Why an HCM system is the perfect platform for succession planning
Liam Butler on the next-generation Human Capital Management system.
HR can at times seem like this large multi-layered beast that, while simultaneously playing a fundamental and vital role in the operation of a business or organisation, is often sidelined and seen as a separate, albeit necessary, entity.
In part due to its behemoth responsibilities, certain aspects of the role of HR are often overlooked and overshadowed by payroll and some of the other more day-to-day operating functions.
One such notable area is succession planning, itself part of a larger category known as ‘succession management’ that encompasses everything from management development programmes like the high-flyer programmes to skills analysis and the job-filling process.
The Chartered Institute of Personnel and Development (CIPD) defines succession planning as “the process of identifying and developing potential future leaders or senior managers, as well as individuals to fill other business-critical positions, either in the short or the long term”.
Part of this development ideally should include training programmes and work experience opportunities so that when the need arises, key roles are filled seamlessly and efficiently.
Too often when organisations need talent, they look externally and overlook internal candidates
Historically, successors in larger traditional companies were identified and groomed for these key posts, but recent changes in the business environment and the growth of non-traditional leadership paradigms has meant that, more often than not, companies do not pursue such a course.
However, this lack of a plan can, and has, led to companies coming unstuck when a leader or noted key individual leaves. For stakeholders and shareholders alike, it can reflect a lack of direction, leadership direction, which is further perpetuated by not having a suitable candidate ready to step up and take the reins.
This then ripples down and company finances suffer as a consequence of a rudderless organisation.
The 15th annual study of CEOs, governance and success conducted by Strategy& estimated that companies that saw forced successions would have generated, on average, an estimated US$112bn more in market value in the year before and the year after their turnover, if their CEO succession had been the result of planning.
And even when the successions are planned, the companies still experienced financial losses with an average 4% drop in return to shareholders in the year before and after the change.
But if the old methods for replacing key leadership positions are outdated and no longer viable in today’s business world, what are companies to do?
How a Human Capital Management system works to simplify succession planning
There is a solution and it can contribute in a way that no previous system or process could because it takes all available workforce data and, by using powerful analytics, produces a better decision-making process.
This gives senior leaders, managers, directors and HR a strategic and quantifiably validated approach, thereby enabling them to recruit and nurture the required skilled manpower. All of which ultimately makes HR’s role in the search for successors a whole lot easier.
What is it?
It is a next-generation Human Capital Management system. A system that produces data related to employee performance, talent requirements, training needs, learning application and employee feedback, all of which is used to identify suitable candidates and then, importantly, prepare this suitable talent pool for succession through continual performance assessment and suggested training and development.
Every candidate, or potential candidate, is viewed as a separate entity and the system proposes a plan that develops each accordingly, tailoring curated career paths to fit each individual’s needs and capabilities.
HCM and succession planning that develops home-grown talent
Too often when organisations need talent, they look externally and overlook internal candidates. And while the benefits of ‘new blood’ are many - new ideas and fresh approaches are just two that readily spring to mind - relying on externals is not best practice.
Regardless of whether such a trend is intentional or unintentional, the reality is it can be a cause for disquiet among current employees and cause delay with the integration of the new successor as time is allocated to acclimatising to the company culture, time not necessary when the chosen replacement is already steeped and experienced in the company.
We are anticipating huge talent upheavals and leadership disruptions as millions of baby boomers retire from the workplace
To promote promoting from within, an integrated HCM can analyse current workforce including, detailed talent profiles, employee summaries, organisation charts, competencies and job profiles. Second, it can assess employees on key areas of leadership potential, job performance and risk of leaving. Organisations need such integrated processes to promote and support career and talent mobility. And such dynamic talent mobility is vital to succession planning.
Hiring from within brings other benefits too. Research by Matthew Bidwell, a University of Pennsylvania Wharton School professor, found that in the investment banking industry, external hires were paid 18-20% more than current employees promoted to similar positions.
Furthermore, such hires not only commanded a higher pay, they also received "significantly lower performance evaluations during their first 24 months at the new company compared to existing employees promoted to similar roles".
We are all anticipating huge talent upheavals and leadership disruptions over the next few years as millions of baby boomers will retire from the workplace and over one-fourth of the current millennial workers enter management.
Therefore, more than ever before, is it crucial that organisations have plans for succession not just in place, but in action. And your HCM system should be part of the plan.
About the author
Liam Butler is VP Corporate Sales EMEA at SumTotal, a Skillsoft company
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