Succession Planning: What It Is and Why It Matters

As business processes and structures continue to evolve with advancements in technology, it’s essential for companies to have effective strategies for organizational resilience. Succession planning is especially important to ensuring an organization’s long-term success, but its complicated and tedious nature makes it a challenging task to approach. From a talent management perspective, you might find yourself grappling with the complexities of establishing or refining a succession planning process. 

Common hurdles such as outdated tools, a lack of precise data for strategic decision-making, or processes misaligned with business needs are not uncommon. Additionally, the increasing demand for roles covered by succession planning — which often include a range of key positions at multiple levels within organizations — further complicates the situation. Although the recent talent shortage is slowly rebounding as of early 2024, the cost of talent remains high.

Understanding the nuances of succession planning is pivotal, and this article will take an in-depth look at its many components. Whether you're unfamiliar with the foundational steps of succession planning or looking to enhance an existing framework, you can discover the significance of succession planning, delve into the frameworks that make the process effective, and explore best practices and real-world examples. Then, you can learn about the technology designed to support your succession planning so you can make informed decisions for your organization

First, it’s important to understand what succession planning means in a business setting.

In this Article

What Is Succession Planning?

Succession planning is the strategic process of identifying and developing internal talent and preparing them to move into critical roles. This process is crucial to ensuring continuity and maintaining operational stability, but it’s only become more complicated as companies continue to widen their scope. Traditionally, organizations developed succession plans only for positions at their most senior levels, such as C-suite and upper management. However, technology has made it easier for organizations to create talent pipelines not only for company leaders but for roles throughout the organization to maximize risk mitigation.

This proactive approach isn’t just about filling imminent vacancies; it’s about preparing for the future by cultivating talent who have the skills to take on the responsibilities of the role, as well as navigate through both foreseeable and unforeseen challenges. Succession planning is integral to the long-term health of a business, ensuring that essential positions are never left vulnerable due to unexpected departures or management transitions.

Succession planning requires a deep understanding of the organization's long-term goals and the specific positions and competencies required to achieve these objectives. It also involves assessing current talent, identifying employees with a high potential for internal mobility, and providing them with the instruction and experiences necessary to develop their skills and capabilities. It's important to recognize that succession planning is a continual process that demands ongoing attention and adaptation to remain effective.

What Are the Benefits of Succession Planning?

When implemented effectively, succession planning offers many benefits to both the business and its top talent. Here’s a closer look at some of the main benefits of succession planning:

• Minimal disruption to business operations: One primary goal of succession planning is to fill critical positions quickly and efficiently so organizations can avoid the risk of operational disruptions. That’s why HR professionals consider business performance and organizational success the two most important factors to prioritize when developing succession plans. By having a ready pool of trained and capable internal candidates, companies can maintain continuity in their business procedures, even during unexpected management changes.

• Opportunities for internal mobility: Succession planning opens doors for top talent to advance internally, fostering a culture of growth and success within the business. These opportunities are important aspects of recruiting and retaining talent — When evaluating a job opportunity, 65% of workers look for employer-provided upskilling. By encouraging internal mobility through upskilling and reskilling opportunities, employers can help both the organization and its employees succeed. 

• Reduced spending on recruiting and hiring: The cost of replacing one employee can range from one-half to two times the employee’s annual salary. By nurturing existing talent, companies have the ability to significantly reduce the costs associated with external recruitment and onboarding. Instead of using financial resources to hire and train new employees, talent management teams can put the funds toward the professional development of current employees. 

• Professional development and career pathing to encourage growth: High-performing employees want career advancement — and they’ll seek out new employers to find it. 86% of employees surveyed for a report said they would change jobs if they were offered more professional development opportunities. By providing these opportunities, succession planning enables employees to establish clear career paths and motivates them to enhance their skills and knowledge. This focus on professional growth leads to a more skilled and competent workforce, and can help attract new talent.

• Transference of knowledge and experience through employee mentorship: A key component of planning for succession is the mentoring of future leaders by current ones. Enabling employees to grow through the guidance of a precisely matched mentor facilitates a seamless transfer of knowledge and experience. That’s why 84% of Fortune 500 companies offer mentoring programs. 

• Increased employee engagement and satisfaction: Employees who see clear career paths and growth opportunities are more likely to be engaged and satisfied with their jobs. In one instance, an organization experienced a nearly 30% increase in employee engagement after introducing an internal career development program. The benefits of job satisfaction extend to the company, as well, as a positive employee experience leads to lower turnover rates and a more committed workforce.

• Optimized HR processes that align with the organization’s vision: As a critical aspect of HR, succession planning provides companies with the opportunity to ensure their HR processes reflect and promote their vision. This facilitates the development of talent that’s in sync with the company’s long-term goals. That’s good news, especially since 60% of HR leaders say that leadership development is top priority in 2024.

