Succession Planning in Senior Management

Planning in organizations and public policy is both the organizational process of creating and maintaining a plan; and the psychological process of thinking about the activities required to create a desired goal on some scale. Two attitudes to planning need to be held in tension: on the one hand we need to be prepared for what may lie ahead, which may mean contingencies and flexible processes. On the other hand, our future is shaped by consequences of our own planning and actions. Succession is the act or process of following in order or sequence. The action of one party, person or product being replaced by another that has become obsolete, incapacitated, retired or deceased. Ideally, a successor will fill the role of its predecessor, being fully compatible with all other entities in place and perfectly functional without any interruption in service. As Confucius said,"If a man takes no thought about what is distant, he will find sorrow near at hand". Succession Planning - An Evolving Definition "Succession Planning" as a formal concept initially related to family businesses . . . how would the management of the business be passed down from generation to generation? As the corporate world began focusing on the topic, it narrowly focused on the CEO position. As time went on, corporations began realizing that the ongoing stability of their entire senior management teams was just as important as ensuring a plan for the CEO role. More recently "succession planning" has expanded yet again. Enlightened corporations are integrating succession planning in to their strategic planning processes and corporate policies. No longer just for the upper ranks, succession planning is the proactive management of the corporation's entire talent pool. Integrating with talent management, leadership development and career development programs, succession planning has gone beyond the reactionary replacement of exiting employees. Effective succession planning enables the deployment of an organization's talent, on demand, as needed, now and in the future. Succession planning is a process for identifying and developing internal people with the potential to fill key business leadership positions in the company. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become available. Taken narrowly, "replacement planning" for key roles is the heart of succession planning. Effective succession or talent-pool management concerns itself with building a series of feeder groups up and down the entire leadership pipeline or progression (Charan, Drotter, Noel, 2001). In contrast, replacement planning is focused narrowly on identifying specific back-up candidates for given senior management positions.
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Fundamental to the succession-management process is an underlying philosophy that argues that top talent in the corporation must be managed for the greater good of the enterprise. Merck and other companies argue that a "talent mindset" must be part of the leadership culture for these practices to be effective. Research indicates many succession-planning initiatives fall short of their intent (Corporate Leadership Council, 1998). "Bench strength," as it is commonly called, remains a stubborn problem in many if not most companies. Studies indicate that companies that report the greatest gains from succession planning feature high ownership by the CEO and high degrees of engagement among the larger leadership team. Companies that are well known for their succession planning and executive talent development practices include: GE, Honeywell, IBM, Marriott, Microsoft, Pepsi and Procter & Gamble. Research indicates that clear objectives are critical to establishing effective succession planning. These objectives tend to be core to many or most companies that have wellestablished practices:

Identify those with the potential to assume greater responsibility in the organization Provide critical development experiences to those that can move into key roles Engage the leadership in supporting the development of high-potential leaders Build a data base that can be used to make better staffing decisions for key job. Improve employee commitment and retention Meet the career development expectations of existing employees Counter the increasing difficulty and costs of recruiting employees externally

