Succession Planning: Essential Guide for HR

Succession planning is essential to ensure that critical roles in a company are not left vacant for extended periods or filled by people who don’t have the skills or knowledge to perform in the role. However, according to an SHRM survey, only 21% of HR professionals said their organization had a formal succession plan in place, and a further 24% had an informal plan. That means that over half of the organizations the surveyed HR professionals work at did not have a plan.

This guide will explore succession planning in-depth, explain why it’s important, provide you with best practices, and a succession planning framework that any organization can apply.

Contents
What is succession planning?
What is the role of HR in succession planning?
Why is succession planning important?
Succession planning model
Succession planning framework
A four-step succession planning process
Succession planning examples
How do you write a simple succession plan?
Succession planning best practices
FAQ

What is succession planning?

Succession planning is the process of selecting and developing key talent to ensure the continuity of critical roles. It’s about identifying top performers and potential leaders and mentoring and developing them so they can advance in the organization and move into top-level roles.

Employees get promoted, move companies, and retire every day. That’s why you need to have a solid plan in place to ensure positions are filled by people equipped to do the job. 

Let’s further unpack the succession planning definition.

• First of all, succession planning is about critical roles. Not all roles are relevant for succession planning. It should focus on roles that are vital to the organization’s competitiveness and continuity. A junior sales rep is fairly easy to replace. However, your VP of sales is a role you don’t want to be unfilled for long, if at all.
• Second, the focus is on selecting and developing key talent. This means that for those critical roles, the best and the brightest are selected and nurtured. Most of the time, succession planning happens with internal candidates. For example, the director of sales is molded to fill the role of VP of sales, while the VP of sales develops to become the new CEO. Occasionally, external candidates are hired and brought up to speed before taking over a new role, although this is often on a more ad-hoc basis. As an organization grows, it’s more cost-effective to develop and promote from within. 
• The last part of the definition is to ensure continuity. This is the ultimate purpose of going through all this work: to ensure that when someone leaves, there is someone else ready and qualified to take over that role and be up and running in no time.

What is the role of HR in succession planning?

HR plays a significant role in succession planning, including identifying successors in the organization, creating and implementing development plans and programs, monitoring progress and providing regular feedback, instilling a culture of succession planning and encouraging all employees to think about their career paths, ensuring diversity and inclusion throughout the process and adapting to evolving internal and external factors. 

The role of HR in succession planning is about much more than filling vacancies – it’s centered on ensuring an organization can adapt and continue to thrive today and in the future.

Why is succession planning important?

Succession planning is important for the success of an organization for many reasons.

• A succession plan reduces risk and disruption and ensures business continuity in the case of an unexpected departure. Trainer & Team Performance Consultant Lindsay Dunlap elaborates on the risk a lack of a succession plan can cause. “Many companies are not taking time to get new leaders “up to speed”, so they are tossed in to figure it out as they go. New leaders are left stressed out, fearful of asking for help, and then they are held accountable to standards and expectations that they may not fully understand. This leads to higher turnover in very vital positions for companies,” notes Dunlap.
• Key knowledge and expertise can be transferred rather than lost when someone in a critical role departs. 
• Succession planning gives high-potential and high-performing employees a clear career path in your organization.
• It helps you plan and prepare for the future based on different scenarios. That reassures shareholders that the business is well taken care of long-term. “Organizations who fail to successfully plan or create a succession pipeline run the risk of losing the confidence of their stakeholders and investors from uncertainty and unfamiliarity,” explains Jenna Fisher, Managing Director at the executive search and leadership advisory firm Russell Reynolds Associates and author of To the Top: How Women in Corporate Leadership Are Rewriting the Rules for Success.
• It will help you grow your existing talent, boost engagement, and save money on hiring external senior employees and executives.
• A succession plan presents a structured approach to preparing a new generation of leaders to steer your organization forward.
• Without a clear succession plan, power struggles may arise within the company. Different people and groups might start competing for dominance. This dysfunctional conflict makes it more difficult to achieve organizational goals.

To sum it up, succession planning enables you to grow your company and your people.

What are the risks of neglecting succession planning?

Not only does succession planning have major benefits for your organization, but there are also risks involved in neglecting it. For example:

• Loss of essential talent and knowledge: Unexpected promotions, retirements, and departures of your best talent can lead to a talent gap and harm the organization’s competitiveness. That results in a loss of expertise and best practices that are fundamental to its day-to-day operations. 
• Increase in recruitment and training costs: Without a succession plan, organizations may spend more on recruitment and training to fill key roles.
• Uncertainty and confusion for employees: Without a clear succession plan detailing who is set to take over key leadership and management roles, confusion and fear can easily spread among employees. This can cause further conflict, miscommunication, and power struggles. 
• The business can lose sight of its mission: It’s easy for an organization to start to lose sight of its mission and values, which can result in a loss of focus, effectiveness, and employee commitment. 
• It harms the company’s ability to adapt: A lack of a clear succession plan can lead to an organization relying on outdated processes and systems, which keeps it stuck in the past. Not only will it miss out on great opportunities, but it may also find it more challenging to anticipate threats and prepare for them.