• Efficiency in establishing a new generation of leaders: Research shows that companies with highly engaged workforces are 21% more profitable than those with disengaged workforces. Succession planning promotes employee engagement through professional development and internal mobility, which enables smooth transitions for new leaders who are already well-acquainted with the company’s ethos and strategic goals. These new leaders, in turn, have the opportunity to engage the employees who will replace them by providing them with the mentorship and training they need to assume their new roles seamlessly and maintain operational efficiency.

To achieve the benefits of succession planning, it’s important to familiarize yourself with the essential components of a succession planning framework. 

Understanding Succession Planning Frameworks

Succession planning frameworks serve as structured blueprints that guide development and implementation strategies to ensure the continued success of an organization and its employees. These frameworks are fundamental, as they provide a systematic approach to identifying and nurturing leaders who align with an organization's structure and goals. 

Given the diversity in organizational dynamics, companies often adopt multiple succession plans, each tailored to different needs, objectives, and roles. Essential elements of every succession planning framework include:

• Identification of roles: A critical step is determining which roles require a succession plan. This process involves analyzing the company to identify the positions where vacancies would significantly impact operations. Succession planning should focus on these positions to ensure strategic continuity.

• Determining necessary skills and competencies: Each role will have specific skills and competencies required for success. The succession planning process must include an assessment of these requirements to ensure that potential successors are being developed in alignment with the demands of the job.

• Identification of internal candidates: Once the requirements for the organization’s essential roles have been established, management teams can identify the internal candidates with the potential and ambition to succeed in those roles. Companies may identify multiple employees for a single position or identify multiple positions where the candidate might be a good fit. This helps them maintain a broad pool of qualified employees.

• Preparation of internal candidates: It’s important to note that identifying internal candidates as having high potential for certain positions doesn’t mean they’re ready to move into those roles right away. It means that their current skill set and goals give them a strong foundation for developing the necessary skills to move up. Opportunities like career pathing, internal gigs, mentoring, and upskilling are crucial to helping these employees align with expectations and prepare for internal mobility.

• Alignment to leadership culture: Involving top executives in the succession planning procedure is crucial, even when it comes to identifying and developing employees for positions that aren’t senior roles. This level of employee engagement ensures that the succession plan aligns with the organization’s strategic vision and executive values.

• Choosing the right technology: One of the primary reasons companies today are incorporating positions at multiple levels into their succession plans is that they have access to technology that supports their initiatives. Succession planning is a complicated process, but software crafted to support the spectrum of talent needs with the added power of AI allows companies to streamline each step—from identification through preparation.

Incorporating these elements of the succession planning process into your own framework can help you develop the right approach for your business.

How Does the Process of Succession Planning Work?

The succession planning process should be tailored to the unique needs of each organization, and recent advancements in technology make this easier than ever before. Here are the general steps involved in this process and the ways software enables companies to make their succession planning frameworks actionable:

1. Determining the Skills for Chosen Roles

The first step in creating a succession plan is determining the specific skills required for each of your chosen roles. This granular approach ensures organizations start the process with a comprehensive understanding of what to look for in internal candidates and how to create targeted, effective training programs. It requires a bit of focus, but it’s worth it; once companies identify their essential job roles, they can use AI-powered technology to automatically identify skills for those roles and streamline the rest of the succession planning process.

2. Choosing Internal Candidates

After you’ve pinpointed the specific skills required for each position, the next step is determining internal candidates who may be the best fit for those roles. Without in-depth insight into their credentials, it can be difficult to identify employees with the highest potential, and compare their skills against those required for the roles. Companies can simplify this step by using workforce intelligence technology that leverages AI to collect employee data — such as employee profiles, resumes, assessments, and endorsements — and compare it against the skills required for each role to identify ideal candidates.

3. Evaluation and Mapping of Candidates

After identifying the most qualified internal candidates, the next step is to analyze and map their current skill sets. Methods such as competency assessments and career mapping are useful here. Although the methods themselves are nothing new, AI-powered software takes them further by extracting and categorizing each individual’s skills. Platforms that offer skills gap analyses and candidate scoring evaluate these skills to determine areas for development and rank their suitability for other positions. This precise evaluation of employees’ baselines allows companies to match internal candidates to the right roles and create personalized development plans to help them prepare.

4. Creation of Talent Development and Training Programs

The final step is the creation of tailored development and training programs for the identified internal candidates. These programs are designed to bridge any gaps in skills and prepare the employees for their new roles. This step ensures the readiness of the succession pool, equipping them with the necessary tools and knowledge for effective leadership. Using AI-powered workforce intelligence technology, organizations can use the data they gathered while evaluating their internal candidates’ skills to provide personalized growth opportunities like mentorships, internal gigs, and specialized courses.

