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In today’s fast-paced business landscape, companies are contending with frequent organizational shakeups brought on by ever-changing economic conditions, market shifts, and the growing impact of new technologies. This leaves organizations particularly vulnerable to turnover — and when leaders leave, they take with them not just their expertise but also their institutional knowledge. To survive, companies must be prepared to fill gaps in their leadership teams and proactively anticipate and prepare for major changes in the market. That’s why succession planning is so critical to long-term business growth and viability. With a comprehensive succession plan, an organization can ensure that capable executives are ready to step into critical roles and lead with confidence.
However, fewer than one-quarter of companies have a formal succession plan in place, and according to Harvard Business Review, more than two-thirds of CEOs report feeling underprepared when they stepped into their role. So, how can companies better identify and support future executives? The answer starts with leadership development. Developing a pipeline of future leaders with comprehensive learning and coaching lays the foundation for a strong succession plan.
With that in mind, here’s a closer look at what succession planning entails — and why leadership development is key.
What is succession planning?
Succession planning is proactively identifying, training, and preparing leaders to assume key roles within an organization. For example, a company might use succession planning to seamlessly navigate changes in their C-Suite, prepare for a merger or re-org, or develop high-potential employees with the competencies and knowledge to take on leadership positions in the future.
Why is succession planning so important for today’s organizations?
When a senior leader leaves without a successor in place to fill their critical role, organizations face mounting costs. Expenses associated with leaders leaving include both “hard costs” (known, predictable expenses like the cost of hiring efforts) and “soft costs” (less tangible expenses like lost productivity and lower team morale). Together, this impact can add up to double, triple, or even quadruple an employee’s annual salary.
Yet, succession planning is about more than just keeping senior roles filled. Done right, succession planning gives organizations businesses the flexibility and foresight to meet their short- and long-term organizational goals and anticipate potential challenges ahead.
Taken a step further, having a succession plan in place can help organizations:
- Save time and money. Succession planning helps ensure seamless leadership transitions, preventing dips in productivity or revenue. As HBR reports, poorly managed executive transitions among S&P 1500 companies collectively eliminate $1 trillion worth of market value annually.
- Remain agile. Prepare future leaders with the latest skills and competencies to adapt to industry changes and innovations.
- Retain valuable institutional knowledge. Give current leaders the time and resources to document and share their acquired knowledge and expertise with successors before they depart.
What role do HR leaders play in succession planning?
Succession planning doesn’t happen in a single department. Rather, a successful succession plan reflects an organization-wide commitment to preparing future leaders, navigating inevitable industry changes, and meeting overall business goals.
That’s why succession planning should be a group effort encompassing a range of key stakeholders. Most notably, the board of directors and CEO are often responsible for identifying and selecting leaders for C-Suite roles. However, HR and talent managers are also vital parts of this process. They’re often responsible for building, implementing, and managing the succession plan — including development and onboarding programs — and ensuring the plan remains aligned with business goals.
As the Society for Human Resource Management (SHRM) reports, HR professionals say their top priorities for 2024 include retaining top talent and finding and recruiting candidates with the necessary skills. Succession planning focuses on developing internal talent and preparing for future leadership needs, helping HR leaders achieve both goals.
How can companies accelerate leaders’ readiness to succeed?
Leadership development plays a core part in any comprehensive succession plan. Identifying the right high-potential leaders is important, but those leaders must also receive the personalized learning resources they need to prepare for the next phase of their careers.
Here are the steps to designing a high-impact leadership development program for executive successors:
- Define organizational goals that will guide your succession plan (e.g., increasing your organization’s market share by a certain percentage within the next five years).
- Forecast external and internal business challenges that the company may face in the next 3-5 years, (e.g., AI will continue to disrupt the industry in X, Y, and Z ways).
- Identify roles that will need succession plans based on turnover risk and potential impact on organizational goals and challenges.
- Outline the capabilities leaders in those roles will need to succeed.
- Assess the skills of current employees to locate those who may be well-suited for succession.
- Prepare potential successors with leadership development opportunities and personalized coaching.