Succession planning model

Let’s have a look at what a succession planning model looks like.

The succession planning model depicted below is an adaptation of Groves (2005), who proposed an integrated leadership development and succession planning model. Talent is developed, and leadership talent is spotted, identified, actively developed in leadership programs, and prepared for succession. We tweaked this model to make it more applicable to succession planning.

We will explain each step of this succession planning model in detail in the next section. We’ll also dive into the preconditions required for effective succession planning.

Succession planning framework

How can we design and implement a practical process that streamlines our succession planning efforts? Using a succession planning framework helps you make sure that your process is consistent and effective.

Preconditions for succession planning

Our succession planning framework has two preconditions:

• Creation of a culture of leadership development
• Selection of critical roles

Precondition 1: A culture of leadership

For succession planning and long-term leadership development to succeed, there must be a clear commitment from senior management, including the CEO.

Senior managers and C-level executives must actively participate in developing young talent. For example, senior leaders can be involved in mentoring activities and help successors develop leadership competencies.

In addition, managerial performance appraisal and reward processes should incorporate leadership development activities, including the identification and development of high-potential employees. 

Precondition 2: Selection of critical roles

As we’ve already mentioned, critical roles are those that, if vacant for a few months or filled by a bad hire, would lead to significant damage to the company. A CEO would certainly be such a role. Yet, a global survey showed that 53% of companies did not have a CEO succession contingency plan in place.

The easiest way to identify these roles is to look at the most senior people in the organization’s hierarchy or the highest earners. If the organization has a well-defined job architecture with function descriptions and rewards based on responsibilities, this selection will be fairly accurate.

If there’s no clearly defined job architecture, an alternative could be the forced ranking of functions based on their importance. For example, a CEO is more important than a CFO. The CFO is often considered more important than the CTO. This way, you can identify the top functions within your business.

Regarding leadership functions, it’s best practice not to include too many roles and aim for the top 0.5% of the organization. Selecting too many critical positions will make it harder to maintain your managerial succession bench strength. The reason for this is that you need multiple people on the bench to replace one senior executive.

A four-step succession planning process

Once the two preconditions are met, you can put your succession planning process in motion. The four-step process is based on the succession planning model we discussed above. The key process steps are:

1. Talent development
2. Identification of leadership talent
3. Leadership development
4. Succession decision

You can use this process as your succession planning template. Let’s explore each step in more detail. 

1. Talent development

Taking a long-term approach to succession planning and combining it with talent and leadership development are two of the best practices when creating a succession planning strategy. Why? Because succession planning generally focuses on senior leadership roles that would be replaced by employees currently in mid-level leadership roles. So it makes sense to integrate talent and leadership development with succession planning.

The succession planning process starts with regular talent development. Many organizations have talent development programs where high-potential employees receive training, different tasks, and challenging assignments. Relevant talent management activities focus on career planning and job rotation to gain more experience and develop leadership competencies.

Mentoring is also a popular way of developing top talent. It’s widely reported that employees with mentors perform better, are promoted quicker, and are compensated better. What’s more, they have more organizational commitment, personal learning, and job satisfaction and are less likely to leave. There are also psychosocial benefits, including acceptance, encouragement, coaching, increased internal exposure, and more challenging assignments (Groves, 2005).

2. Identification of leadership talent

During talent development programs, not everyone will succeed, which is why you need to continuously monitor and evaluate the participants. Those who aren’t suitable to fill critical leadership positions may be great candidates for low or middle-management positions.

This input from talent development programs helps identify leadership talent. Mentors, committees, surveys, and coding systems are all tools that help assess managerial bench strength and form the basis for developmental activities. There are also succession planning tools and software that businesses can use to select and develop potential leaders.

In this phase, diversity is key. If diversity in the boardroom is already an issue for the organization, the diversity of succession candidates should be a top consideration in talent and leadership development programs. The more qualified participants from diverse backgrounds you involve in your programs, the greater your chances of building a more diverse future boardroom. 

3. Leadership development

In this stage, you develop those identified as having strong leadership potential further. This differs from your average talent development. For example, you organize internal courses and workshops for future leaders. They are encouraged to develop closer connections with organization leaders, as this will make them more effective in their future roles.

This group should also be exposed to active learning through challenging projects, stretch assignments (challenging tasks aimed at developing experience outside of an employee’s regular routine), 360-degree feedback to provide developmental feedback to managers, and executive coaching on skills they need to build.

