Why succession planning is vital for your business

In an incredibly fast-paced world, it’s often difficult to plan for the present, let alone the future. Whether you’re closing a deal or putting the finishing touches on a big report, there’s always something urgent to do right now. In this environment, even knowing what you’ll be doing next week can feel like an impossible task, so trying to plan two years ahead can be incredibly daunting. 

Yet, as is often the case in life, taking the time to stop, smell the roses, and plan ahead will set you up for sustainable, long-term success. Accordingly, robust succession planning is imperative for high-performing businesses. 

Don’t just take our word for it, research by PWC shows that 79% of companies in top-performing quartiles engage in succession planning. By comparison, just 21% of other companies have formal succession plans — a huge gulf between high-performers and the rest! 

With this in mind, we’ll analyse why succession planning is vital for your business. We’ll start by defining succession planning, before examining the state of succession planning, and offering four best practices for succession planning. 

Ready to start planning for success? Start here. 

What is succession planning?

Succession planning means proactively planning for the future. No, it doesn’t require a crystal ball. Rather, it’s all about answering one simple question: when someone leaves the business, who will step up to fill their role? Knowing the answer to this question ensures businesses can strike a balance between current and long-term success — especially if the departing employee is in an influential leadership or executive position. 

There’s nothing worse than being blindsided by someone leaving the company and having no one ready to replace them. Everything grinds to a screeching halt as you scramble to fill the void of knowledge and skills they leave behind. By having a clear succession plan, you can avoid this scenario, ensuring there is a knowledge transfer between the exiting employee and their successor as part of the training and handover process.

As such, a central aspect of succession planning is creating a continuous pipeline of talent, thereby ensuring smooth transitions and minimal disruptions when an employee leaves. Robust succession planning means that when someone leaves the business, the next person in line will have the appropriate skills, experience, and knowledge to step up and fill that role.

As the University of Washington explains, “succession planning is the process of identifying the critical positions within your organisation and developing action plans for individuals to assume those positions. A succession plan identifies future staffing needs and the people with the skills and potential to perform in these future roles.”

BamooHR adds that a good succession plan “focuses on identifying potential leaders and high performers, helping them develop so they can advance within their organisation.”

To achieve this, you must identify promising talent and potential leaders early and continuously develop their skills to ensure they are prepared to be promoted to a new role when the time comes. 

While succession planning generally focuses on executive and leadership roles, as these are seen as the most impactful and difficult to fill, this doesn’t have to be the case. If someone is being formally developed to take over a specific role — whether that’s a CEO, a baker, a personal trainer, or a receptionist — that’s a succession plan. 

Ultimately, good succession planning is all about thinking three steps ahead. Rather than resting on your laurels and thinking ‘things are going well right now’, ask yourself ‘what would we do if X person left tomorrow? Could anyone fill their role, or would we be left shorthanded?’ If the answer is that you don’t have a plan, it’s time to start identifying potential replacements in your organisation and developing their skills. 

The state of succession planning

Now that we understand what succession planning is, it’s time to examine the current state of succession planning, including which companies engage in succession planning, the costs of succession planning, and the benefits of succession planning. 

Are businesses planning for success?

While most businesses recognise the value of succession planning, few actually succeed. 86% of leaders believe succession planning is an urgent priority for their business, yet just 14% think they’re doing it well. This is a huge discrepancy and an even bigger missed opportunity! The good news is that if you are among the 14% of businesses that are good at succession planning, you have a huge competitive advantage. 

What’s more, just 21% of teams say they have formal succession plans. An additional 20% have informal succession plans, while 20% say they don’t currently have a plan but want to develop one. By comparison, 79% of companies in top-performing quartiles engage in succession planning, underscoring the importance of succession planning for high-performing businesses. 

According to ASIS, the most common reasons teams cite for not having a succession plan are a lack of time and resources to develop one (31%) and that their organisation is too small to have one (18%). 

Which roles have succession plans? 

According to a recent report by Ceridian, 65% of organisations use succession planning for key leadership roles. This figure drops to 61% for subject matter experts, 60% for critical technical experts, and just 50% for people leaders. 

Despite this, the report recommends that good succession planning should “be broad and consider the organisation holistically” rather than focusing exclusively on senior executives. 

Ceridian also found that 57% of teams rely on technology as part of their succession planning process, using dedicated succession planning tools to map talent and identify future leaders. 

Internal vs external planning

While succession planning may seem like a daunting task, it will set your business up for success in the long term. Identifying and promoting internal talent has a far higher success rate than hiring external talent. 

34% of external hires for senior leadership positions fail, compared to just 24% of internal hires, underscoring the benefits of internal mobility and succession planning. 

What’s more, the HBR estimates that only 39% of outside hires would perform better than an internal hire, while employees who move into new jobs internally are 3.5x more likely to be engaged.

