Succession Management by M8P293

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									                                    Succession Management
                                          July 2010 Report
                                       Workforce Management

As the economy and retirement savings amounts begin to rebound, organizations will experience an
increased level of older workers and high achievers leaving the organization. To stay ahead of the curve,
many organizations are taking steps to proactively plan for the future: 53% of companies had a
succession strategy in place in 2008, compared to 75% of companies in 2010 (Lombardi).

Understanding the current economic and employment environment, reviewing marketplace trends, and
provide tools and resources for you to use and modify to support your succession planning process is
the focus of this research report. Arming you with this information will assist you in staying being
proactive for what’s to come.

Current Economic & Employment Environment
Organizations expect an increase in turnover due to upcoming baby boomer retirements, which is
expected by most human resource professionals. What may be a surprise is the movement of high
achieving professionals due to increased demand in the marketplace.

Top talent will be in demand at all levels of the organization. For example, The Corporate Executive
Board found 25% of employer-identified high-potential employees plan to leave their current
organizations within a year, compared to 10% in 2006 (Newsline, 6/8/10).

A July survey conducted by Aberdeen Group found that 50% of organizations surveyed feel the top
business pressures driving succession planning at their organizations is the changing business landscape
requiring new skills. 41% feel the shortage of available talent in the marketplace and 40% say aging
workforce /losing key leaders to retirement is driving succession planning. (Lombardi) The chart below
compares the Aberdeen Survey results to the July Farm Credit Foundations employer survey. Note: Data
was not available from Aberdeen for the category “Multiple generations in the workforce.”

Mercer conducted a “Future of Talent Management Survey” in May of 2010 of HR and talent
management leaders at more than 400 organizations across the U.S. 97% of respondents anticipate an
increase in competition over the next three to five years for key talent their organization needs to be
successful. Of that percentage, 58% foresee a significant increase in competition. Survey respondents
identified their organization’s top three management priorities over the next three to five years. Among
14 choices, the top six responses were:

       Leadership Succession
       Leadership Training / Development
       Overall Succession Planning
       Key Talent / High Potentials
       Workforce Planning
       Employee Engagement (Newsline, 6/16/10)

It is clear from this data that succession management is on the list of HR leaders across industries and
geographic locations.

Succession Management
PDI defines succession management as “the process by which business leaders ensure they have the
right talent to achieve strategic goals.” Others go into further detail, describing it as an “integrated,
continuing process to create and help manage a leadership pool, not just a stand-alone program used to
fill particular positions.” (Overman) At the core, succession management helps identify “crucial job
skills, knowledge, social relationships and organizational practices and pass them on to prepare the next
generation of workers, creating a seamless movement of talent within the organization.” (SHRM,

Best practice organizations conducting succession management today go beyond replacement planning
(grooming individuals for a specific job that will soon be vacated). Succession management is managed
by the entire organization and focuses on high potentials. Typically, organizations select approximately
10% of the workforce to develop and groom to lead the organization into the future. Succession
planning in this environment includes mentoring and leadership training programs to create broad
leadership experiences. This is different from grooming one person for a specific position.

Succession management begins with a solid understanding of the organization’s long-term goals and
objectives, identifies high potential employees or external candidates to define development gaps, and
determines workforce trends and predictions. From there, great managers work with employees one-
on-one to help get them the experience, knowledge and skills needed to succeed into potential
positions. (SHRM) Lacuna Williams, Director of Change Enablement at Statera Inc., says that a successful
succession management process is:

       Aligned with the organization’s strategy and objectives
       Drawn from a clear definition of what makes for a successful leader
       Supporting of, and supported by, a talent management culture and mind-set
       Able to show early successes and measurable value to the organization
       Continually build the leadership pipeline (Overman)
Succession management has evolved with the increase in globalization and business complexity.
Organizations experience new markets and diverse workplaces in an environment that moves more
quickly each year. To support this rapid change, succession management needs to be an ongoing and
fluid process that will constantly change with your talent pool. Executives and HR should be looking at
succession management on a semi-annual or quarterly basis to measure progress and modify the plan as
employees move into and out of the organization and new strengths and weaknesses are identified in
the proposed successors. (McCready & Hatcher)

The reduction of middle-management has created a leadership gap. There are fewer employees who
have gained higher level experiences, which leads to fewer potential qualified successors to fill higher
level positions. In the past, organizations might have had a few mid-level managers to select from to
promote to an executive position. The available talent pool has been reduced.