“Having your succession candidate(s) be deeply involved in business operations that are critical to the role early on, such as mergers & acquisitions and relationship management, can be the key to their success,” says Jenna Fisher from Russell Reynolds Associates. Fisher says that was the case in the carefully orchestrated succession of Corie Barry, who succeeded Hubert Joly as CEO of Best Buy in 2019.

“Hubert’s process, which involved sponsoring and supporting a great woman leader, turned into what he described as “one of the things I’m proudest of in my career.” This method prepared Corie to accelerate the company’s growth strategy and be able to adapt to the pandemic when it began,” Fisher adds.

The succession planning model above shows a feedback loop between step 3 and step 2. Leadership development provides new input for measuring managerial bench strength. New information in this step will impact the identification of leadership talent.

4. Succession decision

Based on the previous steps, you can create a succession matrix. In this matrix, you map potential successors for each function.

A key consideration in this step is the likelihood of people quitting the organization.

• Accurate assessment of the turnover rate for the critical roles identified earlier is key, as turnover in one of these roles will engage your succession plan. For example, lining up five people to replace the role of a CEO who is intent on staying for the next ten years will only lead to frustration. Likewise, having just one potential successor for the COO, even though there’s a high likelihood they will quit, is very risky and demonstrates a lack of planning. 
• Turnover in the leadership talent group is less disruptive but still very costly. This group is extensively trained and integrated into your succession plan. Not only will this result in extra costs for the business, but this turnover can disrupt the entire succession planning strategy for the organization. Therefore, managing expectations and monitoring turnover are key steps to be mindful of at all times.

Whenever someone occupying a critical role quits or retires, you should make a succession decision. If not already in place, you need to create an onboarding program together with the leaver. Such a program with clear targets will enable the successor can get up to speed as quickly as possible.

Succession planning examples

What does succession planning look like in practice? Here are three examples of succession planning:

Example 1: McCormick & Co

In 2008, McCormick & Co transitioned their CEO Robert Lawless to his successor Alan Wilson using a thoughtful and comprehensive succession planning strategy that they confidently executed. Lawless devised a timeline spanning five years, in which he transitioned to a non-executive chairman of the board role. He also used a portion of his discretionary compensation to find and prepare the right person to take on his position. 

The succession plan was developed over many years to identify and create development strategies tailored to all senior executives. The organization monitored the progress of candidates for several years before Wilson was chosen as the successor, based on his strong alignment with the company culture and understanding of top-line issues. 

Example 2: Barneys New York

In 2017, Mark Lee stepped down from the CEO role and was replaced by Daniella Vitale, who joined Barneys in 2010. She had a long history of high-end fashion retail experience since graduating and was considered “uniquely qualified” to succeed in this position. 

In the lead-up to the official changeover, Vitale was given numerous leadership opportunities, the chance to run almost every facet of the organization, and substantial mentorship from Lee, who played a large role in developing a formal five-year succession plan for her.  

Example 3

Here’s an example of the list of steps for a succession planning process and what a typical succession plan might look like.

1. The primary goal of this succession plan is to grow our people and our business by identifying and nurturing talent to transition into leadership roles in the events of retirement, resignation, or unforeseen health reasons or tragedy. 
2. Positions under consideration:
   • CEO – Sheila Patel
   • CFO – Brian Connelly
   • VP – Yasmin LeBron
   • District Manager – Russell Brown
   • *At the time of retirement, a Regional Manager position will be created, and the responsibilities will be divided accordingly. 
   • Director of Marketing – Amanza Larkhani
3. Current employees who plan to retire over the next five years:
   • Brian Connelly
   • Amanza Larkhani
4. Qualifications for these key roles include:
   • CFO
     • 10-15 years of finance experience 
     • Strong leadership skills and experience
     • A professional finance qualification
   • Director of Marketing
     • An impeccable creative portfolio
     • 8+ years of marketing experience with relevant brands
5. The current candidates for the key roles in order of readiness are:
   • CFO:
     • Shane Thompson
     • Vijay Shar
     • Tulisa Sulliman
   • Director of Marketing:
     • Nisha Edwards
     • Grant Mackenzie
     • Gosia Peirce

How do you write a simple succession plan?

Here are some simple steps to help you write an effective succession plan:

• Create a list of your succession priorities and goals
• List critical positions within your organization, determine why these roles are critical to your operations, and rank them in order of importance
• Specify the core skills, experience, and qualifications necessary for each role
• For each key position, identify internal candidates who could potentially fill the role
• Assess each candidate’s current skills and the development needed to prepare them for the role
• Outline specific training, mentoring, and development opportunities for succession candidates
• Set timelines and milestones for candidate development
• Develop a plan for sudden vacancies, including interim successors and emergency procedures
• Clearly outline who steps in immediately if a key position becomes suddenly vacant
• Write the plan in a clear, accessible format

Succession planning best practices

While succession planning clearly brings many benefits to your business, only 34% of organizations consider their succession planning process highly effective.

