William J. Rothwell - Effective Succession Planning (2005)(3-e)(en)

production scheduling in the small plant, as well as overseeing the assembly line. The production manager, Mary Rawlings, does not know how the plant will function in the absence of this key employee, who carries in her head essential, and proprietary, knowledge of production operations. She is sure that production will be lost today because Georgina has no trained backup.

Vignette 4

Marietta Diaz was not promoted to supervisor. She is convinced that she is a victim of racial and sexual discrimination. Her manager, Wilson Smith, assures her that that is not the case. As he explains to her, ‘‘You just don’t have the skills and experience to do the work. Gordon Hague, who was promoted, already possesses those skills. The decision was based strictly on individual merit and supervisory job requirements.’’ But Marietta remains troubled. How, she wonders, could Gordon have acquired those skills in his previous nonsupervisory job?

Vignette 5

Morton Wile is about to retire as CEO of Multiplex Systems. For several years he has been grooming L. Carson Adams as his successor. Adams has held the posts of executive vice president and chief operating officer, and his performance has been exemplary in those positions. Wile has long been convinced that Adams will make an excellent CEO. But, as his retirement date approaches, Wile has recently been hearing questions about his choice. Several division vice presidents and members of the board of directors have asked him privately how wise it is to allow Adams to take over, since (it is whispered) he has long had a high-profile extramarital affair with his secretary and is rumored to be an alcoholic. How, they wonder, can he be chosen to assume the top leadership position when he carries such personal baggage? Wile is loathe to talk to Adams about these matters because he does not want to police anyone’s personal life. But he is sufficiently troubled to think about initiating an executive search for a CEO candidate from outside the company.

Vignette 6

Linda Childress is general manager of a large consumer products plant in the Midwest. She has helped her plant weather many storms. The first was a corpo- rate-sponsored voluntary early retirement program, which began eight years ago. In that program Linda lost her most experienced workers, and among its effects in the plant were costly work redistribution, retraining, retooling, and

automation. The second storm was a forced layoff that occurred five years ago. It was driven by fierce foreign competition in consumer products manufacture. The layoff cost Linda fully one-fourth of her most recently hired workers and many middle managers, professionals, and technical employees. It also led to a net loss of protected labor groups in the plant’s workforce to a level well below what had taken the company ten years of ambitious efforts to achieve. Other consequences were increasingly aggressive union action in the plant; isolated incidents of violence against management personnel by disgruntled workers; growing evidence of theft, pilferage, and employee sabotage; and skyrocketing absenteeism and turnover rates.

The third storm swept the plant on the heels of the layoff. Just three years ago corporate headquarters announced a company-wide Business Process Reengineering program. Its aims were to improve product quality and customer service, build worker involvement and empowerment, reduce scrap rates, and meet competition from abroad. While the goals were laudable, the program was greeted with skepticism because it was introduced so soon after the layoff. Many employees—and supervisors—voiced the opinion that ‘‘corporate headquarters is using Business Process Reengineering to clean up the mess they created by chopping heads first and asking questions about work reallocation later.’’ However, since job security is an issue of paramount importance to everyone at the plant, the external consultant sent by corporate headquarters to introduce Business Process Reengineering received grudging cooperation. But the Business Process Reengineering initiative has created side effects of its own. One is that executives, middle managers, and supervisors are uncertain about their roles and the results expected of them. Another is that employees, pressured to do better work with fewer resources, are complaining bitterly about compensation or other reward practices that they feel do not reflect their increased responsibilities, efforts, or productivity. And a fourth storm is brewing. Corporate executives, it is rumored, are considering moving all production facilities offshore to take advantage of reduced labor and employee health-care insurance costs. Many employees are worried that this is really not a rumor but is, instead, a fact.

Against this backdrop, Linda has noticed that it is becoming more difficult to find backups for hourly workers and ensure leadership continuity in the plant’s middle and top management ranks. Although the company has long conducted an annual ‘‘succession planning and management’’ ritual in which standardized forms, supplied by corporate headquarters, are sent out to managers by the plant’s human resources department, Linda cannot remember when the forms were actually used during a talent search. The major reason, Linda believes, is that managers and employees have rarely followed through on the Individual Development Plans (IDPs) established to prepare people for advancement opportunities.