Another factor is the increase in employee mobility. (BLR) While Farm Credit organizations typically
enjoy lower than industry level turnover levels, employees are more likely to leave than they have been
in the past. Given this, it is important to re-visit your succession plan more frequently than once per

Succession Management at the CEO Level
In a March 2010 survey of 325 CEOs listed on the NYSE Euronext exchanges, two-thirds of U.S.
companies have formal succession plans for the CEO role compared to only 14% of European companies
(Newsline, 7/8/10). A white paper by McKinsey&Company recommends Board members view CEO
succession management as a strategic process closely tied to overall organizational performance. An
organization with a fair, objective and transparent CEO succession process will minimize the jockeying
for position that can occur between executives and allow people to focus on that work instead of
making politically-based decisions. (Dutra & Griesedieck)

Recommendations for Boards of Directors
Many board members do not have extensive experience in succession planning. Actively managing the
talent pipeline at the CEO level is critical to long-term business success. Below are some tips for Board
members to think about when doing CEO succession planning.

Timing and Administration:
    Begin planning for CEO succession immediately after hiring a new CEO.
    Review the succession plan twice a year.

Increase Acceptance and Objectivity:
     Encourage internal candidates’ acceptance of the process by ensuring it is an objective process
        that is consistent and incorporates their career-development plans.
     While the Board drives the development of the plan, CEO input is important. Be aware that
        individuals (including the current CEO) may prefer people like themselves when identifying
        potential successors. Challenge others if you feel they are being biased in their selection

Aligning with the Business:
     Ensure all Board members agree on the strategic direction of the organization. One Fortune 500
        company hired a third-party consultant to interview each director as part of the succession
        process. Directors held different opinions on whether the organization should continue to
        pursue an aggressive acquisition strategy or focus on integrating the most recent business
        acquisitions. This finding led to an engaging and important dialogue between the Board
        members and the CEO. In the end, they decided they needed someone with experience in
        mergers and acquisitions, so a successor with this competence was selected.
     Align internal or external succession candidates with the strategic direction of the organization.
        For example, if an association is looking to grow the business through mergers, the Board may
        look for a successor who is visionary and a great integrator. However, if the association is
        looking to focus on the core lending business, Board members may look for strong knowledge of
        agricultural finance and credit experience. (Dutra & Griesedieck)

Three Components to Consider as you Review your Succession Plan:
    Examine internal candidates:
          o Are they progressing as expected?
                  How strong are the candidates’ business planning skills?
                  How well to they connect with other people?
                  How closely and with how much passion do they model the organization’s
          o Are they getting the right type of experience? For example, would a top credit officer
             benefit by moving into a top field officer position?
    Examine external talent marketplace:
          o How do our internal candidates compare to the external marketplace?
          o Who might be available for an open position?
    Review immediate Replacement
          o If the current CEO cannot perform the functions of the job and you need an immediate
             replacement, is anyone ready? (BLR, Dutra & Griesedieck)

Succession Management Moves Beyond Executives to Mission-Critical Positions
Best practice succession management goes beyond contingency planning for the CEO or senior
management, and includes all mission-critical positions in the organization (Dutra & Griesedieck).
Novation Group conducted a nationwide survey of 2,556 senior HR executives in December 2007 on
their succession planning activities. They found that 63% of organizations focus on senior level
positions, 46% include mid-level positions, and 25% include supervisors in their succession plan.
(Newsline, 2/11/2008)

Organizations want to ensure they have ready successors in the right place at the right time for key
positions. By filling key positions internally, organizations are able to align individuals with the strategic
direction of the organization without the delay that external hires require.

Some organizations are beginning to measure the percentage of employees who are included in the
succession plan. They take the number of employees identified in the plan divided by the total number
of employees in the organization. Organizations find that having internal candidates saves on recruiting
costs and increases engagement levels as many employees are more committed to the organization if
they know they are being groomed for a potential future position(s) in the organization. (Gray)
Marketplace Trends

Succession Management Survey Results
This section references an internal survey of Farm Credit Foundations employers as well as an external
survey of 268 U.S. organizations (Aberdeen).

