The importance of effective succession planning
True leadership has always been and will probably always be a scarce commodity in most organizations. And it’s particularly scarce in the oil and gas industry, where the shortage of experienced talent has been well documented.
According to a 2004 American Petroleum Institute survey, the petroleum industry lost almost one–half million jobs from 1982 – 2000. Currently, the average age of an experienced employee in a management or technical position is 48 – 50 years. Moreover, the Independent Petroleum Association of America reports 40% of the industry’s skilled professionals will reach retirement age by 2010.
These troubling numbers are compounded by the impending first wave of 77 million baby boomers retiring in the next 10 years – a sea of change that could trigger the first decline in the white collar labor force in our nation’s history.
No task has become more important to CEOs than ensuring a process for identifying and developing the future leaders of their organizations. In addition, the need for organizations to shift gears to adapt to fast–changing markets and aggressive competitors requires them to quickly pinpoint gaps in their talent pool and emerging needs for new types of talent.
Consider the plight of offshore driller Noble Corp. When then–CEO Mark Jackson abruptly resigned in September, the offshore driller stated it would name a replacement as “fast as is prudent.”
In contrast, McDonald’s named Charlie Bell to replace chief executive Jim Cantalupo within hours of Cantalupo’s fatal heart attack in 2006. McDonald’s hadn’t been planning a change. In fact, the 60–year–old Cantalupo was engineering the fast–food company’s comeback. But McDonald’s recognized Bell, who’d been with the company for 29 years, as next in line. Not surprisingly, the company earned high praise from analysts for its rapid response.
How do companies build a sound succession framework? By studying executive recruiting and development strategies. With frequent discussions among managers about candidates. Grooming great leaders isn’t a one–time project; rather, it’s an ongoing operation grounded in solid organization and sound judgment.
Boyden, for example, has developed a six–part model for companies looking to improve their succession planning. The model depends on principles we’ve observed among clients who:
Develop a people strategy
Let’s face it: if your hiring process is askew, you’re starting from behind. Smart companies are finely tuned, systematic, and thorough. They have great personnel doing their hiring. They look long–range, sometimes five years down the road, at the number and types of employees they’ll require. Will the company’s core business grow strongly? Will the firm launch new products or enter different markets? What will the competitors do? To what degree will women and minority executives play a larger role in company plans?
Check your bench
Criticism is rarely easy to swallow. But great organizations are willing to look harshly at their leadership. They pinpoint weaknesses that require urgent attention (see the Boyden Risk Matrix). They’re aware of impending retirements and the quality and health of incumbents. They’re abreast of the leading contenders to move into important roles, but also those executives who aren’t performing up to expectation. In an assessment process, there’s likely to be some bad news and some surprises, as well as the good news.
Evaluate the gaps
The ability to reach and exceed certain goals is a good tip–off that someone is capable. But top firms realize success in one job doesn’t guarantee the same in more senior positions. They also weigh employees’ skills and personal traits that may predict success higher up. Some have even made good use of behavioral and skills testing. These tests ask a series of questions to determine if someone is well–suited for a job.
In a 2002 panel discussion with the Harvard Business Review, former Gillette Company CEO Alfred Zeien perhaps summed it up best.
“As people rise through the ranks, it’s fairly easy to track their accomplishments, to see how well they’ve worked with other people and how well they’ve formulated plans for their particular units,” he said. “But those kinds of measures tell you little about how someone will respond to being in charge.”
One company recently learned this lesson the hard way when it promoted a top officer to CEO on the strength of several marketing triumphs. The executive lacked experience managing the financial side of the business and tended to micromanage employees. Less than two years later the company was looking for a new CEO.
Plan and prescribe methods for bolstering your bench strength
Companies with shortages of managers should be quick to outline training and development initiatives. These programs can take any number of forms. Several major companies send top personnel to retreats that may last the better part of a week. One Fortune 500 firm holds multi–day retreats, during which it asks key executives to draft a proposal for bettering a part of the firm. Then the executives put their plan into action.
The benefit is twofold: the firm improves itself while gauging the organizational and leadership skills of these executives. Other companies offer shorter, more frequent seminars, and lectures on management issues. Some may even arrange for private tutoring of promising executives – via in–house mentoring by senior officers or outside executive coaches.
But development programs must not be limited to classroom theory. There’s no substitute for experience. Top employees should be challenged with fresh assignments. That may mean marketing and sales responsibilities for someone with a research and development sweet spot or relocation to a different region.
Companies know that great business leaders possess adaptable skills and broad knowledge. “Pair classroom training with all–important work experiences that solve real organizational problems while enhancing budding leaders’ general management expertise,” wrote succession experts Jay Conger and Robert Fulmer in a 2003 Harvard Business Review article, “Developing Your Leadership Pipeline”.
Implement the plan
Smart companies don’t delay installing programs to bolster bench strength and they don’t forget to check and make sure they are working.
Several years ago, with its clientele changing, Verizon sought to boost the number of women and minority executives in upper management. The telecommunications giant started holding regular, four–day seminars focusing on ways for executives already at the company to showcase their skills. Verizon also wisely monitored the results of its program, which tested its managers’ skills on special projects and in new jobs that were lateral moves.
Over the past two years, the firm has retained more of its top women and minority leaders and promoted an increasing number of them to the vice president level. Still, other companies want faster results. They may rely on outside search firms or other recruiting methods to quickly fill middle management holes.
Cycle back and measure improvement
We can’t underestimate the importance of monitoring potential candidates’ progress and speaking regularly about succession planning. Companies must keep steady track of their personnel’s strengths and weaknesses.
Schlumberger, for example, has achieved steady growth partly because of its success in maintaining a strong bench, especially for key financial positions. Its senior management certainly sees bench strength as a top priority.
Successful succession planning is a long–term process. Make sure your organization knows whether the right people are moving at the right pace into the right jobs at the right time and you’ll be on your way to solidifying your bench strength for years to come.
About the author
James Hertlein [[email protected]] is a managing director with the Houston office of Boyden, a global retained executive search firm.