Insight

FIVE PRINCIPLES OF EFFECTIVE SUCCESSION MANAGEMENT

Businesses have long recognised that success is linked to having the right leaders in the right place at the right time. Despite this, only a few organisations have figured out effective succession management (SM) approaches that yield results. Far-sighted companies are able to establish deep and long-lasting ‘bench strength’ by treating succession planning as more than just a mechanical check-the-box process. In practice, they have combined two approaches – succession planning and leadership development – to establish a long-term talent management strategy. Based on discussions with leading firms, this paper offers inputs on how to develop an efficient succession management strategy that maintains a steady supply of leadership talent.

Succession Management must emphasise development over performance

Focus on development

Fundamentally, succession management must be a fluid system that centres on developmental activities, rather than merely a listing of high-potential individuals and the positions they might potentially fill. In most organisations, succession planning is a passive activity, with an emphasis on performance (‘Is this person ready?’) rather than learning (‘How can we prepare them?’). In contrast, leading-edge companies devise incentives that reward leaders for fostering successor development through a mix of three learning elements: experience, exposure and education.

Leading business conglomerate DCM Shriram Ltd, has a robust learning culture – one that provides experience-based development to identified successors, and ensures that people acquire the required abilities and interpersonal skills. Backing it up is one of India’s oldest management-training programmes and a highly-structured Senior Management Development Process. The latter includes ‘Leader as a coach’ workshops that build in-house coaching capabilities; the use of multi-rater feedback; one-on-one feedback from external consultants; and the creation of a Senior Management Development Plan (SMDP) for each member of the leadership team.

To ensure future capability readiness, various businesses and sub-units undertake periodic diagnoses to identify areas of strength and improvement. These involve surveys, studies, benchmarking activities, off-site meetings, brainstorming and interactive sessions with both internal and external resources/consultants. Perhaps unsurprisingly, home-grown leaders now head most of the group’s businesses and functions. Going forward, this structured process is expected to yield a robust pipeline of future-ready leaders.

SM plans should not be too broad but enough to cover all critical positions in the organisation

Adopt an enterprise-wide perspective

Most succession plans concentrate on top-management positions, but leadership development ideally starts in the middle. Succession management should have an enterprise-wide approach but should focus on vital roles – those that are critical to the organisation’s long-term health but are often difficult to fill. Such an approach makes any succession strategy more comprehensive, and in turn, stronger.

For instance, FMCG major Dabur’s succession management process focuses on all critical positions down to the C-1 level (i.e., direct reports to the C-suite). This not only brings rigour and focus to the process but also helps HR and business leaders lend sufficient time for targeted performance discussions/feedback, and to create personalised development plans for each critical position.

SM plans that lack transparency and simplicity fail to inspire trust

Make it transparent

Business leaders often feel that succession planning is cloaked in secrecy, and lacks the transparency and simplicity that is required to inspire trust. The argument in support of running SM within a ‘black box’ is that it avoids demotivating people who are not on the fast track. But organisations that employ straightforward, accessible and transparent methods for succession planning, and which clearly explain succession decisions based on ‘hard data,’ have a better chance of succeeding.

Two contrasting cases illustrate the point. One organisation created an ‘objective’ methodology for evaluating its top executives, but provided no clear context for the exercise. It sent out emails to its leaders without providing any specifics, and this ended up triggering both concern and resentment in the upper echelons. The other company, while pursuing the same goal, added an element of strategic communication, such as one-on-one sessions with each leader to address organisational and individual objectives as well as to answer specific queries. Ultimately, the leadership of the second organisation was not only significantly more invested in the process, but also trusted it more.

Tracked succession management is key to building a robust talent bench

Continuously measure progress

One telling test of an effective SM system is knowing whether the right people are moving at the right pace and at the right time into the right jobs. Leading companies maintain formal dashboards to assess the robustness of their talent-bench. At diversified agri-business company Godrej Agrovet, business heads track several SM metrics, including the number of people in the managerial pipelines and the number of succession plans with two or more ‘ready now’ candidates. An online talent scorecard displays real-time data on a variety of specific measurement areas, such as the ratio of employees with the potential to achieve a certain level relative to the number of incumbents at that level. This enables business managers to find ready-to-hire individuals for important roles with a single click of a button.

Dabur considers a balanced view of internal and external candidates for succession, which provides growth opportunities to internal talent and at the same time brings in external perspective specifically on new and unanticipated roles. Internal succession is always a preferred mode. Therefore, for all critical positions down to the C-1 level, real-time data is tracked to ensure a healthy ratio of successors are in the pipeline to replace an existing post.

Orienting succession procedures on future demands as against current needs make succession plans future proof

Make succession plans future-proof

At root, succession planning is the process of preparing the organisation for the future. However, many companies design their succession plans based on the requirements of their current roles rather than what those roles will look like in the years ahead. Forward-looking SM systems yield two key benefits. First, they help better prepare the next generation of leaders for a world that will, in all likelihood, be drastically different from the current one. The most successful companies we studied put a lot of work into determining their future business needs, as well as the implications this has for effective leadership. Second, by placing a strong emphasis on the future, such systems give leaders a clear sense of how the role will evolve and the expectations the business has of them. This helps them overcome a mindset of ‘self-preservation’ and the temptation to replicate past practices.

DCM Shriram used its well-established leadership competency framework to identify specific competencies that it will require in the future. Mapped against future roles, a detailed review of existing skills revealed competencies – such as marketing, HR, commercial and project management – that would have to be bolstered for the company to successfully evolve from its current position as a dominant B2B player. Consequently, the company has refreshed its succession plans to emphasise these specific competencies.

To summarise, building an effective succession planning system can be surprisingly easy but unsurprisingly complicated: strike a balance between objective, data-driven, transparent decision making and organisational procedures, with empathy and attention to factors that impact people. How well an organisation handles these dynamics will ultimately impact their ability to build and develop a strong leadership bench.

PEOPLE

BECOMING A STRATEGIC BUSINESS PARTNER

For the CFO, the significance of day-to-day ‘Finance’ work is diminishing relative to new demands around business leadership. Apart from a basic technical/accounting background, the key skills and competencies today’s CFO must possess rest on four fundamental pillars: leadership, operations, controls and strategy. Sumendra Jain, CFO (India & Asia Pacific) at SMS India, believes that for Finance leaders to be effective business partners, they must have the necessary leadership and communication skills. Additionally, to be able to offer an independent perspective, they must possess a strong understanding of the company's business model and industry. CFOs should also be able to identify opportunities for top-line growth, manage downside risks and drive profit improvement, not just through the traditional methods of cost-control, but using new methods like product line/regional profitability analysis and benchmarking against industry players. Sumendra’s 25-year-long career offers insightful lessons and learning for executives in general and CFOs in specific.



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