Types of Processes
The July Farm Credit Foundations survey had thirteen respondents. Of those thirteen:

       31% complete the minimum required succession process (identifying potential successors for
        CEO and executive-level positions)
       8% utilize replacement planning (maintaining a list of high potentials, but no formal
        development process is in place)
       31% conduct traditional succession management (talent reviews are conducted and
        development plans in place for critical senior-level positions)
       31% apply integrated succession management (succession and business strategy are tightly
        aligned and integrated with other talent management processes for critical positions at all levels
        in the organization)

44% of Aberdeen best-in-class organizations and 77% of Farm Credit survey respondents have fully
centralized succession responsibilities. Two Farm Credit organizations utilize a hybrid of centralized and
regional control over succession planning. 18% of Aberdeen best-in-class organizations and 37% of all
others in the Aberdeen survey use ad hoc succession planning, where leaders are responsible for the
development of their own successors. In their research, Lombardi and Bourke say the “ideal method of
management takes cues from all three, combining individual leader accountability with centralized
oversight and guidance. (Lombardi & Farm Credit Survey)

Barriers to Implementation
Implementing an integrated succession strategy can be difficult when there are so many moving parts to
succession planning. Below is a comparison of Farm Credit and Aberdeen survey respondents. Note:
Data was not available from Aberdeen on how many organizations found “lack of knowledge on how to
start succession planning process”, but we included it because Farm Credit organizations identified it as
a barrier. Other barriers identified by Farm Credit include potential mergers, HR does not have
resources to lead succession planning process, and not a high priority compared with other business
objectives at this time.

Top Strategic Actions Taken
Farm Credit survey participants overwhelmingly cited the need to capture and transfer critical
knowledge before it leaves the organization. Aberdeen did not publish what percentage of respondents
to their survey identified with this; but it was less than 27%, since the top three responses are listed
below in the chart. This finding aligns with the top pressures identified above on page 1 where 85% of
Farm Credit survey respondents said one of their top two external drivers leading them to pursue
succession management is the aging workforce and losing key leaders to retirement.

Defining & Communicating with High Potentials
Best practice organizations have a formal process in place to identify high-potential candidates. The
most popular ways to select high potentials in the organization include performance review ratings,
multi-rater/ 360 degree assessments, customer feedback, and hiring manager or supervisor feedback.
Best-in-class organizations are less likely to use cognitive or behavioral ability assessments than other
organizations. (Lombardi) Farm Credit organizations vary in how they identify high-potentials in the
organization. Survey responses included: senior management recommendation, performance
appraisals, supervisor nomination, Watson Glaser Critical Thinking assessment, LifeStyles Inventory
assessment, and using a 9-box approach (see Appendix B for sample).

Managers often ask if they can share with employees that they are ‘high potential.’ Most organizations
find it works best to have supervisors tell employees they are considered to have potential to move up
within the organization. This is a natural topic to bring up in coaching and development discussions
between managers and employees. Managers who know their employee(s) has (have) been selected as
being high potential will help coach those employees to strengthen any potential gaps. Having fairly
open dialogue between managers and employees also can help the manager know if the employee is
even interested in increasing responsibilities. Some employees are strong performers but are not
interested in adding to responsibilities and/or being promoted. This is good conversation to have earlier
than later, before you assume an individual will fill a position and then being stuck when they turn it
down. Remind managers not to make any promises to employees and never talk in absolutes when it
comes to setting expectations for future career growth. (Jones)

Tips on Managing High Potential Employees
Below are ways to identify, re-engage and more effectively manage high potential employees:

    1. Stimulate. Emerging leaders need stimulating work, recognition and a chance to grow. If
       missing, they can quickly become disengaged.
    2. Test. Explicitly test individuals’ ability, engagement and aspiration to make sure they are able to
       handle the tougher roles as their careers progress.
    3. Manage. Manage high potential employees at the corporate level so managers don’t hoard
    4. Challenge. High potential employees need to be in positions where new capabilities can be
       acquired. Give them special projects and/or rotational assignments if necessary and provide
       proper training.
    5. Recognition. High potential employees will be more engaged if they are recognized through
       compensation and recognition.
    6. Engage. Incorporate high-potential employees into the strategic planning process. Share future
       strategies with them and emphasize their role in making them become reality. (Newsline,

Knowledge Management
Best practice organizations use succession management to fill future skills gaps. However, it is difficult
to fill gaps if you do not know what the gaps are. Best practice organizations turn to competencies to
help them understand where employee strengths and gaps exist. Best-in-class organizations are “over
twice as likely as all others to have common competency definitions in place, and 60% of those… make
the competency profiles of their employees viewable across (the organization).” (Lombardi)

