Succession Planning: The Solution to the Looming Leadership Gap

It is undeniable: It is difficult to keep up with the amount of change happening these days. This is largely due to digital transformation and the evolving way in which organizations and their people get things done.

Human resources is specifically challenged with workforce dynamics that now include globalization, the need for data insights, operational cost cutting, turnover, competition for skills, and mobility… just to name a few. And, the workforce is now comprised of shifting demographics. Millennials are coming in and aging workers are sticking around longer than ever before. The result is a significant leadership gap in “the middle” of an organization that points to an increased need for effective Succession Planning.

A Looming Leadership Gap

Succession planning is one of the most critical areas to get right. In a “Leaders 2020” study sponsored by SAP SuccessFactors and conducted by Oxford Economics in 2016, the executives surveyed cited a lack of adequate leadership as a major impediment to achieving workforce goals. Only 35% of these executives said they have the talent now in leadership positions to sufficiently drive global growth. This translates into a significant leadership gap for organizations.

The Oxford study left us wanting to better understand what is contributing to the leadership gap, and what HR leaders are thinking about changing within their organization’s succession planning practices. So, we talked to HR leaders from various organizations who were attending SAP SuccessFactors’ annual SAP SuccessConnect customer conference in August of 2017.  We heard three key themes from these conversations:

  • The workforce is a-changin’
    The workforce is digital, comprised of five generations, and expectations are completely different. HR leaders are feeling the pressure to accommodate these changes within succession planning.
  • Data? What data?
    Organizations lack real time analytics and data insights to drive talent decisions, including building bench strength for the future.
  • The 9-Box is so “last year”
    Succession tools and calibration models need to modernize and evolve to keep up. Gone are the days of carrying around a binder full of spreadsheets and inconsistent methods of calibration.

Below, we share more about these themes, including things you should be asking yourself to ensure your succession planning strategy is a sustainable model for the digital age.

The Workforce is A-Changin’

The digital economy has placed unprecedented pressure on the business and HR. The workforce and its expectations are drastically different and will continue to change. The traditional approach of “replacement planning” for open roles or “moving up the hierarchy” won’t meet business growth priorities, satisfy employee engagement and development needs, or create a sustainable workforce. As you evaluate how to incorporate workforce changes into your succession strategy, ask yourself the following:

Have you identified your talent and skills shortage, and are you actively developing your people?

Gaps in leadership capabilities spell trouble for future growth. This leadership gap is growing wider and wider as existing leaders are not equipped to lead a global, diverse workforce, and the incoming millennial workforce does not yet have the skills and capabilities necessary to lead at these levels. It is imperative to include both the identification of future skills and capabilities needed, as well as development in your succession planning approach in order to narrow this gap. This is an opportunity to grow and leverage learning programs to actively grow your talent. Otherwise, an organization will struggle to proactively meet future growth demands.

Are you leveraging all five generations of talent?

For the first-time in history, the workforce is comprised of five generations working side-by-side. A new generation of executives is moving up through the corporate ranks. Millennials already make up the largest group in the workforce, and they hold nearly 20% of executive positions. In addition, people are living and working longer. We have never in history employed as many aging workers as we do now. Careers just don’t look the way they did before. It isn’t uncommon to see a millennial employee managing someone who is close to retirement. And, many organizations focus on just the millennials. However, it is more about the dynamics of these five generations, who have different levels of digital capability. There are meaningful differences in how these generations view technology, processes, and digital transformation. This creates an opportunity for things like cross-generational mentoring and greater diversity and collaboration. It calls for increased transparency about career growth and future roles.

Are you considering the evolved employee value proposition?

The relationship between organizations and employees is changing and greatly impacted by digital transformation. Today’s high performers have a better understanding of their own value and are heavily recruited, especially those with specialized skills. Next generation leaders expect more mobility across an organization, as well as transparency about their potential and career growth. Organizations are shifting to continuous performance management, and there is a need to manage individual differences in performance found across different employees working in the same group. Managing differences in employee contribution is critical to maximizing company performance. And employees are more comfortable now moving on from organizations rather than having a “lifer” approach to their career. The average tenure in a professional job is now just 6 years. Succession and career development play a pivotal role in this the “new” employee value proposition. A robust and transparent succession plan can help you retain employees, plan for future growth, and narrow capability gaps.

Data? What Data?

I often ask clients for HR data such as turnover, cost per hire, and headcount so that I can calculate the ROI of HR technology for them. I routinely hear the following: “Data…what data? We can’t get our hands on any accurate data. It would take us weeks.” Data is critical to driving a meaningful succession planning strategy. Organizations who leverage Human Capital analytics outperform those who don’t. Period. Rich analytics can impact stock returns, return on equity, and overall HR effectiveness. However, only 55% of executives say that their business and HR decisions are informed by data. We encourage you to think beyond numbers and stats on a spreadsheet, and consider the following to ensure you are using data as a catalyst and enabler in your succession efforts.

Are you using data to proactively build your leadership bench strength?