As companies move through various stages in their life cycle and build growth strategies to deal with changing business environments, the issue of leadership becomes critical and with it, the related issue of succession. And while the dynamics may differ between companies, a succession strategy essentially needs to look ahead and plan appropriately to ensure that there is continuity and the right kind of leadership in the business, both at executive and board level. The importance of good succession planning is accepted by all, and numerous discussions have defined the criteria and benefits of building a long-term strategy for succession. But how good is corporate India at putting into practice what has
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been learnt? What is the reality on the ground and what are the challenges? If India is to become a symbol of good corporate governance in this regard, what needs to be done? These are some of the questions that were discussed in Spencer Stuarts roundtable discussion on succession issues in Indian businesses. What emerged from this discussion was the need to develop succession planning as a continuous rather than a reactive process. This applies to succession at the board level, as and when there are vacancies among the independent directors, and sometimes even executive directors. It is also relevant to succession for the CEO and succession for the next layer of people who report to the CEO. The plan needs to involve identifying potential leaders, developing them and encouraging them to look beyond their immediate responsibilities. This will translate into vision building, better teamwork and successful performance both for the individual and for the company. Mr N Vaghul Chairman, Spencer Stuart India Advisory Board Former Chairman, ICICI Bank To understand succession planning, it is important to understand the structure of India Inc. Broadly, from the viewpoint of the discussion and my understanding, corporate India consists of three categories of company: first, the widely held and professionally managed companies; second, the family-promoted/family-controlled companies, but with significant holding by minority shareholders; third, government companies where there is a significant minority holding. Owing to the differences in structure and functioning of these companies, the strategies could differ, though the issues tend to remain the same. To be effective, a succession planning strategy needs to address all of the following: Board succession: What/who should govern composition and functioning of the board? What is the reality in India and what needs to be achieved? Is there a real paucity of talent for independent directorships or is it a perceived paucity? CEO succession: What are the strategies that should be deployed? In the case of professional companies, should one look for an insider or an outsider? In the present scenario, what does it take to make the process transparent for the board, the investor community and the analyst community? How are the dynamics different for a family-owned business? Companies are exploring different ways to incorporate succession planning at the senior leadership level. Marico Industries divided the strategy into two parts: defining a process for a drop-dead successor, and developing internal talent. The CEO, who is a family member, has appointed the individual who would take his place in the event of an emergency. However, this individual would hold the reins only for the short-term, defined here as six months. It would then be the boards responsibility to let this individual continue in the role or identify a permanent successor, either from the internal talent pool or from outside. The company has implemented this process for the entire top management and considers it a strong succession
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strategy. One of the debates in CEO succession is the choice between an insider and an external candidate. According to Dayton Ogden, Spencer Stuart, appointing internal candidates is a growing trend in the US. Over the last five years, the appointment of internal candidates in the S&P 500 has risen from around 55 per cent, to almost 85 per cent. Furthermore, as Ranjit Shahani, Novartis India, states: Listed company data in the US found that it was 75100 per cent more expensive to hire an external CEO than have an internal transition. In a recent study of 1,600 family-run businesses conducted by consultancy PriceWaterhouseCoopers, only 36 percent of the businesses surveyed survived passage into the second generation. And things only get worse from there, since only 19 percent of businesses survived into the third generation and a mere 7 percent continued into the fourth. The reasons for why such businesses struggle through successions include challenges such as the lack of proper succession planning, poor communication, power struggles and lack of interest to say nothing about the challenges brought by competitors in the marketplace.

Significance
The logic behind succession planning is that, at all costs, the work in the organization should not be hampered by the absence or deficiency of any one particular individual. The only solution is that the organization must prepare itself in advance for any vacancy and contingency. The reasons could be any of the following: death of the individual, her resignation, promotion, retirement or termination. If the organization plans, the loss of the senior employee does not impact its business .

Function
A number of individuals should be involved in the succession planning procedure. It is mandatory to have the viewpoints of the departing employee, the shortlisted few employees and their immediate bosses, the human resources department, the management and the board members. All of them should distribute work among themselves and work toward a course of action for a smooth transition.

Procedure
Whenever a top management vacancy is likely to arise, the human resources department urges all the employees who could fit the role to apply. The received applications are analyzed and sent to top management. From the applications, a few employees are shortlisted and put through a rigorous training regime. They receive both soft and technical training.

Benefits
The impetus and drive of the employee selected to be groomed for senior management is boosted by the process. The employee feels a sense of belonging to the organization. This is all owing to the fact that he has been the one selected from among a number of other options. Also, the selected employee is usually a longtime company employee so he understands the ethos and functions of the organization.

Limitations
It is mandatory to inject new blood and ideas into the organization for its survival and growth. This doesn't happen with succession planning. Also, the motivational levels of the employees not selected for the job could be reduced as a result of the process. They might be on the lookout for better jobs elsewhere Increase in Executive Turnover As seen in the statistics above, executive turnover is poised to increase significantly over the next few years as baby boomers retire. So what has been happening recently? Consider the following: 57% of executives are in transition, and the ranks of executives who are "employed and actively in a job search" increased to 28% (up from 22% in 2004 and 14% in 2003) (ExecuNet) Turnover of chief financial officers at Fortune 500 companies increased by 23% from 2003 to 2004 (Russell Reynolds Associates, 2005) The top 100 branded companies have new chief marketers every 23 months on average (Spencer Stuart) Some of the world's leading companies stand to lose more than 30% of their top employees (Best Practices, LLC research) How Many Companies Have Succession Plans? 67% of organizations do not currently have any formal succession planning process (Cutting Edge Information) 45% of the world's largest corporations have no meaningful approach in place for developing their CEO (Cutting Edge Information) Only 24% of organizations are confident in their ability to staff leadership positions during the next five years (Watson-Wyatt)