Recruiting & Retiring Concerns

Strategic Hires
One way to build bench strength is to hire a few individuals into the organization who you know will
make an impact long term, even if you do not have a current job opening. This occurs when you find
talent and act on it when that talent is available, instead of waiting until you have a job to fill (when that
talent may not be available anymore). This tactic can be an expensive tactic if over-used; however,
when used for key talent, it can make a significant impact to the future of the organization. Highly
talented individuals will begin adding value, regardless of the functional area where they work.
Individuals can be placed on special projects, work in different departments, and learn valuable
knowledge about the organization before being placed into a regular position in the organization when a
key position opens up.

Boards of directors and employees may challenge the value of spending the salary on an extra
individual. However, if you have some key employees you are at risk of losing, it can be a powerful long-
term investment. HR can help explain the potential value of having someone work on projects for short-
term and long-term gain to Board members and the executive team. Strategic hires are typically very
high performers, so by placing him/her on different projects, it can also boost the performance of others
on the team to reach new heights. (Jones)

Asking about Retirement
Many managers struggle with how to ask employees when they plan on retiring. This question in itself is
not an illegal question. However, managers must be careful with how they ask this question and most
importantly, what they do with the information later.

From a management perspective, it is very helpful in planning when you have an idea as to pending
retirements. Sometimes employees are very open to sharing and others will simply not tell you. Either
way is okay and managers must accept that. If an employee shares that he/she plans to retire in a given
time period after you ask, managers should be coached to not treat the employee any differently than if
he/she was not retiring. Also, there is no binding agreement that the employee must stick to that date,
unless something was written and signed as a part of an agreement.

In the recent economic downturn, people did not end up retiring as quickly as they had once hoped. As
a result, there were many Farm Credit organizations that had hired people to replace individuals who
decided to stay on a few more years. In this scenario, the employer often found projects and other
activities to keep both individuals busy for the timeframe. While it may have increased the cost to the
organization, it provided extra time for longer-term employees to transfer knowledge to the new
employee, which is beneficial for smooth transition.

3M Case Study on Succession Management
George W. Buckley (Chairman, President and Chief Executive of 3M) is a strong proponent of succession
management. He sees it as a way to create a legacy of strong talent to meet future needs for 3M. He
reviews their succession management plan with their executive committee for two hours each month.
During this time, the group reviews Director and VP level positions within the company. He also
personally meets with every business leader to discuss high potential talent within the organization.

Their leadership development program is led by other leaders. Over 300 leaders were providing training
in 2008 to other leaders worldwide, in addition to their normal job duties. Programs focus on business
needs, building relationships with executives, incorporating business-critical content, using action
learning, and creating customized learning modules as appropriate.

The 3M leadership development program is aligned and incorporates 3M fundamentals of leadership
attributes across the organization:

       Think from outside in
       Drive innovation and growth – set stretch goals
       Develop, teach and engage others
       Make courageous decisions and hold self and others accountable
       Encourage passion and urgency
       Live 3M values and never compromise them

They have a strong culture of leading through experience. High potential employees are encouraged to
work in other departments or markets within 3M. They also incorporate action learning projects with
real-life scenarios needed in the organization. These typically last about ten days and culminate with
presentations to the CEO and operating team where employees defend their findings.

3M tries to encourage innovation as much as possible. Leaders noted that it has become a way of life,
not something that just happens one time. Buckley recommends encouraging innovation by allowing
people to make mistakes to a certain degree and forgive them. If you punish employees for trying new
things, you will miss out on the other ideas that might have a substantial impact to the organization.

In Summary
Succession management can become a very complicated process. It is important to try to keep it as
simple as can be, given your organization’s needs. By using the information provided in this report, such
as beginning the process with an examination of your organization’s structure and short- and long-term
goals, it will set the stage to a very useful plan. Studies recommend the process to be somewhat
centralized to provide structure to the process at the organizational and regional level. The internal
development of talent works best when conducted on an individual basis between the employee and

Mark Vickers from the Institute for Corporate Productivity believes that succession management moving
forward will become more about developing talent than simply tracking and selecting it. He says “the
“cultivation of talent” could become as important as or more important than the so-called “war for
talent.” (Vickers)

This report focused on trends in the marketplace as well as within Farm Credit. The appendix provides
additional information on steps involved in actual succession planning as well as some sample tools for
your reference.

