Poor succession planning is costing businesses dearly. Among S&P 1500 companies alone, inadequate leadership pipelines and succession practices destroy nearly £1 trillion in value annually.
These costs become evident in various ways:
1. Overall underperformance when organisations hire unsuitable external CEOs
2. Loss of intellectual capital when C-suite executives depart
3. Reduced or slow performance from inadequately prepared internal successors.
As the next four years will present a rapidly evolving business landscape globally, the ability to maintain strong leadership continuity has never been more critical.
There are similarly concerning findings around succession planning in British businesses. The Azets Barometer January 2024 survey, which gathered feedback from organisations across the UK, Ireland and the Nordics, revealed that fewer than one in ten UK businesses have fully integrated succession planning into their strategy. 58% of businesses feel they have considered succession in their strategic planning, and almost a third scored 8 or above out of 10 when asked about their focus on succession planning. However, only 9% have fully integrated plans. Perhaps most worryingly, 6% have given it no thought whatsoever.
Market Dominance Opportunities
This gap between recognition and implementation suggests a significant opportunity for strategic-thinking organisations to gain competitive advantage through better succession practices.
The value of effective succession planning extends far beyond simply maintaining a steady pipeline of leaders. Research shows that at least 30% of newly hired executives fail in their first 18 months, primarily due to poor cultural fit. However, organisations that implement robust succession planning report numerous benefits:
- a more diverse leadership portfolio, creating greater cultural diversity and higher recognition of potential business growth areas
- higher-quality promotion/hire decisions based on objective data
- enhanced career development opportunities that drive engagement and retention of key talent
- stronger organisational culture through the advancement of leaders who embody company values.
In essence, well-executed succession planning creates a future-proofed workforce which is better prepared to thrive in dynamic conditions, like those we are currently experiencing. This delivers greater organisational stability and resilience—factors that breed market confidence and drive shareholder value.
Roadblocks to Good Succession Planning
This is undeniably a long-term discipline in a short-term world, where leaders are typically rewarded based on immediate accomplishments.
- In far too many organisations, the first time CEO succession is discussed is when a transition is imminent.
- The process can be politically sensitive, with some viewing succession discussions as a vote of no confidence in current leadership. Current CEOs can actively impede good succession planning, believing that they will ‘manage themselves out of a job’.
- Accountability often remains unclear, with confusion about whether HR or C suite should drive the process. Without ultimate accountability, succession planning can remain a theoretical tick-list activity, rather than a practical, actionable imperative.
- Great data can be ignored, in favour of subjective decision-making around factors such as likability, tenure or ‘confidence’. In other words, months of leadership assessment can be derailed by one board level ‘political’ conversation.
Doing Succession Planning Right – and Doing It Now
Systematic approaches can reduce the roadblocks and create buy-in, not for an individual succession, but for a robust framework that can cascade through the organisation. There are five essential steps to effective succession planning.
- Identify Critical Roles
– Evaluate positions based on business impact, not job title or traditional organisational understanding
– Consider difficulty of replacement
– Include a mix of senior leaders and key individual contributors - Define Future Leadership Requirements
– Establish the 5-7 core capabilities needed for each role
– Consider how roles may evolve – scenario building can be useful here
– Factor in any future business challenges that can be foreseen - Assess Current Talent Pool
– Evaluate potential successors objectively – outside support can be useful
– Use data-driven assessment tools and share them throughout the organisation to build confidence in decisions made
– Consider both technical and personal leadership capabilities - Create Development Plans
– Design specific growth opportunities
– Include stretch assignments for potential leaders
– Provide mentorship and coaching for internal talent - Review and Adjust Regularly
– Set clear timelines for review – and assign accountability within the business
– Monitor progress of potential successors; reevaluate regularly and against agreed data points
– Update plans based on business changes.
When implementing these steps, organisations must focus on identifying truly critical roles by considering their impact on current and future business strategy. It’s essential to pressure-test assumptions about which positions are genuinely critical – familiarity can be the enemy of progress. For example, a specific management role may seem critical because the incumbent manager has acquired a wide range of responsibilities over time, but a vacancy might offer the chance to restructure and redistribute these responsibilities more effectively.
The attributes required for future leaders must be sharply defined. Leadership isn’t about achieving consensus but rather alignment. While it doesn’t require popularity, it does demand engagement. Leaders must possess the temperament to manage these polarities and achieve balance, along with a balance of confidence and humility, self-determination and openness to external views. As General Douglas MacArthur noted, “The world is in a constant conspiracy against the brave. It’s the age-old struggle: the roar of the crowd on the one side, and the voice of your conscience on the other.”
Great succession planning also requires organisations to be clear about their goals, whether they’re improving business resilience, eliminating bias, or transforming the organisation with new capabilities. These goals should drive the preparation of successors who can readily adapt to challenges such as geopolitical uncertainty, unplanned labour shortages, social disruption, and financial shocks. Additionally, succession planning must align with broader organisational initiatives around diversity, equity and inclusion (DEI) and environmental, social and governance (ESG) objectives – both of which are currently highly politicised issues internationally.
Now or Never – Invest or Fail
The path to effective succession planning may be challenging, but the alternative—continuing to destroy value through poor leadership transitions—is far more costly. Organisations that commit to developing strong succession planning frameworks will find themselves better positioned to navigate future challenges while building stronger, more resilient leadership teams. The time to act is now, before your next leadership transition becomes imminent.
