5 Reasons why Succession Planning is a Critical Task for Companies

Did you know that a study found that 50% of companies with revenue greater than $500 million don’t have a proper CEO succession plan in place? 
This statistic is shocking, considering that succession plans are integral to maintaining and growing a healthy organisation. Succession planning is a strategic approach to ensure that talent and relevant skills will be available when needed and essential knowledge and expertise will be retained when employees in critical positions leave the company. Here are 5 reasons why succession planning is a critical task for companies:

Reason 1: Allows the organisation to assess its talent needs
With today’s global competitive economy fraught with uncertainties, it may not be easy to define business needs. Having a succession planning scheme in place leads to a formal evaluation of the employees, their job roles and competencies. When companies have a better understanding of the various job roles and the skills and abilities required, it benefits them. The human resources department and management team will then be able to match the attributes of employees to the job position they are most suited for. This means that employees are placed in a “best-fit” position rather than an open position. When people feel that their skills are put to good use at work, they derive greater satisfaction. A survey has shown that 13% of employees say they love their job and are not looking for other opportunities. Mismatching people to jobs can severely affect retention rates. When an organisation is able to provide ideal employee profiles linked to their job roles, it creates a solid foundation for a talent matching scheme in place.

 Reason 2: Allows leaders to identify people who can fill up critical job functions

Succession planning encourages leaders to identify and determine a list of people who are available to fill critical job roles at present and in the future. Many organisations spend time fixing “holes”, that is, trying to fill vacancies of people who have left the company, rather than building up a talent pool in times of need. The truth is that high turnover rates can be huge costs for the company. According to research, the average cost to replace an $8 per hour employee is about $5, 500, not including benefits. With these statistics in mind, it would then make sense to retain employees rather than let employees leave. A good succession plan provides management with the relevant information on high potential employees and helps to identify competency gaps which will highlight employee development opportunities. When done correctly, evaluations of competency gaps can help to uncover transferable and valuable skills of employees who can rise up to the occasion should the need arises. 


Reason 3: Clearer view of career development paths

Succession planning efforts are often part of the organisation’s strategic and growth plans. In assessing organisation needs and planning for successors, various career paths for development are also created in the process. Charting career paths gives employees a better perspective of where they currently fit in the company and where they can go in the future if they acquire higher level competencies. When career paths are clarified, managers can better deploy resources such as coaching or on-the-job training to assist their employees in scaling the various advancement paths. This gives credibility and support to the succession planning schemes. Leaders should also define clearly what they mean by key personnel, high potential employees and top talent in the organisation. If employees struggle to define what each of the terms mean, they will have difficulties choosing the right career paths, resulting in lost talent.
Reason 4: Prompts a higher return-on-investment from employees
Most organisations face threats and changes due to economic uncertainties. A well-planned succession scheme prepares employees for challenges ahead, as companies will be able to deploy resources more efficiently. Companies with leadership development programmes in place has shown dramatically better fiscal outcomes. One such statistic revealed an average increase of 16.3% in cash flow, valued at $9,673 per employee. In addition, a proper succession planning scheme defines clearly the incentives of the various career pathways. This clarification can help to offset salary expenditures by boosting productivity as employees try to move up the career ladders.

Reason 5: Leads to appropriate promotion and pre-selection of people to meet organisational goals


The purpose of having a succession planning scheme in place is to identify, develop and place employees into critical job roles to meet present and future business needs. When there is a clear and attainable job promotion process, it serves as a form of motivation for employees. The promotion and career advancement tracks are a direct result of having a succession plan at work. Promotions not only help in identifying talent in meeting business needs, but provides a means of rewarding and monitoring contributions of employees. Hiring internally is not only cheaper and quicker, but works out better than outside hires. According to a US study, external hires are 61% more likely to be fired and 21% more likely to resign. Promoting from within the organisation also means that you retain good performers and shows the value of having clear and well-defined career tracks. Source:


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