have a set time limit under which an executive officer or director serves. An organization can have a compulsory retirement age of 60 years for Chief executive officer (CEO) and other senior management officials. When these people are approaching this age limit, an organization began a roll out program to start looking for CEO five years before the current officer leaves the office. In this case, when the current CEO reaches 55 years, the company will be on the lookout who will be the successor. Succession planning is highly practiced in organizations for the sole purpose of allowing a smooth flow of activities of the organization without disruptive leadership vacuum in the organization which can lead to mega financial losses.
Succession planning can therefore be defined as the strategic identification of qualified personnel within or outside the organization to succeed the current CEO or any other executive position in an organization by following a set succession system through which an organization evaluates, train and finally appoint the most qualified and experienced personnel to be at the helm of the organization leadership position. Succession planning varies from one organization to the next. Every organization has always practiced different forms of succession planning. This paper will examine various forms of succession planning currently practiced in various organizations, highlighting advantages and giving an example of an organization which practice at least one form of succession planning discussed.
Succession planning: Different forms leading to one ultimate goal
There are three major practiced forms of Succession Planning practiced in the modern organizations. These are target date succession, designated replacement, and situational replacement. Every going concern organization always has succession planning elements being practiced and implemented with both old and new recruits. Such organizations usually invest considerable time and sizeable resources in its human capital growth. These can be in the form of periodic employee training and development programs, mentorship programs, and on-the-the job training with a view to nurture various skills and create a pool of qualified personnel who are ambitious and always ready to assume a senior job position or management role in the organization.
The current job market is full of uncertainty characterized by high employee turnover, employee poaching, voluntary employee exit and premature retirement of senior employees due to health problems or any other personnel problem hindering them from successfully executing their executive duties. In some unfortunate circumstance, a key employee can pass away, thus creating employment and leadership vacuum in a business environment. For these and more reasons, an organization must always have a plan B that will ensure no form of employment or leadership vacuum whatsoever in the organization.
Armstrong (2006) points out that an organization that either practices no form or weak form of succession planning risks continuity aspect as well as sustainability which is vital for organizational growth and development. He further argues that, successful transition determines the future of any business. Therefore, it is of utmost importance to dedicate more time and resources to this noble cause.
Target Date Replacement
Target date replacement succession plan is the most practiced form of succession in stable and successful organizations. In this type of succession, an organization or business is aware of the exact time a particular employee will leave the office. It is usually associated with senior employee retirement. The business begins by following a systematic replacement method already adopted by the organization in its previous succession strategies.
The first step will involve identifying and shortlisting of potential successors. Next, the successfully shortlisted candidates will undergo rigorous training process with role playing assignments coming handy (Lussier, 2015). As the retirement date for the current officer draws closer, the number of potential candidates shortlisted gradually narrows up to the point the organization is left with a single candidate who will automatically be crown as the new high officer in command or CEO.
Most succession plans focuses on top management positions because of the high demanding responsibilities associated with these positions. However, succession planning also occurs across various job positions in the company. The only difference is that for top leadership job, it usually takes considerable time as compared to other positions.
Designated Replacement
Sometimes called ‘name in the envelope’, designated replacement succession planning is carried out by both SME as a safe exit strategy and Multinational corporations to instill confidence among the employees, customers and shareholders assuring them the business is headed for greatness with the incoming CEO. Usually, the perfect replacement always turns out to be someone the company has expensively groomed for the position and always ready to step in and assume the top management job temporarily or permanently when the current CEO is either incapacitated, has passed away or board of directors change of thoughts.
Early this year, Savola group, one of the leading food production company in Saudi Arabia announced the appointment of JP Morgan’s Saudi branch chief executive officer to be the next CEO beginning March 2016, replacing Abdullah M Noor who has been the managing director under the current board whose term expires in June this year. As we can see from these appointments, the company board of directors always look for someone with an unquestionable success profile to take charge.
Unlike target date replacement and Situational replacement, designated replacement always does not rely on the current internal human capital development program (Thomas et al. 2013) to pick someone from within. The board is always on the lookout for someone capable of delivering the goals and objectives of the company provided they have a track record of exemplary success in managerial position.