Defining Succession Planning and Management

As the vignettes above illustrate, organizations need to plan for talent to assume key leadership positions or backup positions on a temporary or permanent basis. Real-world cases have figured prominently in the business press in recent years. (See Exhibits 1-1 and 1-2.)

Among the first writers to recognize that universal organizational need was Henri Fayol (1841–1925). Fayol’s classic fourteen points of management, first enunciated early in the twentieth century and still widely regarded today, indicate that management has a responsibility to ensure the ‘‘stability of tenure of personnel.’’1 If that need is ignored, Fayol believed, key positions would end up being filled by ill-prepared people.

Succession planning and management (SP&M) is the process that helps ensure the stability of the tenure of personnel. It is perhaps best understood as any effort designed to ensure the continued effective performance of an organization, division, department, or work group by making provision for the development, replacement, and strategic application of key people over time.

Succession planning has been defined as:

a means of identifying critical management positions, starting at the levels of project manager and supervisor and extending up to the highest position in the organization. Succession planning also describes management positions to provide maximum flexibility in lateral management moves and to ensure that as individuals achieve greater seniority, their management skills will broaden and become more generalized in relation to total organizational objectives rather than to purely departmental objectives.2

Succession planning should not stand alone. It should be paired with succession management, which assumes a more dynamic business environment. It recognizes the ramifications of the new employment contract, whereby corporations no longer (implicitly) assure anyone continued employment, even if he or she is doing a good job.3

An SP&M program is thus a deliberate and systematic effort by an organization to ensure leadership continuity in key positions, retain and develop intellectual and knowledge capital for the future, and encourage individual advancement. Systematic ‘‘succession planning occurs when an organization adapts specific procedures to insure the identification, development, and longterm retention of talented individuals.’’4

Succession planning and management need not be limited solely to man-

Exhibit 1-1. (continued)

Welch has said that the process was about ‘‘chemistry, blood, sweat, family, feelings’’ not simply mechanics, and what happened from 1994 onwards backs that up.

Getting to Know Candidates

Every candidate was tested for his ability to grow and Welch also wanted directors to get to know the leading candidates. Directors and candidates mixed socially, for example at the Augusta National Golf Club before the U.S. Masters tournament, and played golf together at GE’s headquarters in Fairfield, Connecticut. Welch also encouraged candidates to call directors directly, bypassing him, when they thought it would be useful.

More formally, regular board events provided the opportunity for hundreds of direc- tor-hours each year devoted to discussing potential successors.

A couple of years after the process began, Welch and the MDCC decided that committee members needed to know more about leading candidates. The committee spent a year or so visiting several GE businesses. It was a highly unusual practice in the corporate world and one smokescreen involved taking in more visits than were necessary for the succession process.

By December 1997, the field was down to eight. Gradually several men effectively dropped out of the running. When head of lighting, David Calhoun, left to run the Employers Reinsurance business within GE Capital, he was correctly viewed as an ex-candidate. Finally, it was down to three: McNerney, Nardelli and Immelt.

Welch continued to buck convention. At this point he might have brought the top contenders to jobs at GE headquarters where he and the board could have had them under intense scrutiny. But what he wanted to avoid was the ‘‘political and poisonous’’ atmosphere created 20 years earlier when he had been a contender at HQ himself. Then, as he jockeyed for pole position, he had at lunch to ‘‘sit across from the guys you were competing with.’’

McNerney, Nardelli and Immelt continued therefore, hundreds of miles apart, to run their own businesses.

If everyone at GE is to be believed, six years of discussion took place before a name was put forward as the proposed winner. Director Frank Rhodes, Professor Emeritus at Cornell University, was the first to break ranks. He opted for Immelt; other directors agreed and, though the announcement was four months away, it was clear which way the wind was blowing.

Skeptics Confounded

In late October, GE announced its biggest ever acquisition—Honeywell for $45 billion in stock. This delayed announcement of the succession but the skeptical view

Exhibit 1-2. The Big Mac Succession

Jim Cantalupo’s sudden death brought out the best in McDonald’s board. At his first annual meeting as chief executive, Jim Cantalupo faced an angry shareholder displaying photos of a filthy McDonald’s toilet and demanding action. ‘‘We are going to take care of it,’’ he pledged. And he did. His strategy of ending the rapid expansion of the world’s biggest fast-food company and refocusing it on providing better meals in cleaner restaurants with improved service was starting to produce encouraging results. Then, on April 19th, he suddenly died. The death of a leader at such a critical time can ruin a company. But, thanks not least to Mr. Cantalupo, it will probably not ruin McDonald’s.

