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The loss of key executives and IT personnel can send a company into a tailspin. Find out why succession planning is just as essential as any other aspect of risk management -- and how to do it right.
Corporate risk management focuses on cash flows and liquidity; strength of the book of business; threats to brands, revenues, and reputations; natural and other disasters; system and security failures; and failures in the supply chain. These are the risk areas that corporate auditors and examiners look at and that the board expects regular updates on.
But missing from these criteria is risk planning for key corporate executives and contributors, a fact that was substantiated by a survey of more than 1,300 companies by executive recruitment firm Korn Ferry. The Korn Ferry survey revealed that that only 35% of 1,300 companies surveyed had a succession plan in place.
In IT, as in other corporate disciplines, the most significant risks materialize with the loss of the chief officer, the CIO. However, since IT is a technically intensive discipline, the loss of key technical personnel can also have a major impact and should be considered in any risk mitigation strategy that engages succession planning.
IT staffing firm TEKsystems conducted a study last year that surveyed more than 1,500 IT leaders and 2,000 IT pros. The results indicated that although most participants recognized the need for succession planning, roughly half said they had no plan in place -- or they weren't sure if there was one.
Why succession planning?
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Phil Cromer is risk and safety services manager for the Municipal Association of South Carolina, which represents and serves the state's 270 incorporated municipalities. In the group's newsletter, he explained the importance of putting a plan in place -- and the consequences of failing to do so.
"Succession planning is identifying and training potential replacements for key or critical positions before they become vacant," said "It is, in fact, a risk management plan designed to reduce an organization's dependence on any one person or persons," he said. "As we are keenly aware, the most important asset of any organization is its human capital, and the loss of key people whether through injury/illness, death, resignation, termination or retirement can be costly and disruptive. When key personnel are lost and the organization has no succession plan or a back-up plan in place, there may be a protracted period of time before a replacement is found. This delay usually pushes the duties and decisions of that position onto other personnel who may not be prepared or have the right skill set to handle them efficiently and effectively. All of this comes at a cost to the organization."
Corporate IT organizations have experienced this.
- At one financial services firm, a CIO resigned and the organization was in turmoil for over a year, with critical projects delayed across the board.
- Within one year at an equipment manufacturer, the company went through three CIOs, two of whom retired. A strategic planning process that had been in place for decades -- which included roadmaps of technologies to be added and projects to be run -- was upended, making it difficult for staff to move forward.
- In another financial services case, a company made a strategic decision to migrate to a customer-centric service culture. This resulted in the loss of several key technical contributors who didn't like the change of direction. The organization had to hire outside consultants in an effort to replace the loss of knowledge that had walked out the door.
- During Hurricane Katrina, a New Orleans area company lost several technical contributors in the disaster. It struggled to replace people it had never planned to lose.
Elements of a succession plan
Organizations that have developed strong succession plans for IT recognize the importance of mitigating for personnel loss risks and have three characteristics in common:
1: A business culture that is supportive of succession planning
IT departments that do succession planning well incorporate succession planning continuously in the projects they handle and the activities they undertake. To work, IT succession planning must be part of a greater corporate commitment to succession planning throughout the organization, stressing the importance of succession planning and creating a culture of openness, support, and trust throughout the employee base. In these environments, succession planning is perceived as necessary measure to cover all the bases and not as a means of obsolescing certain employees and replacing them with others. Once employees understand the process and its motivations and also understand they are valued employees and that their employment is not at risk, they are more likely to put personal fears and anxieties aside.
2: A long-term commitment to employee development and training
Establishing alternative people for key roles throughout the organization can't be achieved in a matter of weeks or months. The IT departments that do succession planning best are those that target key leadership and technical skill sets, assess their depth in the areas based upon the personnel they have, and evaluate existing personnel to identify those most likely to succeed at mastering new skills sets. They put together multi-year training, certification, and on-the-job participation plans to ensure that skill building and cross training occur. IT departments employing these strategies often have dedicated IT training managers who understand the different technical areas (database, networks, systems programming, etc.) and where the department requires additional depth.
3: A plan that works from the top down
It's important to begin with the CIO position in succession planning. In fact, there is probably no greater need for the CIO to lead by example than there is in succession planning, If IT staff members see that the CIO position is heavily enrolled in the succession planning process, they are more likely to feel secure in the efforts that are going on in their own areas.
Challenges to succession planning
There is a natural resistance to succession planning in IT and other disciplines, which is a leading cause of delay in implementation.
By its nature, succession planning implies the loss of critical personnel -- something nobody likes to think about. Organizations also recognize that while succession planning is an important risk reduction strategy, the process itself can present new risks if not done well.
Too many companies begin succession planning without first establishing trust and a sense of general wellbeing in their employees and managers.
When a business culture is closed and secretive, everyone left out of the succession planning process feels insecure. They begin to either resist the process or they leave the company altogether, creating immediate risks. Many enterprises also lack confidence in their ability to do the succession planning exercise well, without threatening employees or making mistakes in successor identification. Because of this, they may engage outside consultants to guide them. But that can often generate more fear and distrust in employees and managers who view the outside consultant as a potential hatchet man sent in to identify superfluous jobs and functions.
Bob O'Hara is president and CEO of O'Hara & Company, which helps companies with succession planning. In the article Why Do Business Owners Fear Exit Planning? (PDF), he discussed concerns about transitions and the loss of control that executives may experience in succession planning. If these fears are evident to staff and the succession planning is not done well, fear only accelerates, spreading itself throughout the company.