Although most companies recognize the importance of succession planning in attracting and retaining excellent employees, few companies successfully establish a process for doing so (Best Practices, LLC) INDIAN COMPANIES FOLLOWING SUCCESSION PLANNING Bharathi Godrej group GMR group HUL Itc Infosis Tata Tcs Challenges for Organizations Implementing Succession Planning at senior level Time and resources are the prominent challenges cited by organizations considering succession planning. Automating the collection and retrieval of such data enables the implementation of succession planning activities. By identifying skills and abilities needed for various positions, and by communicating them to the workforce, companies have the opportunity to proactively source internal talent, and employees are enabled to proactively manage their careers. These actions boost employee retention. Succession Planning Linked to Company Performance So what are the benefits of succession planning? Employee retention is an obvious one, along with an empowered workforce. Research does suggest that the existence of formal employee advancement plans is linked to business performance. Consider the following: A study of more than 100 companies found that organizations consistently using a formal process to help workers advance, are also consistency high-performing firms, as measured by total shareholder return. (Hewitt Associates, November 2003). CEOs would do well to be proactive and take care of the following: Identify the key leadership criteria and provide support to potential leaders to meet these criteria. Select a few high potential leaders and concentrate the resources available on their development. Monitor the results of the succession planning process at all levels of the organization regularly. Consistency in the way the candidate inspires trust in others Ability to introduce a high degree of accountability Ability to delegate
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 Amount of time the candidate spends in developing others Time spent by the candidate in communicating the companys purpose and values down the line Comfort level in sharing information, resource, praise and credit Ability to energize others Demonstration of respect for followers Listening skills

An ASSOCHAM Business Barometer (ABB) Survey has revealed that India Inc. has a long way to go for putting in place its succession plan at top level. The ABB Survey of 275 leading management consultants, corporate, academicians and professionals on Missing Link in Succession Plan found that only a few companies in India formulate and effectively implement succession plan for the key positions in their organization structure. This was confirmed by 75 per cent of the ABB respondents. They rated Indian companies 4 on a scale of 10 in terms of long term planning and grooming of the successor to the head of a firm. Almost half of the Indian top 100 organizations are family run businesses. Though astute in business, when it comes to sorting out matters of succession some of India's oldest business families may still need to do their homework. Be it the Ambanis of Reliance Industries, the Bajajs of Bajaj Auto, the Nandas of Escorts, or the Modis of Modi Rubber - each family has, in the recent past, faced succession and ownership issues and found them tough to resolve. As blue-chip CEOs like K.V. Kamath, Deepak Parekh and Shiv Nadar, among others, near retirement, the biggest challenge their companies face is to groom successors. At the Tata group, the challenge is even more daunting. In 2002, retirement age for group executives was increased to 65 from 60 and at Tata Sons to 75 for non-executive chairman in 2005. Not only does the board need to groom a successor to Chairman Ratan Tata, who retires in 2012, but also the CEOs of Tata Steel and Tata Motors, the two biggest companies by revenue, B.Muthuraman and Ravi Kant are 62 years old and due for retirement. At HCL Technologies, Shiv Nadar said recently in a media interview that he wants to call it a day by 2010-11, and at Wipro, Chairman Azim Premji, 61 needs to get a successor in place too, although Wipro has no retirement age for the chairman. Except for a handful of companies like Infosys, where the passing of baton from N.R. Narayana Murthy to Nandan Nilekani to Kris Gopalakrishnan happened without a hitch, the issue of corporate governance isnt addressed with the seriousness it deserves. Some statistics The study found that the overall mean percentage of Succession Planning Performance of IT Consultancy firms (72.4%) is found to be higher than that of IT Product/ Research firms (70.4%). Further the mean Organizational Performance of IT Consultancy firms (79.6%) are higher than that of the IT Product/ Research firms (76.7%).
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The relationship between Practice of Succession Planning and Organizational Performance found to be positive in IT Consultancy Groups and IT Product/Research Groups. It is evident from the research findings that the younger group respondents had high succession planning performance compared to older age group respondents. The research findings showed that higher the experience of higher is the succession planning performance level. The statistical results establish significant difference in the succession planning performance between different experience categories of respondents. It can be inferred that higher the income level of respondents better is the level of Organizational performance. The findings of statistical outcome depicts that the income level found to be non-significant with organizational performance. CONCLUSION Succession planning is a key strategic issue that needs the time and attention of top management on an ongoing basis. A proactive approach is far more desirable than an ad hoc knee-jerk approach. It is heartening to note that some Indian companies are taking succession planning more seriously than others. Hindustan Uni Lever spends quite a bit of time and effort on succession planning. Transition from one CEO to another has generally been smooth and there has been no case of any CEO failing badly in the top job. Succession planning at ITC has also been generally smooth, though one CEO,so every effort should be made by the organisation so that they plan well for succession planning and it should be a continous process though the organisation has its other activities to do. ReferencesBook- P.Subba Rao Web sitesSharetermpaper.com Slideshare.com Paper presentation byV.MANISHA Voruganti_manisha@yahoo.com Ph:7386679959 VEDA Vedasudhagayatri@yahoo.com Ph:9248808079