Succession Planning Best Practices

Adopting best practices in succession planning is essential for refining your approach and achieving optimal results. These practices provide a roadmap for effective succession planning, ensuring that your organization is well-prepared for transitions. Keep the following key practices in mind:

• Be proactive about long-term succession planning: This involves anticipating future leadership needs rather than reacting to vacancies as they occur. Being proactive allows for a smoother transition, ensuring that potential leaders are identified and developed well in advance. This foresight is crucial for maintaining continuity and stability.

• Take a structured approach to learning and development: Structured learning and development programs involve creating clear, well-defined paths for an employee’s progression. These programs should encompass mentorship, education, and practical experience and be tailored to the skills and competencies required for the role the employee is working to achieve.

• Create individual talent management plans:  Employees who have high potential to succeed in the same role often have varying backgrounds and goals. Consider using an Intelligent Talent Experience platform to accelerate the process of generating individual growth plans based on the skills, experience, and interests of each potential successor.

Seeing how these factors work together can give you a better idea of how to approach succession planning within your company.

5 Pitfalls of Succession Planning You Want to Avoid

Succession planning is a critical process that ensures organizational continuity and growth by identifying and developing future leaders. However, many companies fall into common pitfalls that can undermine the effectiveness of their succession strategies. Here are five key mistakes to avoid:

1. Limiting the talent pool to familiar faces

Many organizations make the mistake of only considering well-known employees for succession. This approach overlooks hidden talent and limits diversity. Leveraging AI-powered tools can help identify potential successors across the organization based on a comprehensive analysis of skills, competencies, experience, performance, and education. This data-driven approach uncovers qualified candidates that decision-makers might otherwise miss.

2. Relying solely on direct manager assessments

While direct manager input is valuable, it can be biased or limited in scope. A more robust approach incorporates multiple perspectives. AI-driven succession planning software utilizes skills endorsements from various sources — along with learning and mentoring activities — to provide a well-rounded assessment of capabilities. This multi-faceted evaluation leads to smarter, more objective decisions.

3. Manual creation of talent cards

Compiling and organizing relevant information for succession planning shouldn't be a time-consuming manual process. This can be streamlined by automatically integrating data into configurable talent cards to ensure decision-makers have access to up-to-date and comprehensive information when they need it, saving time while improving the quality of succession choices.

4. Neglecting development after successor selection

Identifying successors is only the first step. It's crucial to actively develop these individuals to prepare them for future roles. This requires in-depth analysis of the selected successors' profiles to identify skill gaps and improvement opportunities. Development journeys then need to be created based on that analysis to recommend targeted learning experiences, mentoring relationships, and stretch assignments to enhance the employee’s readiness for potential advancement. These development journeys need to be highly personalized to the successor and the role they will fill.

5. Failing to monitor the succession process

Effective succession planning requires ongoing monitoring and evaluation. Organizations should track metrics such as the number of critical roles without sufficient successors, the diversity of the successor pool, and the utilization of succession recommendations. Regular monitoring helps identify talent gaps before they become critical issues and demonstrates the value of the succession planning process.

By avoiding these pitfalls and leveraging advanced tools like Phenom AI, organizations can create more effective, data-driven succession planning processes that ensure a strong leadership pipeline for the future.

Succession Planning Example

A prime example of effective succession planning is the appointment of an executive leader to CEO of a global logistics organization. This transition was exemplary, showcasing significant internal mobility opportunities within the company. Starting from a foundational role in the company, the executive leader’s ascent to the CEO position highlights the effectiveness of this business’ commitment to nurturing and advancing existing employees, aligned with the company's strategic goals.

The succession process is not possible without a strong commitment to succession planning from a leadership perspective. Various individuals on the board of the company emphasized the importance of ensuring leadership continuity and stability. 

Embracing a platform to streamline succession planning efforts as well as opportunities for engagement, growth, and employee retention can significantly improve you organization’s talent management efforts. These tools offer robust solutions for nurturing and retaining top candidates, which is essential for effective succession planning.

Streamline Succession Planning With Phenom

Effective succession planning requires an in-depth understanding of its importance to the success of your organization and the factors to consider when creating your own. However, challenges like identifying the right internal candidates, evaluating and mapping their skills and experience, and creating tailored development and advancement programs can make it difficult to know where to start.

At Phenom, we understand these challenges and offer solutions to streamline your succession planning process. Our platform leverages AI to optimize HR workflows, focusing on enhancing the employee experience from the onset.

We simplify the process of identifying top internal talent by using AI to collect employee data and create skills ontologies that offer in-depth insight into their current skill sets and experience. Using this insight, you can effortlessly identify critical skill gaps, determine ideal roles for your employees, and provide them with personalized career pathing, professional development, and upskilling opportunities.

This approach not only facilitates internal mobility, but also empowers leaders to make informed decisions about talent recognition, selection, and succession planning. By ensuring consistent access to real-time data, Phenom Workforce Intelligence ensures a robust foundation for nurturing potential talent and paves the way for long-term organizational success.

To discover more about how Phenom can transform your approach to succession planning, explore our AI-powered solution or book a demo to see it in action.