Applying succession planning best practices can help organizations overcome common succession planning challenges, like adopting a long-term perspective and following through on development plans. Let’s explore these best practices in more detail. 

1. Adopt a long-term perspective

Amsterdam-based soccer club Ajax has historically been one of the most successful clubs in the world, producing talents like Johan Cruyff, Patrick Kluivert, Wesley Sneijder, and Luis Suárez. One of the reasons the club has been so successful is its long-term perspective.

Talent is scouted early. Children as young as 7 join the Ajax Youth Academy. As the children age, the best ones get promoted to higher divisions. The most successful player end up living their dream: playing in the Premier League.

This is an excellent example of Ajax’s long-term, strategic perspective. The club nurtures talent for at least ten years before they join the Premier League team. Whenever a player of that team leaves, Ajax has multiple candidates lined up who can replace them, regardless of the position in the field.

2. Ensure structured development

Having a well-structured development process in place is vital to effective succession planning. Such a process allows people to train and acquire the skills they need to move into a critical role in the future.

It’s essential to link succession planning to learning and development actions. These can include the development of specific skills or for employees to gain broader career experience in different functions, units, or geographical locations.

According to Jay Barrett, Founder & HR Executive of the HR consultancy Culture Canopy, you need to ensure holistic skills development.

“When it comes to identifying the next steps for your talent and their succession journey, it’s important to also consider the lateral experiences they might need to have to fully round out their skills. Taking this approach helps ensure your talent are engaged and developing new skills and that they understand you care about and are focused on preparing them for future opportunities,” says Barrett.

It’s also important that different groups receive the most appropriate training. For example, developing a director to become VP requires a different approach than developing a VP to become CEO.

Companies use different learning & development methods to prepare the successors for their next role. 83% of organizations use mentoring and coaching to develop succession candidates, 72% use formal learning, and 70% use stretch assignments.

3. Integrate succession planning with talent management

Succession planning is a form of talent management, so aligning succession and leadership development practices with existing talent management practices makes sense, as we discuss above.

Talent management begins with the employee and explores how their career path and skills can develop within the company. Succession planning focuses on the critical roles that need filling. Once you identify these roles, you can start thinking about which candidates would be a good fit for them. Integrating these two practices helps maximize key talent retention and create a thoughtful succession plan. 

4. Measure outcomes, not process

Leaders and executives pay attention to tangible metrics. If you don’t set and track succession planning goals, it won’t be easy to gain buy-in from leaders and ensure the process is successful. Plus, working with the leadership team to determine goals helps garner that crucial support, and the results will point to where you need to make improvements in future succession planning efforts. 

Here are some common succession planning metrics to track:

• Number of high potentials (HiPos) identified for each critical role
• % of critical positions filled internally
• High potential turnover
• Bench strength
• Pipeline utilization
• % of interviewees for a critical role
• The number of successive promotions

In other words, track metrics that focus on outcomes instead of processes. The number of talent or succession programs in place would be an example of a process metric you should avoid.

5. Be realistic & communicate clearly

Marshall Goldsmith, an executive educator and coach, gives the example of an accomplished engineer who has the potential to become COO. To do that, they need to gain more sales experience, but the company would never risk putting someone without sales experience in a top sales job. This demonstrates the importance of being realistic when creating a succession plan. 

It’s just as important to manage succession expectations. If the talented VP of sales is being mentored and developed to be CEO, they may leave the company disgruntled when the board decides to keep the CEO for another four years or replace them with an external hire. Clear communication and management of people’s expectations are crucial for effective succession planning.

Tara Furiani, “Not the HR Lady” keynote speaker and consultant, highlights the importance of prioritizing communication throughout the succession planning process.

“This includes keeping employees informed about the organization’s goals and vision, as well as providing regular updates on the status of the succession planning process. Open lines of communication can also help build trust and engagement, which can go a long way toward ensuring the success of the plan,” Furiani notes.

A final word

Effective succession planning is essential to ensure your critical roles are always filled and your business continues to run smoothly. A robust succession plan will also help to nurture your most promising talent and provide them with clear career paths, which will boost your engagement and retention efforts.

If you don’t have a succession plan for your key positions, now is the time to take a proactive approach and start planning for the unforeseeable future.

FAQ

Erik van Vulpen

Erik van Vulpen is the founder and Dean of AIHR. He is an expert in shaping modern HR practices by bringing technological innovations into the HR context. He receives global recognition as an HR thought leader and regularly speaks on topics like People Analytics, Digital HR, and the Future of Work.

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