Attracting talent is essential, but retaining is even better. Succession planning serves as a powerful motivator for employees eager to advance and grow in their roles.
For organizations, it’s the ideal strategy to cultivate internal talent and ensure key positions are filled with the right employees when the time comes.,
The importance of succession planning lies in its ability to smoothly manage shifts in organizational structure. When changes occur, a well-prepared succession plan activates, allowing the organization to adapt without disruption, ensuring stability and continuity in leadership and critical roles.
Think of it like an emergency plan; while you might not need it right away, having one in place ensures you’re ready for anything.
Make business succession planning a part of your people strategy to understand where employees stand and what the future holds for them within the organization. If you’re looking to build or refine your own succession plan, we have the ultimate guide to succession planning to help you with it!
Let’s dive deeper into the importance of succession planning and answer: Why is succession planning important?
Table of Contents
The Strategic Importance of Succession Planning
Much like a family-owned restaurant with a secret recipe that is passed down through generations to keep the business thriving and customers happy, the strategic importance of succession planning is just like that.
This generational succession planning process safeguards business knowledge and applies to organizations as well.
The importance of succession planning keeps the business going with minimal external dependency, and employees who see a progressive future in their roles are motivated to stay and contribute.
To give a more tangible context, the strategic importance of succession planning for organizations include:
Continuity becomes more important than ever
Every organization has its own combination of soft and technical skills needed for positions and fits for its culture.
Key reasons to prioritize succession planning in 2024 include the challenge of finding the perfect combination of skills. The market is filled with talented candidates but finding the ultimate fit is neither easy nor realistic.
A well-crafted succession management identifies and develops existing and promising employees, providing them with the necessary resources to become the ideal fit for the organization.
In a nutshell, the importance of succession planning helps organizations find a balance between internal development and external recruitment, ensuring they are prepared for unforeseen challenges and can maintain continuity in key roles.
Paves the way for future leaders
Each employee contributes to the organization in their own way, but succession planning makes it easier to find the right fit for leadership positions.
The importance of succession planning is that it helps organizations to find and nurture employees with leadership skills and to prepare them for the future.
Knowing who those employees are and what are their strengths and weaknesses enables decision-makers to develop a career plan for those employees.
Additionally, this structured approach allows more room for improvement because, during that period, formal and informal training can be consistently activated.
For example, mentoring is a great informal training method that can prepare employees with leadership potential by providing guidance, fostering professional growth, and offering organizational insights that help them develop the skills needed for future leadership roles and highlights the succession planning importance.
Promotes knowledge transfer in organizations
Senior roles require not only skills and competencies but also a deeper understanding of the role’s nuances.
This highlights why succession planning is strategically important because establishing a relationship between the senior employee with their successor ensures that organization-wide knowledge and insights are preserved and passed on.
Such information can’t always be documented, so transferring knowledge directly from the experienced employee supports overall organizational success.
An opportunity for diversity and inclusion practices
DE&I practices have been on the rise to create a more equitable and representative workforce, and this extends to leadership structures.
The importance of succession planning is evident in its role in intentionally identifying and developing talent from diverse backgrounds, and it’s fair to promote this approach since senior and managerial roles are still predominantly occupied by a narrow demographic.
According to McKinsey’s Women in the Workplace 2023 report, women hold only 28% of C-suite positions, and women of color make up just 5% of those roles. This data highlights the continued underrepresentation of diverse groups in senior leadership positions.
Cuts down on hiring expenses
We discussed that the importance of succession planning is clear in how it supports continuity and utilizes internal sources for future leaders, and this directly affects an organization’s costs for key roles.
External hires are more costly in terms of time and expenses, and when there’s an urgent need to fill a position, it can slow down the entire process.
Succession planning typically takes 12 to 36 months to prepare. The earlier you implement your plan, the sooner you will be ready for emergencies and engaged in future-proofing businesses with succession plans.
There are multiple resources available to help craft succession planning, like our succession planning templates and University of Washington Human Resources’ toolkit to get you started.
Benefits of Succession Planning
Succession planning is a long-term investment in preparing employees for future roles while ensuring continuous employee development and knowledge transfer in organizations.
The previous section on the strategic importance of succession planning hinted at these benefits, but let’s explore benefits of succession planning in detail.
Building a leadership pipeline & avoiding power vacuums
A power vacuum occurs when a key leadership position becomes vacant and there is no immediate or clear successor to fill the role. This can lead to poor decision-making, such as hiring someone who may not be the best fit for the position. Such missteps can harm the leadership transition, and organization’s success and stability.
On the other hand, one of the benefits of creating a succession plan for organizations is having employees who are already being trained for key positions.
One of the key reasons succession planning is essential that, even if a leadership change happens suddenly and the successor isn’t fully ready to take over, they are still equipped to handle a smooth transition and adaptation.
The preparation helps minimize disruption and ensures continuity despite unforeseen circumstances.
Improving talent retention and engagement
People no longer seek positions only for monetization options as they once did. Now, the meaning of work extends beyond that, and the relationship between organizations and employees has become more reciprocal.
Thus, retaining talent and increasing employee engagement create a competitive environment for organizations.
