Succession Planning-Process and Challenges

Published by MBA Skool Team, Published on November 14, 2013

The announcement of Mr Steve Ballmer that he will step down from the post of Microsoft CEO in the next 12 months; this announcement has sparked off the speculation. The number of names that have come up in the media shows that Microsoft lacks a succession plan. Of course, CEO is not the only one in the organization who plays an important role; losing other key members like COO, CFO also affects the organization. A succession plan helps us to prepare for those situations and effectively deal with them when they occur.

Succession planning helps in identifying the potential candidate as early as possible; this helps in the smooth transition. It is required to keep up the confidence of investors, clients and employees. The transition time could vary from organization to organization, depending upon its size. The succession planning identifies the potential candidates in the organization and set up a ‘race’ among them; if none of these internal candidates are up to par, then the board will have sufficient time to find a talent from outside and groom him into a potential successor.

To identify the talent:

The board usually appoints a committee to oversee the succession. Sometimes, an external agency is engaged for finding the talent. Apart from this, a board is also expected to do certain things before appointing a committee or engaging an external agency.

  • The board should give room for their executives to voice their differences of opinion, if any. It should not try to squelch those who challenge the status quo. If the board suppresses them, then the company might lose the talent.

  • A board room exposure (18-24 months) should be provided for the internal candidates who are seen as the potential CEOs. By doing so, the board can get to know more about the candidates.

  • The board should rejig their roles and responsibilities. The future CEO candidates should be made to work on the areas where they are not having much of exposure. By doing so, it is possible for the board to identify the quality candidates, who excel well out of their comfort zones.

Internal vs External:

Organizations go for internal succession because these insider candidates know the culture and the people very well; further it motivates the senior-level executives to stay and perform, as they might get a chance to lead the company someday. This helps in retaining the top level talent within the company. The disadvantage in this approach is that the senior management might get complacent as the board won’t consider any outsiders. There are also enough reasons why a company look for an outsider straightaway. This happens when the board of a company believes change could be more important at this stage, especially when things are not going well. The board believes in seeking fresh perspectives for the problems they face.

Infosys Story:

Infosys, once a bellwether of Indian IT Industry, saw its high prolific founder, Mr Narayana Murthy, making his return as its executive chairman in June for a period of three years. Apart from all the crises that Mr Murthy is expected to solve, he has a major task of finding a CEO by the end of 2015, when the tenure of Mr Shibulal ends. Infosys is known for its reluctance to accept outsiders for the senior level roles in the company, but within three months of Mr Murthy’s return, sales head Mr Basab Pradhan as well as North America head for financial services Sudhir chatruvedi have quit the company for unknown reasons. Last week,            Mr Ashok Vemuri, who was seen as one of the contenders for the CEO post, has put in his papers. It is time for the board to work on a fresh approach for the CEO succession. It should look for an outside person for the first non-founder CEO of the company in 2015. The company is in need of fresh ideas and strategies to claim the lost bellwether status.

Challenges in Succession:

Companies should come out of the perception that succession is only for high level executives. Succession is a key in every level of management. Certain companies still have not realized to make succession as a top priority. The major challenge that every company face when looking out for a succession is that there are a very few candidates available. A few companies don’t have a bench strength with talents. The plans for emergency are not in place. Leadership programs are not part of many companies. Such issues make succession planning a very tedious task. The external agencies hired for CEO search cannot be completely trusted. The agencies might end up doing a superficial due diligence. After all, we are all aware of what happened to Scott Thompson at Yahoo. He claimed to have a degree from a particular university in his curriculum vitae, which he never earned; later he was forced to resign.

Cisco, the networking giant has identified Mr Chambers’ potential successors as early as three years before he is going to step down. Recently, P&G have reshuffled their top executives and this is seen as a race among them for the succeeding Mr A.G Lafley. In HP, Meg Whitman says that her successor is already known and will be recruited from within the company. Thus the well managed transition will mitigate the risk associated with succession and it is the need of the hour to carry out the business effectively.

The article has been authored by ArunKarthik A, IIFT Kolkata

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