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3M (2008) “Seeing Forward: Succession Planning at 3M” (DVD) Retrieved: August 3,

BLR (12/13/07) “5 Strategies for Effective Succession Planning” BLR White Paper.

Dutra, A. & Griesedieck (Feb 2010) “Planning for Your Next CEO” McKinsey&Company.

Gray, N. (10/1/08) “Percentage of Employees Involved in Succession Plans” SHRM Metric of the Month. Retrieved July 8, 2010.

Jones, P. (7/27/10) Interview with Pat Jones, VP HR for AgriBank, FCB.

Lombardi, M. & Bourke, J. (July 2010) “Succession Management – Sustainable Leadership for the Future”
Aberdeen Group.

McCready, T. & Hatcher, C. (March 2009) “How to Align Career Development & Succession Planning”

Newsline (2/18/08) “More Companies Include Middle Managers in Succession Plans” WorldatWork.

Newsline (6/8/10) “One-Quarter of High-Potential Employees Plan to Leave Within the Year”

Newsline (6/16/10) “Employers Indicate Post-Recession Growth Mode; Reshaping Talent Management
Programs in Preparation” WorldatWork.

Newsline (7/8/10) “Succession Planning, Corporate Reputation and Investor Confidence Top CEOs’ List
of Challenges” WorldatWork.

Overman, S. (April 2008) “Good Succession Plans Balance Current, Future Skill Needs” SHRM.

PDI (2007) “Succession Planning and Talent Management: we’ve come a long way, but….” Presentation
at 2007 IPMAAC Conference.

SHRM (August 18, 2009) “Engaging in Succession Planning” Research. Retrieved July 8,

SHRM (2008) “Succession Planning Training for Supervisors” Retrieved July 8, 2010.

Vickers, M. (May 8, 2007) “Reshaping Succession Management” Retrieved July 8,

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Appendix A: Steps Involved in Succession Planning (SHRM, 2008)

1.   Identify legal and diversity issues to consider.
      Avoid “like me” approaches when making employee decisions.
      Be careful if you advance employees who closely resemble incumbents in areas such as age,
        education, leadership style, industry experience, career trajectory, race and gender.
      Assessment tools can help create objectivity.
      Include all qualified employees regardless of gender or race.

2. Establish present and future leadership roles and objectives. Ask questions such as:
    How will the state of the business today affect business operations in 3-5 years?
    What operations are critical to the future of the business?
    Will process improvement or technology enhancements impact the business in the future?
    What job functions will be consolidated?
    Will the projected workload volume increase or decrease?
    Will staffing levels change? How?
    What skills and abilities will be needed to match these changes?

3. Select key employees.
    Identify process to select key positions and then determine which employees may have the
       potential to fill those positions in the future.
    Include cross-departmental leadership and key decision makers in the discussion so they can
       represent their selections and also discuss concerns with one another.
    Many organizations use a 9-box grid to visualize available successors (see appendix B).

4. Evaluate strengths, weaknesses and readiness for succession in employees identified. Use
   assessment tools such as:
            360 surveys / multi-rater assessments
            Leadership evaluations by third-party
            Current performance appraisal information

5. Plan for individual development and retention of key employees.
            Create action plans for development of strengths and reduction of weaknesses
            Sample action plans include leadership development, skill-specific educational
                programs, or internal mentoring programs

6. Planning for positions that cannot be filled internally.
            Consider external recruitment strategies and develop a recruitment plan
            Consider cross-departmental succession opportunities
            Consider using a strategic hire if the position will open up within the next few years

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Appendix B: 9-Box Matrix
Many organizations us a 9-box matrix to categorize employees based on performance and potential.
Analyze the performance and potential on each employee and list them in a box. Discuss your results
with other leaders as part of your succession planning process.

       Performance: how each individual currently performs on the job and on new projects
       Potential: the aptitude each individual exhibits towards more complex projects, leading to
        higher level positions

Some organizations use other metrics for the boxes, such as comparing results (what is completed) and
competencies (how it is completed). This helps identify employees who may be really good at getting
results, but create angst on the team because they are so difficult to work with.

    High     Under Achievers              High Potentials           Very High Potentials

 Average     Low Performers                   Achievers                 High Potentials

    Low               At Risk            Solid Performers               High Achievers

                Low Performers            Average Performers              High Achievers

Color Code:
Green: “A” Players
Yellow: “B” Players
Red: “C” Players

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