In this context, the importance of succession planning is that it provides a clear roadmap for employees, helping them envision a progressive future within their organizations. Career pathing for key roles contributes to reducing employee turnover with succession planning.
Supporting diversity, equity, and inclusion
Succession planning, when approached with a focus on DE&I practices, ensures that leadership positions are filled by individuals representing a broad range of perspectives.
Supporting this, McKinsey’s research, Diversity wins: How inclusion matters, reveals that companies with over 30 percent women in executive roles tend to outperform those with fewer women in leadership.
Specifically, organizations with higher gender diversity at the executive level show a 48 percent higher likelihood of outperforming their less diverse counterparts.
Integrating DE&I into succession planning fosters a more inclusive workplace and drives substantial improvements in organizational performance, making it a compelling reason why succession planning is important.
Mitigating Risks and Preparing for Emergencies
Let’s avoid clichés, but it’s worth noting that tomorrow is never guaranteed, and not all events can be anticipated. That’s why having a succession plan is vital for mitigating risks and preparing for emergencies.
The importance of succession planning in HRM is being able to handle the unexpected with confidence.
For example, consider the scenario where a senior leader unexpectedly departs. Without a succession plan, this could create a leadership vacuum, causing confusion and slowing down decision-making.
Succession planning isn’t just about filling gaps; it’s about future-proofing your organization. It helps you stay agile, manage risks, and teach how to avoid disruptions with succession planning.
The Cost of Not Having a Succession Plan
Overlooking the importance of succession planning might seem like a minor oversight, but the repercussions can be far-reaching.
Here are a few key risks that come with not having a succession plan:
Negative impact on reputation
A lack of clear leadership or prolonged vacancies in key roles can create a perception of instability or disorganization, which may deter potential clients, customers, or future employees from engaging with the organization.
Loss of organizational knowledge
Without a succession plan, there is a risk of losing organizational knowledge when experienced employees leave or retire.
The loss of knowledge can result in a gap that may take time and resources to fill. The importance of succession planning is clear: without it, the impact can be much more harmful to your organization.
Increase in recruitment and training costs
Not having a succession plan creates a high dependency on external sources, which can lead to delays and higher costs.
Relying on external hires to fill key roles often requires more resources, as these new employees may need more time to adapt and align with the organization’s values and culture.
The importance of succession planning especially weighs in during situations like these, where reliance on external hires leads to delays, higher costs, and missed opportunities for internal talent development.
Real-world examples of companies facing difficulties due to poor succession planning
This is where things get real about the importance of succession planning: Yahoo! and HP were once among the most popular and successful companies, but their failure in succession planning came with a heavy price.
HP’s journey illustrates why succession planning is essential for leadership continuity.
Between 2005 and 2019, HP saw a series of external hires for its CEO position, each leadership transition bringing a distinct strategic vision and different professional backgrounds.
The first CEO, who was brought in from outside, was dismissed due to behavioral misconduct.
Their successor served only a year before resigning after a significant misstep caused distress within the company.
When the final CEO took over, they managed to reverse some of the damage, but despite efforts to refocus, the effects of previous leadership changes and market pressures continued to impact HP’s performance.
Frequent changes in leadership, particularly with external hires who lack a deep understanding of the company’s culture and operations, can disrupt strategy execution and undermine organizational effectiveness.
HP’s difficulty in understanding the importance of succession planning is a good example from which to learn important lessons.
Fun fact: Enrique Lores, the current CEO of HP since 2019, has been with the company for over 30 years.
Yahoo! was struggling when Marissa Mayer became CEO in 2012, hired with high hopes due to her successful tenure at Google.
Despite high expectations, Mayer’s achievements at Google didn’t translate to success at Yahoo! due to incompatibility between her strategies and Yahoo!’s needs.
Mayer’s attempts to shift Yahoo!’s culture toward a more aggressive growth and innovation-oriented approach created friction. Some employees struggled with the rapid changes and the new direction, leading to a lack of cohesion and alignment within the organization.
The company experienced high turnover rates during Mayer’s tenure. Many long-term employees left, and there was a perception of instability and constant change, which affected morale and productivity.
During hard times, it’s understandable to bring in a high-profile leader with a track record of success. No one can guarantee that succession planning would have completely altered Yahoo!’s trajectory, but the importance of succession planning in aligning leadership with the company’s needs and culture could have mitigated some of the challenges.
How to Implement an Effective Succession Plan
Identify key roles in your organization: The first step in succession planning is to identify key roles, including leadership and specialized positions that contribute to long-term organizational success.
Assess and identify potential internal candidates: Evaluate current employees to spot those with the potential to step into key roles in the future. The 9-box grid template is an excellent tool for succession planning process.
Develop tailored training and development programs: Implement employee development plans to prepare these internal candidates for advancement and leadership roles.
Review and adjust your succession planning process: Continuously assess and update your succession planning strategy to ensure it remains relevant and aligns with your organization’s evolving needs.
Check out our ultimate succession planning guide for all the details you need!
To wrap up, the importance of succession planning is not just about filling roles; it’s about securing the future of your organization.
The real importance of succession planning is its ability to nurture talent, develop leadership, and keep your organization agile and resilient.
