• Apr 18 2024

Why Leadership Development Is the Most Important Aspect of Succession Planning

As global business evolves at breakneck speeds, inevitable leadership transitions can create disruptive vacuums. When a C-Suite leader moves on to another opportunity or retires, it can stall an organization’s momentum and impact its financial performance. Harvard Business Review (HBR) highlights that S&P 1500 companies stand to lose nearly $1 trillion in market value annually due to poorly handled CEO transitions.

Leadership development for succession planning goes beyond emergency protocol amid a sudden vacancy. It should be a proactive, continuous effort embedded within the organization’s strategic framework.

When agile and forward-thinking leadership development is at the center of your succession plan, your organization can thrive. Here are some of the most important reasons to make leadership development a top priority.

Avoid the high cost of hiring

When organizations fill leadership roles by hiring external candidates, they often pay a premium. The average cost of hiring a new employee hovers around $4,700, according to the Society for Human Resource Management (SHRM).

But this figure only scratches the surface. Employers often find the true cost of hiring is higher — three to four times the position’s salary. Given that the median annual salary for chief executives in the United States stood at nearly $190,000 as of May 2022, companies could be spending upwards of half a million dollars to appoint a new executive.

Promoting from within avoids these high costs while leveraging investments already made in employee development. Beyond the cost savings, organizations prioritizing their internal talent demonstrate a commitment to their workforce, ultimately fostering a more engaged, motivated, and loyal team.

Build a more resilient talent pipeline

Having a resilient talent pipeline not only prepares your team for future disruptions, but also promotes a culture of growth, learning, and adaptability. Companies need to be thinking about how to expand their succession strategies to wider pools of leaders to shore up their talent pipeline and ensure the entire organization is future-ready.

Resilience is increasingly a priority for organizations across the board: More than 60% of respondents to McKinsey’s State of Organizations 2023 report believe it will become even more important in the future. Leadership development for succession planning is an ongoing strategy that can bolster resiliency. It prepares a pool of capable successors to assume leadership roles when the time comes.

Retain your best talent

Companies that consistently look outside for leaders imply a ceiling on internal career growth. This can result in high turnover among senior executives. According to HBR, external CEOs are 84% more likely to leave the organization within their first three years than internal promotions.

A more prudent strategy is to look for talent within. High performers (HiPos) are often drawn to opportunities for advancement. Embracing a corporate ethos of continuous learning and development can enrich your team and boost retention. It also demonstrates a commitment to employees’ growth and continued success.

Preserve institutional knowledge

Institutional knowledge — from tangible records and databases to nuanced, experiential wisdom like a seasoned sales executive’s client relationships — is vital for organizational success. Its loss can hamper strategic and operational efficiency.

Opting for external hires in senior positions can drain intellectual capital, which impacts an organization’s bottom line: According to the HBR report, S&P 1500 companies experienced a 0.7 percentage-point dip in total shareholder returns due to a decrease in intellectual capital — a loss of $255 billion annually.

Alternatively, a robust framework for preserving essential information and cultivating leadership from within can safeguard invaluable institutional knowledge and help set organizations up for sustained success.

Foster a culture of learning

SHRM reveals that 68% of employees would commit their entire careers to a company that invests in their upskilling — and 65% would do the same for one that offers reskilling initiatives. Despite this, 40% of the workforce feels stalled in their career progression. The call to address developmental gaps is loud and clear, with 90% of leaders in the McKinsey report acknowledging the urgent need for capability-building.

Through regular talent reviews and by establishing a learning-centric atmosphere, businesses not only nurture emerging leaders, but also stand to boost overall employee engagement and satisfaction.

A quick guide to developing successors

Leadership development for succession planning safeguards your company’s future by ensuring your team can meet tomorrow’s challenges head-on. Here are some quick tips to help you get started:

Get executive buy-in: Engage senior leadership and the board to identify key organizational challenges and opportunities for the next five years.

Perform an audit: Identify all senior positions that need succession plans, including the CEO, senior leadership team, and key strategic positions.

Determine potential impacts: Assess each position’s impact on the organization and the risk of its vacancy in the next three years. Then, identify the core capabilities required for each role.

Start your internal talent search: Identify potential successors for each role using rigorous criteria. Use objective, systematic assessments to prevent bias from creeping into the selection process.

Create a framework for success: Select the development programs and coaching experiences that target core competencies for each successor. Ensure the development path is aligned with both your succession-planning goals and the unique development goals and learning needs of each candidate.

Develop HiPo leaders: Maintain a pool of capable potential leaders and improve leadership effectiveness at every level by offering continuous development of HiPo employees. Ensure long-term success: Monitor the progress of your successors. Set benchmarks for successors to meet development goals on a specified timeline, and measure their progress with quantitative and qualitative data. Gather feedback from stakeholders to continuously improve the program.

Prepare your future leaders

Succession planning is a journey, not a one-off. It’s about fostering a resilient culture of continuous learning at every tier. It involves leveraging internal talent development to avoid the steep costs associated with external hires, encompassing onboarding, training, and the time for a new executive hire to make an impact — which Gartner notes is 100 days. Another important goal that leadership development for succession planning can help achieve is maintaining vital institutional knowledge, a major competitive advantage.

Ready to shape a future where your organization leads with confidence? Discover how ExecOnline can support scalable development for succession planning, enabling your leaders to excel in an ever-changing landscape.


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