Nov 11

The Challenges Of Succession Planning

Heinz Landau
Heinz Landau is a seasoned business leader who has gained valuable working and leadership experience on three different continents.

Last month, I was one among four speakers at Dataconsult’s Thailand Regional Forum. The statements of all speakers pointed unanimously in the same direction: succession planning is a strategic issue that is absolutely  critical for the continuous  business  success of a company. Nevertheless, research indicates that about half of companies do not have a succession planning system in place.

Succession planning is explained as a systematic process of developing individuals to fill organizational key roles. The performance of companies depends largely on the quality and effectiveness of their leaders. With the help of succession planning, organizations aim to effect a well-designed change of leadership. However, the higher the hierarchical position is, the bigger the challenge becomes.

CEO succession is a pivotal event in an organization’s history and always is disruptive. CEO succession is not a transaction; it is a major systemic change. When there is a change at the top, the organization’s strategy, vision, values, culture and the market value are all in play.

External succession is especially disruptive to an organization and forms a major risk. Research shows that about two thirds of new executives hired from the outside fail. 40% do so within the first 18 months. A survey of Booz Allen of 2,500 companies revealed that home-groomed successors tended to fare better than externally recruited managers.

Companies pay the price when failing to develop their own leadership pipeline.

A study in 2010 by Boston Consulting Group and the World Federation of People Management Associations among 5,500 leaders in 109 countries showed that successful companies recruit 60% of their top management from internal talent pools in comparison with only 13% internal recruitments in less successful enterprises.

A study in 2010 by Boston Consulting Group and the World Federation of People Management Associations among 5,500 leaders in 109 countries showed that successful companies recruit 60 % of their top management from internal  talent pools in comparison with only 13% internal recruitments in less successful enterprises.

In terms of succession planning in Thailand, for multinational companies, many top positions still form part of an international rotation process, where the interests and the need of the local subsidiary may take second place to the worldwide management development for senior executive grooming.

Since many years, the average tenure of the CEO / Managing Director is on the decline. In the pharmaceutical industry, I have observed many cases where U.S. companies keep their top executives only for two years in a position before moving them on to the next country. I consider this a highly questionable practice. It is a burden for the executive and his family to re-locate after such a short time span. Even the company is not really benefiting from this. Realistically, it takes the executive about a year to understand the local business.  And  also building relationships with employees and customers takes time.

CEOs / Managing Directors with such short-term employment contracts tempt to manage rather short-term than long-term knowing about their forthcoming departure. Often, they don’t invest much in employee development and in brand building, since the fruits of these efforts can be reaped only after a few years.

And finally, it is also a big burden for the local management team, if  they have to adjust themselves every two years to a new boss and his particular style and preferences. One being sales growth-oriented, the next one being very cost-conscious and another one focusing  on a different part of the business etc. These were exactly the circumstances under which I was able  to hire a few years back the best Thai manager I have ever worked with. He was simply fed up of adjusting every two years to a new boss.

In recent years, more and more companies aim to search for local talent to run their subsidiaries. However, Thai candidates are handicapped by their own reluctance to accept overseas postings as part of their career development. Here, a change of mindset of local candidates is necessary, since most international companies will insist that their top management has gained working experience abroad.

Leadership succession is an enormous organizational problem, not only in Thailand, but all over the world. Unless companies are developing and implementing effective leadership succession planning systems that are ideally owned by the top management of the company, leadership transition remains a high strategic risk. Organizations cannot afford not to have a talent and succession management process in place; it will be too costly for them.

This entry was posted on Thursday, November 11th, 2010 at 01:17 and is filed under Human Resources, Leadership, Management. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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