Mr. Cantalupo was a McDonald’s veteran. He joined the company in 1974, as an accountant in its headquarters near Chicago. As head of international operations, he presided over much of the globalization of the Big Mac: McDonald’s now has more than 30,000 restaurants in 119 countries. Although promoted to president, he was passed over for the top job when Jack Greenberg was appointed chief executive in 1998.

Then McDonald’s began to stumble badly. Service levels came in for increasing criticism, sales began to fall and the company suffered its first quarterly loss. It also became embroiled in the debate about obesity and the role of fast food. McDonald’s was even sued by some parents for making their children fat. (Although this failed, a future lawsuit may yet succeed.) Mr. Greenberg put a recovery plan into action and vowed to stay on to execute it, only to be forced out by worried investors. The board turned to Mr. Cantalupo, who came out of retirement to take over as chairman and chief executive in January 2003.

Mr. Cantalupo, who was 60, died of a suspected heart attack at a huge convention in Orlando, Florida, for more than 12,000 employees, suppliers, owners, and operators of McDonald’s restaurants worldwide. It was the sort of big meet-the-troops event that the affable Mr. Cantalupo enjoyed.

Those members of the board already in Florida quickly assembled and others joined by phone. Within six hours, Charlie Bell, a 43-year-old Australian who had been appointed chief operating officer by Mr. Cantalupo and had been working closely with him, was made chief executive. Andrew McKenna, 74, the board’s presiding director and also the boss of Schwarz, which supplies McDonald’s with lots of packaging materials, was appointed non-executive chairman.

The speech that Mr. Cantalupo was due to give to welcome the delegates was later given by Mr. Bell, who joined the McDonald’s empire when, aged 15, he got a parttime job in an outlet in a suburb of Sydney. So he knows how to flip a burger. The delegates were clearly saddened, but they gave Mr. Bell, the first non-American to lead the company, a resounding reception. Mr. Cantalupo would have approved.

Like so many HR-related terms, ‘‘the phrase talent management is used loosely and often interchangeably across a wide array of terms such as succession planning, human capital management, resource planning, and employee performance management. Gather any group of HR professionals in a room and you can be sure to have a plethora of additional terms.’’8 Some organizational leaders associate talent management with efforts to devote special attention to managing the best-in-class talent of the organization—the upper 1 to 10 percent. Not limited to top-of-the-house planning, it may refer to investing money where the returns are likely to be greatest—that is, on high-performing or high-potential talent at any organizational level. Hence, efforts to develop talent that is strategically important for the organization’s future means the strategic development of talent.9

Succession Planning and Management and Human Capital

Management

Human capital management (HCM) theory is all about individuals and their economic value. Unfortunately, HCM has been (too broadly) interpreted to mean that individuals are calculating players who act out of self-interest only, that the only value of individuals is as economic commodities (and thus the saying that ‘‘people are our greatest assets’’), and that the social value of developing human resources resides only in summing the total value of individual development efforts.10 Like talent management, HCM is also a term in search of meaning. Indeed, ‘‘out of 49 organizations surveyed, just 11 said they attempted to measure human capital—and many of these confessed to being unsure what the term meant.’’11

But a key point about human capital management is that people are valuable for more than the labor they can produce. Human beings are enormously creative—a key thing that sets them apart from machines, gizmos, and gad- gets—and this ability to think creatively has economic value. Individuals, not computers, discover new ideas that can be turned to profit. As entrepreneurs, they found companies. They also discover new ways to serve customers, find new customers or markets for old products, and discover ways to improve work processes to increase productivity.

A key issue in HCM, then, is that creativity has value. So does the institutional memory that individuals carry in their heads. While more will be written about that later in this book, it is worth emphasizing at this point that succession planning can mean more than just finding warm bodies to fill vacancies. Additional issues should be considered—such as the value of institutional memory and creativity.

ASTD has published an important white paper on HCM that is worth reviewing, since it describes best practices in the area.12 The U.S. General Ac-