Last year Fortune magazine published a thought-provoking article stating that a record number of top leaders were heading for the exit, just as their companies faced an increasingly ambiguous future.
There are many reasons for this, but a quick look at the statistics suggests that 10,000 Baby Boomers, most of whom are occupying managerial positions, reach the mandatory retirement age of 65 every day.
It is unfortunate, and inevitable, that a significant number of top leaders are retiring each year due to age-related factors. This means that the vast majority of businesses, even long-standing, successful ones, are facing a critical juncture. Over two-thirds of small business owners plan to retire in the next two years.
Succession planning has always been a critical component of organisational success, especially at the executive level. If done poorly, it puts the organisation on a certain road to excessive turnover, value destruction and negative impacts on organisational culture. It is on the minds of boards of directors, incumbent leaders and those looking to step up.
However, today’s uncertainty means there are more challenges and pitfalls than ever before. I believe that to avoid these pitfalls, organisations must adopt a holistic, proactive approach to talent development and succession planning.
Is it such a big deal?
Yes, it can impact any organisation in all manner of nasty ways. On one level we often see a decline in stock price and shareholder value due to a lack of confidence in leadership’s ability to manage risk and execute strategy. Perhaps more importantly for sustainability considerations, it can lead to confusion, decreased productivity and missed opportunities.
Research by the University of Southern California found that between 12% and 50% of outside hires and between 9% and 20% of inside promotions in the C-suite resulted in failures. The same research discovered the market value wiped out by badly managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion annually. To avoid these vacuums in leadership and loss of value, I believe Thai organisations need to take a holistic approach to succession planning to mitigate risks and ensure long-term success.
A holistic approach to succession planning involves nurturing talent, ensuring leadership continuity and mitigating risks. This approach focuses on identifying high-potential leaders, developing critical capabilities and closing capability gaps within the organisation. By doing so, organisations can create a robust pipeline of talent ready to fill important roles in the future, minimising transition risks and ensuring continuous growth. To do this there are a number of things an organisation must have in place:
A clear picture of what a successful future leader needs to look like: Organisations must identify the skills and competencies required for future success and align them with their business priorities. This ensures that the right talent framework is in place to support the organisation’s growth.
A good plan to develop the required critical capabilities quickly: Focus on developing the critical capabilities needed for future success. This involves identifying high-potential leaders and providing them with the training and development opportunities they need to succeed.
A team-level plan to close capability gaps: I see organisations identify shopping lists of capabilities they need to develop in their key people. This thoroughness is admirable but, in my experience, unrealistic. There just is not enough time these days, and many of the capabilities will be outdated very soon. I always advise leaders to focus on the two or three most important capabilities.
Instead, organisations must identify and close capability gaps within their leadership teams. This involves aligning development focus with each individual’s unique context and providing targeted growth plans, to ensure all the capabilities the organisation needs are in place in someone at the top.
Plan for the next generation now: I believe Thai organisations should focus on developing future leadership talent two or three levels deep. If not, you are delaying the inevitable and kicking the problem down the road. This also needs to be looked at holistically and involves providing diverse development strategies, including coaching and mentorship, training programmes and exposure to cross-functional roles.
A holistic approach at this level means the required development is not going to happen in a classroom. Yes, there are some very good programmes available to develop leaders at this level, but at best they are just part of the solution.
DDI international’s Global Leadership Focus found that 48% of leaders at these levels preferred coaching, for example. It really does require a combination of careful assessment, expert support, learning by doing and some formal learning to make it work.
Approaching this with a holistic succession planning approach provides continuity in leadership, retention of institutional knowledge, increased employee morale and engagement, and ultimately with all things considered, improved financial performance. By investing in future leaders now, you are taking your best chance to ensure long-term success and sustainability.
Arinya Talerngsri is Chief Capability Officer, Managing Director and Founder at SEAC — Southeast Asia’s Lifelong Learning Centre. She is fascinated by the challenge of transforming education for all to create better prospects for Thais and people everywhere. Reach her email at arinya_t@seasiacenter.com or https://www.linkedin.com/in/arinya-talerngsri-53b81aa