Building the leadership of the future
Our experience shows leading companies are focused on identifying and building the leadership capabilities for the future and using succession planning processes to create a pipeline of future leaders. Those organisations who do not have a robust succession planning process run the risk of not having a sustainable pipeline of leaders to take the organisation into the future, potentially hindering their ability to execute on the business objectives.
A common starting point has been for organisations to identify their key leadership positions and shortlist relevant successors who may be ready now or at some point in the future for progression. Accordingly, metrics such as ‘key positions covered’ (%) and ‘succession pipeline depth’ (X:1) help quantify the level to which each key position has at least one identified successor and the related volume of coverage.
Research by PwC Saratoga into talent and succession practices, however, across large FTSE 100 and multinational companies, raises questions over the quality of the succession pipeline and effectiveness of the process. Based on survey data, organisations at the upper quartile report greater than two successors identified for each key position. However, when vacancies arose only an average of 40% were filled by successors. These findings indicate when it came to the crunch in greater than 50% of cases key positions were filled by an internal candidate not on a succession list or through external sources.
Maintaining the right balance between internal versus external hires into senior leadership roles is also an area being increasingly questioned. Evidence shows, on average, a ratio of 3:1 between internal versus external hires. However, the appropriate ratio will depend on the organisational context and direction and the level of desire to bring new leadership styles and innovation into the company.
When viewed alongside demographic trends (e.g. the growing proportion of retirements pending for senior leaders) and the increasingly fluctuating market environments there is no doubt that companies who have their finger on the pulse in this area are creating a competitive edge for moving their organisations into the future.