WellPoint, an Indianapolis-based firm with more than 42,000 employees, is one of many companies that are making succession planning part of their company’s strategic plan for growth and talent development. Formal succession planning has grown in popularity as firms transform executive replacement plans that were typically done on paper into more comprehensive leadership development programs. Some are even using software programs to help them in their talent development and planning efforts.
According to a survey of 20 CEOs at large companies conducted by the authors of a recent Harvard Business Review article, almost half had no succession plans for their vice presidents on up. The problem is that board members and CEOs tend to avoid the subject since CEOs don’t generally like to think of someone else doing their job. Yet, many companies are now making this a priority.
For years GE and IBM were the best examples of leadership and talent development in action. Now, other companies are following their example. Energy utility Southern Co. has enhanced its succession planning by grooming high potential internal talent. Pep Boys has invested in a software program that will help standardize reviews and share talent information across the company. The software cost $180,000 in its first year. However, the cost will drop annually, and Pep Boys management expects the program to pay for itself in the money they save by grooming and promoting internal hires rather than going outside the company for talent.
The cost of hiring outside candidates combined with increased turnover in American companies’ highest positions is fuelling this increased interest in looking inward for talent. A recent study from Booz Allen Hamilton shows that CEOs appointed from the inside tend to outperform those brought in from outside. Also, as Baby Boomers get close to retirement age, there will be a sudden need for talent to fill the positions they vacate.
Company boards should take strategic planning for future leadership seriously. With software programs, talent recognition can extend throughout large organizations. WellPoint’s system asks managers at the director level and above to enter educational data and their career aspirations into the system themselves. Supervisors are then asked to assess their direct reports’ potential and approve their career development plans. The company then holds what it calls “talent calibration sessions” to focus on planning for departures as well as leadership development. The company claims to have saved as much as $1 million in one year by using its talent system to internally fill two top-level positions and then to “back fill” the positions vacated by the promoted employees with other internal candidates.
Succession planning and talent development will become even more critical to companies’ strategic plans in the coming years as business conditions become more tumultuous and the labor market tightens up. Done well, this type of planning can save money, further a company’s strategic goals, and build a firm’s reputation as a great place to work.