Succession planning and employee development can be enhanced through quantifiable metrics and benchmarking within your workforce development practices. HR leaders needs to know who their people are, what skills and capabilities exist or are lacking, and make key business decisions that are based on real-time, factual data. This is no exception for the data that drives a successful succession planning strategy. Gone are the days of large binders full of excel spreadsheets that are outdated as soon as they are printed. Modern succession planning should be leveraging technology, real-time data analytics, and data insights in order to build a bench that can help organizations grow and sustain their success. Organizations need to build a sustainable model that incorporates data into the methodology of building leadership pipeline. Don’t let your organization avoid utilizing data to drive decisions. This includes looking at data around flight risk, employee aspirations, mobility, and agility.

Are you incorporating your business and HR strategy into succession planning?

Organizations who are most effective at building a sustainable leadership pipeline incorporate their business strategy into their succession efforts. They look at growth targets, financial commitments, upcoming market expansion plans, etc. to then proactively structure their pipeline of talent accordingly. There is a significant difference between a succession approach that is more about replacement planning, versus one that is driven by strategic objectives, predictive analytics, and a focus on investing in future leadership talent now.

The 9-Box Is So “Last Year”

When considering the changes that come with digital and workforce transformation, carefully choose the calibration and assessment methods that enable this change and support succession planning. Calibration provides one of the most promising methods for improving the accuracy and value of performance management, succession management, compensation, and talent management overall. However, the value of calibration sessions depends on how they are conducted.

For example, one of the most popular succession planning tools utilized in organizations with both mature and immature succession practices is the 9-box model. The model measures current performance against employee potential, with the objective of showing you who your highest performing employees are and where you should invest in your talent. The 9-box is just one tactical calibration example (with potential strategic results) of the critical impact of digital transformation. When we asked HR leaders for their opinion about their succession planning tools and technology, we were intrigued to learn that all have either already made a shift to a more modern approach, or are on the cusp of doing so.

We suggest you think through the following when considering how to put the right tools and methods in place to enable strategic succession planning.

Are your succession calibration and assessment models adding value to your succession approach?

Our initial findings when talking with HR leaders is that while many organizations currently still use an older approach to calibration, the feedback is telling. Using the 9-box as an example, we heard that it doesn’t provide enough insight into existing workforce capabilities, or lack thereof. It is time consuming, especially if a company lacks the appropriate technology. We heard that many organizations lack the data and analytics to effectively complete a 9-box or other assessment of potential. The pace of change coming at us at the very least places significance on ensuring you have assessment methods in place that work.

A recent SAP SuccessFactors whitepaper focused on how to fairly and accurately assess employees using calibration, points out that every employee contributes different levels of value to the organization due to many factors. The use of consistent, transparent methods to assess and reward employee contributions is a key factor affecting employees’ perceptions of justice, fairness, and equity. The overall objective of an assessment and calibration model, whether it be a 9-box or not, is to measure employee impact, guide decisions around company investment in employees, and support the career growth, development, and retention of your employees.

What Does All This Mean?

It is no secret that having the right talent will drive sustainable success for any company. Replacement planning will no longer work. The leadership gap that exists has the power to cripple growth and put your organization at risk of achieving strategic priorities. It can also result in expensive costs related to external hiring, lower employee engagement, higher attrition, and overall talent management challenges. All in all, our research says that succession planning must be tied to business results, utilized as a way to empower and build leaders, and most importantly, tackle the pending leadership gap facing organizations across all industries and regions.

We urge you to evaluate your existing succession planning strategy, and ask yourself the following six questions:

  • What leadership gaps have you identified and how can you start to build and develop a pipeline of qualified leaders to fill these gaps?
  • How are you ensuring your succession bench is representative and inclusive of the five generations, as well as leveraging the skills, talents, mindsets, and backgrounds of your diverse workforce?
  • In what ways can you start treating succession planning as part of the employee value proposition for your organization?
  • What is needed for your organization to start leveraging data and predictive analytics to build your leadership bench strength?
  • How is your succession strategy linked to your strategic objectives and financial performance commitments?
  • Which of your current succession methods and tools (e.g. the 9-Box) are helping guide talent decisions, career growth, and development/retention of your employees?

We recognize that one size does not fit all, but the objective and importance of succession planning is unquestionable. So, put the big binder away and shift your thinking towards a modern succession model, supported by insightful technology and positioned to enable leadership growth and a sustainable workforce.

Find out the five key trends and actions that can help businesses of all sizes address the challenges of digital transformation. IDC and SAP SuccessFactors collaborated to create roadmaps to executing on the latest HR trends. Check out the roadmaps here.

Linda Devlin is an HR Strategy Advisor for SAP SuccessFactors.  With over 20 years in the Human Capital Management space, Linda works with SAP SuccessFactors clients to provide consultative support on human capital management strategies and alignment to HCM technology solutions. She partners with HR leaders to explore and identify HR transformation opportunities, and quantify the business value in terms of organizational and human capital impact. Linda also helps clients to assess their current state, analysis of future state considerations, roadmap planning and HR change readiness. Her HR background includes deep expertise in succession planning and leadership development.