The organizations that are actively developing their successors will be the organizations that will prevail in the future.

Are you doing everything possible to build a sustainable and strong pipeline of future leaders? When it is time to hand over the baton, do you have a cadre of “ready now” successors who will effectively lead your organization? 

In recent years, we’ve witnessed prominent examples of leadership succession failure, the collapse of renowned companies due to leadership gaps, and the downfall of promising CEOs. This turbulence at the top highlights an ever-increasing struggle that companies have in continuously cultivating future leaders.

Further, though the graying of the workforce isn’t a new trend, the impending retirement of mature workers makes it more essential than ever for companies to put future-focused strategies in place to grow existing talent to meet their needs. Pew research predicts that over the next two decades, 10,000 baby boomers will turn 65 every day. Companies unprepared for this cresting demographic tidal wave will suffer severe talent deficits.

What does great succession management look like?

Succession planning practices have nearly become the norm for mitigating talent risk.  According to Aon Hewitt research, 100 percent of global top companies and 90 percent of all other companies have a formal succession planning process. Yet only 64 percent of all other companies, compared to 92 percent of top companies, feel they have a sufficient CEO pipeline for future success. This means that while most companies have succession planning practices in place, not all are effectively translating these into sustainable leadership pipelines.

What are top companies doing differently that enables them to utilize succession planning in order to create a strong leadership bench?

Typically, companies rely on traditional succession planning, which focuses on compiling a list of possible replacements for vacant positions. In contrast, best-in-class organizations elevate succession planning to succession management, where they identify and develop high-potential leaders capable of executing corporate strategy. When done right, succession management involves two major activities: tracking pivotal roles, and proactively sourcing and developing a strong talent pool of future leaders.

Best-in-class organizations focus on an integrated process aimed at enhancing leaders’ current and future capabilities. These companies have formal strategies for identifying, assessing, and developing leaders throughout the enterprise. They achieve a clear understanding of the critical roles and current skill-set levels of their potential leaders, as well as what needs to be done to prepare leaders to step into those key roles.   

Stakes are high for getting succession right

Companies that proactively develop the next generation of leaders will have a distinct competitive advantage.

As the business landscape changes, companies must recognize that effective leadership is the interplay between several aspects of performance. Therefore, they need to think beyond traditional competencies and experience when considering a candidate’s readiness.

For instance, as companies become increasingly global and interconnected, the quality of business relationships and network is a factor that will hold much more weight. From a succession management perspective companies should consider how well-socialized a potential successor is, and what key relationships he or she may need to build, prior to appointment in a critical position.

Best-in-class companies are critically attuned to the enormous benefits linked to succession management. According to Aon Hewitt, succession planning is a core leadership endeavor for 100 percent of top company CEOs and senior managers, as well as 92 percent of boards of directors (compared to just over 80 percent and 60 percent respectively for all other organizations).

Top companies realize the importance of being actively involved with the next generation of talent, with the majority of CEOs dedicating, on average, 31 percent to 50 percent of their time to leadership activities (e.g., succession planning, coaching and talent reviews). Leading organizations realize that their best opportunity to combat the chronic leadership shortage is to strengthen their in-house talent bench for key executive positions — and to begin the process now.

Setting up a sustainable succession management system

To build a high-impact succession management system, companies must adopt a structured, proactive, and well-defined process that spans organizational levels. It is additionally important for the system to be strategically aligned with business objectives. Organizations can position succession management as a priority by tying meaningful accountabilities to the identification and development of sustainable talent pipelines.

Alignment: Succession management is a fundamental strategic business-planning tool that should focus on both current and future company needs. The ultimate goal is to develop a pool of highly talented individuals to meet the organization’s overarching long-term strategy.

Accessibility: Use a simple, transparent, flexible, and robust succession management process that eliminates administrative hassles for the end user.

Assessment: Apply strategic assessment to objectively identify and stock pools of high-potentials to fill targeted levels of management. Identify those linchpin positions — jobs that are vital for long-term performance and health of the business — and establish pools of ready-now and ready-soon successors.

Advancement: Insist on long-term bench development and advancement as a strategic priority and provide a range of targeted developmental experiences for rising stars. Use assessment results to guide implementation of personalized coaching, stretch assignments, and other development plans to address skill deficiencies. Strive to provide enterprise-wide exposure for your talent pool.

3 priorities to drive best-in-class succession management

To achieve long-term value from a succession management process, companies must ensure that the process is effective, reliable, and has stakeholder buy-in. Our research highlights three priorities to drive best-in-class succession management execution:

• Gain commitment from the top

• Appoint multiple owners across the organization

• Measure progress regularly

A best-in-class succession management system is a coherent and systematic effort to ensure leadership continuity in key positions, accelerate development, and improve retention of high-potential individuals. This type of system can facilitate leadership readiness at every level, consequently enhancing the long-term stability and success of the organization.

Authors Miriam Nelson, Jessie Leisten, and Yael Oelbaum work with Aon Hewitt’s performance, reward and talent business.