- Measure the impact of those leadership development programs and optimize as needed.
Why should HR leaders invest in leadership development?
Here’s a look at the most notable benefits of incorporating leadership development into your succession planning:
- Engage and retain top talent. Organizations that nurture and invest in high-potential employees and provide them with resources to advance their careers stand to benefit in more ways than one: Externally hired CEOs earn 15% higher compensation on average compared to internally promoted CEOs. In other words, making (versus hiring) leaders is more cost-effective.
- Foster a culture of learning. Customized learning programs can demonstrate an organization-wide commitment to employees’ growth and help future leaders reach their full potential. According to the University of Phoenix’s 2024 Career Optimism Index, 69% of employees would commit their careers to a company that provided opportunities to apply new skills, and 66% would do the same for companies that offered upskilling resources.
- Improve productivity. Inspiring and engaging employees with leadership development initiatives can yield greaterworkplace productivity and satisfaction. After participating in ExecOnline’s individual leadership coaching, for example, leaders reported tangible improvements in their job performance, and 9 out of 10 participants saw improvements in their relationships with colleagues.
“ExecOnline helps us understand the top leadership themes we need to focus on, and delivers to us the best content from business schools in a flexible format that allows our leaders to learn how and when they want” —Aurelie Richard, Chief Financial and Strategy Officer, S&C Electric
What does a successful leadership development plan entail?
Just like succession plans, leadership development programs aren’t one-size-fits-all. To ensure development plans are comprehensive and impactful, they should integrate the following components:
- Learning: Development programs should help hone knowledge, skills, tools, and frameworks around critical leadership and management themes. This often takes the form of certificate courses, which provide structured learning experiences on key topics.
- Coaching: This component of comprehensive leadership development provides trusted, confidential, and experienced advice from professional leadership coaches. Unlike with mentoring, leadership coaching is goal-oriented and specific to business challenges.
- Applied projects: Effective development plans should include projects that guide leaders to apply their new knowledge to real-world contexts. This can include action plans and stretch assignments that allow emerging leaders to test their skills in practical situations.
- Mentoring: Leadership development can also help foster informal connections between leaders and more experienced colleagues. Mentors serve as advisors for general career guidance, complementing the more targeted approach of coaching.
- Networking: A holistic leadership development plan forges connections with peer professionals both within and outside the organization. This helps leaders build influence and enhance their ability to drive impact across various contexts.
What are the qualities that differentiate effective leadership development?
- Personalized. Each potential leader needs a customized program of learning experiences and coaching opportunities tailored to their unique skills, learning styles, and future roles. Hand-selected coaches, for example, can help leaders set and reach their personal goals and be held accountable for finishing their program. Some leaders also might work better adhering to strict deadlines, while others might prefer a self-paced learning experience.
- Equitable. Be sure to proactively address biases and include diverse stakeholders in selecting, training, and coaching a bench of future leaders.
- Credentialed. Work with reputable leadership development platforms build a scalable program for your organization. ExecOnline, for example, partners with the world’s top business schools, instructional design experts, and certified leadership coaches to provide a range of integrated leadership development pathways that drive results.
- Measurable. HR leaders should be able to track KPIs like enrollment, engagement, retention, and promotion rates to better understand how programs are performing and how they can be optimized.
“ExecOnline helped us meet the exact goals we set to achieve. Most of the high-potential employees who completed the program have been put into a succession plan, so we know where they can go next. For a newly public company, that’s very exciting,” Jon Starling, vice president of talent development and DEI at IAS.
Build your talent pipeline with integrated learning and coaching
The business landscape is constantly evolving, with changes such as the rise of hybrid work, the advent of AI, and economic fluctuations all impacting how organizations operate — and who leads them.
To navigate these changes, HR professionals must be prepared with comprehensive succession plans and leadership development programs that align with their business goals. With these resources in place, HR teams can build a go-to pipeline of leaders ready to step up — and step in — to shape the future of their organizations.
Ready to get started? ExecOnline’s 5-Step Succession Planning Workbook provides an actionable framework to identify and develop the future of leadership.
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