Moreover, 79% of companies from top-performing quartiles hired CEO replacements internally, far higher than the overall industry average. 

Despite this, only 65% of teams even advertise open positions internally, while 57% of employees believe it would be easier to find a new job in a different organisation than to find a new job internally in their current organisation. In other words, many teams are shooting themselves in the foot by not promoting internal roles! 

Given this, it makes sense that 62% of L&D professionals are prioritising internal mobility this year.

To learn more, see our article on why internal mobility is vital in today’s workforce. 

The costs of succession planning 

Not having a succession plan may be costing your business. A lot. While it may seem like a significant time investment upfront, failing to have a succession plan can be incredibly expensive in the long run. 

The HBR finds that poorly managed C-suit transitions at top-performing companies result in a loss of $1 trillion in market value per year. Plus, the average cost of replacing a failed executive is 10x their salary. 

You might be thinking ‘that’s all well and good, but I work for a small business, not a C-suite organisation.’ Well, you’re not exempt. Analysis by Gartner found that employee turnover due to poor internal mobility and a lack of future career opportunities costs an average-sized organisation a whopping $49 million per year. That’s $49 million that could have been saved by succession planning and internal mobility. 

And this is just the tip of the iceberg. According to SHRM, the average cost-per-new-hire for companies is currently $4,129, far higher than the cost of transitioning an existing employee into a new role. As Toggl Hire notes, “an average company loses anywhere between 1% and 2.5% of their total revenue on the time it takes to bring a new hire up to speed.”

Whatever way you slice it, failing to plan ahead can be costly, so it pays to invest in succession planning. 

The benefits of succession planning 

When teams do engage in succession planning, the benefits are significant. 94% of employers say having a succession plan improves employee engagement. Employees agree, with 62% saying they would be ‘significantly more engaged’ if their company prioritised succession planning. 

Employees are also more likely to want to work for a company with a strong culture of succession planning. 34% of employees say they are remaining in their current role because they foresee an opportunity to be part of the future growth of the company. 

On the flip side, employees are willing to jump ship to companies who do engage in succession planning. 37% of people say opportunities for career advancement elsewhere would convince them to leave their current job, while 27% say they would leave their job for the chance to learn and develop new skills.

Ultimately, 94% of HR professionals say internal recruiting helps retain their most valuable talent, while 81% added that internal hiring improves retention overall. Therefore, succession planning is essential to consistently attract and retain top talent. 

4 succession planning best practices 

If, like many organisations, you understand that succession planning is vital but don’t know where to start, we’ve got you covered. Here are four succession planning best practices to set your business up for sustainable success. 

1. Align with business strategy

Good succession planning must align with your overall business strategy. As Altus puts it, “if your succession strategy seems like a departure from your long-held goals and beliefs, it will be difficult to get everyone on board with the process.” 

Employees must understand how succession planning aligns with your organisation’s broader strategy, goals, and values. Therefore, clear communication is vital throughout the process. You should explain to employees why succession planning is important and how it aligns with your company’s goals. Doing so will ensure buy-in and engagement throughout the process while also giving employees a clear path to career advancement. 

To get started on this alignment, see our article on how to align L&D to the organisation’s strategy.

2. Identify candidates and skill gaps 

It’s never too early to start succession planning. From the moment an employee comes on board, you should take note of their strengths, weaknesses, and overall potential to transition to other roles in the future. 

Of course, it is not enough to simply identify high-potential employees, you must also work with them to overcome potential skill gaps. 

According to the Harvard Business Review, this is where many teams let themselves down. 98% of businesses say they are good at identifying high-potential employees, yet, they spend just 10% of their time developing these potential leaders. 

As such, businesses must both identify and develop candidates throughout the succession planning process. 

3. Foster a culture of learning 

Fostering a culture of learning means you will create a continuous pipeline of talent who are not only eager to advance into new roles, but also have the appropriate skills to do so. 

According to Docebo, high-performing organisations are 5x more likely to have an extensive learning culture and twice as likely to say their learning functions help meet organisational business goals (a big tick for alignment!). 

By creating a learning culture, employees will feel safe developing new skills and taking on new challenges, thereby creating a self-sustaining talent pipeline.

4. Involve L&D 

Finally, L&D plays a vital role in the succession planning process. For starters, your L&D team is responsible for creating and sharing the learning content that employees need to gain new skills and advance into future roles. 

As such, it’s no surprise that nearly three-quarters (72%) of organisations use formal learning to develop succession candidates, while 83% use mentoring or coaching.  

Yet, ​​80% of employees say they lack skills both for current and future positions. How do teams overcome these skills deficiencies and train future leaders? Simple: invest in L&D. 

For more insights, subscribe to the Go1 newsletter to stay on top of all the latest L&D trends. Or, you can book a demo today to find out how Go1 can help with your team’s learning needs.