Business Excellence Series Title - 7
(Succession Planning - 1/4)
Succession planning is not only extremely critical for sustainability and success of organizations, it is also extremely complex, with high chances of going wrong. There are remarkable examples of companies like GE Procter & Gamble, HSBC, Southwest Airlines and many others, who have successfully and consistently identified successors in a systematic manner and carried out numerous smooth transitions over decades. HSBC has a unique distinction of never appointing an external CEO for more than 150 years till recently.
The average lifespan of a US S&P 500 company has fallen by 80% in the last 80 years (from 67 to 15 years), and 76% of UK FTSE 100 companies have disappeared in the last 30 years. In stark contrast, organizations in other sectors celebrate their 100th birthday and look like they’ll be here forever. In a HBR study authors found that one of the key aspects that organizations who lasted for more than 100 years was, an effective succession planning. The study also mentions several tests an organization can take for ensuring long term sustainability and one of them is “Can you bring in a successor 4+ years beforehand, and spend 1+ years handing over?” (How Winning organizations last 100 years by Alex Hill, Liz Mellon and Jules Goddard)
In India, very reputed corporates like Tatas and Infosys with best in class systems in place, and all good intentions of ensuring a smooth internal succession, encountered multiple challenges and made some wrong decisions, significantly hurting their reputation.
Tata Group
Founded by Jamsetji Tata in 1868, Tata group is a global enterprise, headquartered in India, comprising of over 100 independent companies, present in more than 100 countries, revenue exceeding $100 billion and employing around 700,000 people. The baton was passed on without any issues till Ratan Tata took over the reins in 1991. But when he was to retire in 2012, various well known people like Indira Nooyi, Noel Tata, Anshu Jain and many others, were considered for his succession but after lot of deliberations Cyrus Mistry was selected to lead the group.
It is believed that apart from many other considerations, one of the key reasons for his selection was that his family group Shapoorji Pallonji was a major shareholder in Tata group. Unlike Ratan Tata who worked for the group in various positions for over 30 years before becoming the Chairman, Cyrus Mistry was not hands-on with Tata group. Soon after his taking over, major conflicts surfaced in the group, primarily because of his leadership style, and he was soon mentioned by many as a culture mis-fit. After lot of bitterness well covered by media, he had to be soon replaced by N Chandrasekaran, who again had worked with Tata group for more than 25 years in various capacities and went on to become CEO of Tata Consultancy Services – one of the largest group companies.
This whole transition from Ratan Tata to Cyrus Mistry and then to N Chandrasekaran was very acrimonious full of legal battles, adversely impacting the Tata group image in significant manner. This mishap was completely avoidable if Succession Planning process would have worked effectively by proactive identification of successor, grooming him to understand Tata culture and providing reasonable overlap.
Infosys
Infosys is a role model organization in IT industry which was established in 1981 by a group of entrepreneurs and was taken to a level where it was widely recognized as a highly respected Indian multinational. When Narayana Murthy, one of the cofounders decided to pass on the baton, he initially gave it other promoters. In 2014, an external candidate Vishal Sikka was brought in as CEO with due approval and scrutiny by promoters. However, soon unexpected issues started erupting on various fronts. It is believed that the main reasons of the fiasco were style of functioning of Vishal Sikka, his cultural mis-fit and probable interference from promoters in decision making. In this case also, lack of effective succession planning costed Infosys big time in terms of reputation and possible business loss.
There are many other examples where lack of adequate succession planning led to huge costs to the organizations. For maximizing benefit of succession planning intervention, its scope should not only be limited to succession of top leader. The organizations should work towards identifying and grooming successors for all key roles, to ensure uninterrupted positive momentum of the business.
Organizations face constant pressure to build a strong, effective and sustainable leadership pipeline. But like most strategic planning, this is easier said than done.
How we did it?
In one of the organizations, where I was leading Human Resource function, we implemented the succession planning process for senior leadership team in a very effective manner, but not without innumerable hurdles. By collectively overcoming those challenges, we were able to achieve remarkable outcomes.
The external hiring of leaders reduced from 80% to less than 35% in 3 years, leading to increased motivation of employees witnessing immense internal growth opportunities, reduced transition time during change in incumbents of leadership roles and significant cost savings. This included roles in top level team as well as up to 2 levels below the top.
It started with a conscious decision taken by top management team to initiate succession planning process, not with intention of filling any immediate vacancies but with a long-term orientation. This was a very critical step in itself where buy-in of all key leaders was essential for success of the intervention. In many organizations, this first step itself encounters many roadblocks, making it extremely challenging to address. At some places it starts, but soon fizzles out because of many softer aspects, which either are ignored or not addressed suitably.
In our organization, we started with a common understanding of following guiding expectations from the initiative –
Not another HR intervention but an integral part of business people strategy
Success will need consistency and focus
shall require active participation of all management team members
Leaders will need to take an objective and un-biased view-point
No short-term outcomes except for emerging action items and milestones
Viewed as Long-term investment which shall yield meaningful returns over time
We built our robust Succession Planning process on six distinct pillars, focusing on specific activities under each pillar in a systematic manner -
Identification of critical roles - Starting from top, around 15 critical roles were chosen, keeping in mind that it required significant financial as well as time commitment
Talent Review - Initiated with an objective of mapping business needs of the organization with respect to the current and future capacity, capability and potential of people
Identification of successors - Based on Talent Review discussions, successors were identified based on their profile, performance and potential
Individual Development Plan - Having identified successors with varying degree of readiness, IDPs were developed for each of them
Governance mechanism - A robust mechanism for reviewing implementation and progress was put in place
Linkage with Leadership hiring process
The initiative yielded exciting returns in terms of availability of well-groomed leadership pipeline, enhanced opportunities for Hi-Potential talent, increased motivation and engagement of employees at large, and achievement of objective targets as mentioned above, in the article.
I will be sharing this experience in more detail along with the Succession Planning Model, in my next 3 articles, elaborating actions required under each pillar, challenges faced and stakeholder involvement needed.
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