Internal candidates are often overlooked.
Stephen A. Miles, vice chairman and managing partner of leadership advisory in the Leadership Consulting Practice at executive search firm Heidrick & Struggles, said, "At the 1,000 largest American companies (by revenue) in 2008, 80 new CEOs were appointed, and only 44 of them -- 55 percent -- were promoted from within. If you view a board's having to go outside to hire a CEO as a failure in succession planning, that represents a breakdown in the system. A failure rate of 45 percent means that far too many [succession] plans aren't working."
Miles said that corporate decision makers for key positions often lack exposure to internal candidates and their capabilities. In other cases, there is a feeling that a successor must be "ready now" for the position that he or she is moving into, when it might be just as viable to train or apprentice the person into a new role.
Companies sometimes assume that a successor for a position must replicate all of the qualities of the present incumbent.
"What a company needs in the next six months and beyond may be drastically different from what was needed even in the last quarter," Miles said. "An individual who sees the company and its industry through a new set of lenses may be best prepared to recognize and seize new opportunities."
Companies struggle when it comes to identifying key characteristics and skill sets for positions.
In some cases, companies don't define skills and competencies well enough. In other cases, they over-define skills and competencies so much that it almost becomes impossible to find a "perfect" candidate.
Randall Beck, Gallup Managing Partner and expert on succession planning, described how some organizations go overboard. In the Q&A piece Your succession plan is a bust, he said, "I've seen lists of 60-plus competencies that a company wants in its leaders. These include organizational agility, vision, strategy, and the ability to inspire others. These are all terms that sound great, but when you start adding up 40 to 50 competencies that leaders must possess, you soon realize that person doesn't exist."
Enterprises that develop successful IT succession plans understand the natural obstacles to the process. They also accept and acknowledge that succession planning isn't a one-time, short-term activity. Rather, succession planning is an ongoing process that, if well executed, becomes as integral to business continuance as a disaster recovery plan.
Best practices that have returned excellent results for IT succession planning include:
Develop an open, trusting culture
Succession planning should never be approached in a back room with a "hired gun" consultant. The entire IT organization should be engaged in succession planning and should understand its purpose: to keep the business (and IT) going, even in the face of a disaster or the loss of a critical manager or technical contributor. The process is greatly facilitated when there is an open-door policy on succession planning that begins with the door being open to the CIO's office.
Identify strong and weak points in successions and grade your risk
Succession planning should be approached like disaster recovery planning. IT should assess weaknesses and strengths and "single points of failure" from a personnel standpoint in both management and key technical contributors. Concurrently, it should assess the mission-critical skill sets it will need to maintain or develop -- both now and in the future. Miles talked about succession planning for a CEO. "Here are the kinds of questions you must have answers for," he said. "First, is there an emergency candidate who can take the reins for a time if the CEO were to leave tomorrow? This is often the CFO, COO, or a board member. Second, whom do we have to invest in today so that he or she will be prepared tomorrow? Third, has the company developed a team strong enough to ease the transition to a new CEO? And finally, is there in place a seasoned chairman or lead director who is willing to coach and mentor a new CEO?" The same set of questions applies to the CIO, key IT managers, and major IT technical contributors.
Develop skill sets, competencies, and a solid bench
Once you've developed a methodology for identifying your key "risk" positions for succession planning, the IT training department should enter in. Historically, a dedicated training and development area in IT (separate from HR training, because it is so specialized) is what most IT departments have used to develop training objectives, criteria, curricula, and certifications for new skill set acquisition and for ultimate qualifications for IT positions. It is also IT training that historically worked with the CIO and other IT managers and technical contributors to identify internal talent that could be cross-trained for new responsibilities, while at the same time working with managers and key technical personnel to develop a strong farm system of internal talent.
"Preparing leaders is a lot easier if you stack the deck -- if you just load the company with talent," Beck said. "When we talk about the talent machine building an environment that engages your employees and then raising the bar of talent and hiring to match that bar, it's a lot easier to develop leaders and look for high potentials. If you're going to embark on the journey to increase leadership potential in a company, increasing the overall level of talent in every role goes hand-in-hand."
Include on-the-job and actual project experience as part of your staff development plan
There is only so much training people can take before they jump into new job and see if they can handle it. If they perform well, the experience will help them build the confidence they need.
To facilitate the process, IT training must continuously work with the CIO, project team leaders, and key technical personnel so that trainees can be "placed into battle" to see how they do. Some of this job burn-in can be done through stress testing and simulation in trial environments. But in other cases, it will be necessary to assign work on real projects. The CIO and others must build some extra time into project timelines so the process can be facilitated. This can only be done if those sponsoring the projects (line of business leaders and ultimately, the CEO) support the need for IT succession and risk management. It is the CIO's job to ensure that the necessary endorsements for a succession planning and training program are in place.
"Having the right developmental opportunities depending on employees' level of potential is critical," Beck said. "Leadership development means identifying high-potential people in the scientific way that I mentioned earlier -- putting high potentials in roles where they're productive and developing them to the point that when your company needs a succession plan, you have a robust pool of talent with at least three appropriate choices for every executive role."
The same goes for non-executive roles.
Include the CIO position in succession planning
IT managers and staff will buy into a succession planning process more readily when they see the CIO (and the CIO position) participating. This is where the CIO should "lead by example," working as a mentor to possible CIO successors and demonstrating to staff that succession planning for the welfare of the company includes everyone.