Situational Replacement Succession Strategy
Situational replacement unlike designated and target replacement which requires most qualified personnel to fill a particular role, it is not role-specific. This implies that an organization that practices this form of succession has a pool of qualified employees who can be promoted at any given time to fill any position should any need arise. It is widely practiced by organizations that are extremely focused not to create any loopholes in the event of any emergency or key employee crises.
Businesses that practice this type of succession heavily rely on employee performance record and also keeping records of all employee internal and external training to evaluate their suitability in assigning them any role. Collings and Wood (2009) posit that organizations that has adopted this form of replacement pool of qualified personnel who are ever up to the task, thus saves them time and capital resources. It also eliminates employee conflicts as everyone is trained to meet specific job duty requirement.
Situational replacement always comes handy for big corporations when both two and more senior managers resign prematurely or have been relieved of their duties as a result of unforgivable professional misconduct which might have made the corporation face financial crises. AlAhli Bank (National commercial bank of Saudi) practices situational replacement as its succession plan strategy. This was evident in 2005 a few years after the bank ownership changed. Abdul Kareen Abu Al nasr who was then serving as the general manager was appointed as the bank new chief executive officer in 2006 following resignation of Abdulla Salem Bahamdam. Further, in 2013, Al Ghamdi was appointed CEO when Abdul Kareem announced his retirement in January 2013.
Evidently, there has never been a leadership vacuum in the bank since 199 when there was a change in ownership. The bank has a leadership development program that has helped it successfully fill various leadership positions upon resignation of top managers without experiencing any disruption of ongoing activities and projects. Such ownership changes and abrupt resignation of CEOs without proper situational replacement succession plan could have placed the bank in a managerial crisis and thus affecting its overall performance in the banking industry where it has maintained the second slot for many years with an increased asset base.
Analysis of Succession Planning in Organizations
Succession planning possesses numerous strengths and opportunities for businesses. It is upon any organization to maximize the opportunities and further build more strength in their operations activities capable of bringing much needed success at all times. On the other hand, succession planning also has weaknesses and some threats which every business entity must learn to minimize or eliminate in totality to enable a smooth flow of various resources in the organization.
SWOT Analysis
Strengths
It strengthens the organization’s culture and ensure cohesive workforce capable of maintaining set organization culture and passing it from one generation of employees to the next, thereby assuming a unified global culture.
It promotes organization continuity in that it prepares the next leader early in advance and equips the future leader with the skills and furnishes him or her with the company aspirations, short-term and long-term goals and objectives (Rothwell, 2010).
Achieves high success rate objective of the company. Most organizations practice internal succession planning because various most researches and reports have indicated that internally sourced and polished managers, record higher success rate than their counterparts sourced from the general labor market.
Weaknesses
It requires high amount of capital for full implementation. An organization must allocate a considerable amount of capital to facilitate the selection, training and finally employee development.
It is time consuming. Some succession planning processes commence ten years prior to target date, others five years while others three years.
Opportunities
Companies that practices internal succession planning are viewed by employees as the best employers due to the job security it guarantees. Many employees, therefore, wish to be associated with such companies, knowing one day they may find their way on the top.
It provides the selection panel with a team of qualified internally trained managers to be. An organization, therefore, has a list of qualified personnel through with they can get the right candidate for the job
Also, it provides the company with a pool of qualified officers as the company through its systematic succession plan strategy engages in employee training, mentoring and leadership development.
Threats
Employees who feel dissatisfied with how one of them was selected always end up leaving the organization. This is a big loss to a company that has invested more capital resources in developing a competent human resource team
Loss of capital should the company fail to find the best replacement of outgoing officer.
References
Armstrong, M. (2006). A handbook of human resource management practice. London: Kogan Page.
Collings, D. G., & Wood, G. (2009). Human resource management: A critical approach. London: Routledge.
Lussier, P. R. (2015). Human Resource Management: Functions, Applications, and Skill Development. New York: Sage Publications.
Reuters. (2016). Saudi's Savola Group says hires JP Morgan's Fayez as CEO. Retrieved April 16, 2016, from http://www.reuters.com/article/savola-ceo-idUSD5N0ZO029
Rothwell, W. J. (2010). Effective succession planning ensuring leadership continuity and building talent from within. New York: AMACOM/American Management Association.
Thomas, H., Smith, R. R., & Diez, F. (2013). Human Capital and Global Business Strategy. Cambridge University Press.
