Build a Strong Succession Planning Strategy with these 5 No-Cost Solutions
A 19th century anecdotal experiment has it that if a frog is placed in boiling water, it will jump out. No kidding! But if it’s placed in cold water and then slowly heated, it won’t feel the danger and will be boiled. It’s a metaphor for the inability of people to be aware of or react to threat that builds gradually. The good news (especially for all frogs and frog-lovers) is that it’s a myth. Smart froggy jumps out at 25°C. But let’s go with the myth because it happens to many of us in real life.
The current oil price crash and economic downturn in Alberta is concealing a boiling frog. How? Well, let’s call it something less amphibian and use human resources language. We’re in a “talent paradox.” The paradox is that growing skilled labor shortages and skill mismatches are masked and temporarily lessened by the current downturn and layoffs. (Including 100,000 jobs lost in the energy industry alone (direct and indirect), according to the Canadian Association of Petroleum Producers).
It’s déjà vu all over again. In 2012, the Hon. Perrin Beatty, President and CEO of the Canadian Chamber of Commerce wrote, “2012 has been the tipping point for many Canadian businesses confronting skills and labour shortages. A critical issue that had been hidden by the (2008-9) recession is now fully apparent.” The Chamber’s research and report called “Canada’s Skills Crisis: What We Heard” illustrated how Canadian businesses had significant problems finding the workers they needed as the economy recovered from the last recession. Here is a compelling chart created by RBC Economics Research (after the last downturn and before this one) using Statistics Canada data that starkly forecasts the labour and skills shortage past 2030.
Even if you adjust the “Workers needed” line down to reflect workforce reductions, the trends are inevitable in the medium and long-term due to eight million aging and retiring Baby Boomers.
Right now, many Alberta businesses are slowing and shrinking. The oil patch is in desperate survival mode. Energy companies and others have fewer people, fewer projects and far less revenue. Many people have been let go, and there is a reduced focus on employee training and development. People left behind are doing more with less with fewer perks and even salary cuts. Many executives are just focused on the short term and have far less clarity about the long-term picture. Yet, while our anxious attention, like deer in the headlights, is on ensuring our companies survive the bust by cutting costs, trashing training and letting people go, the unstoppable demographic changes continue and the water gets hotter.
So what’s this got to do with succession planning? If you believe you will survive this even-lower-for-even-longer slump, succession planning is more important than ever before, in Alberta and worldwide. The inexorable aging of the Baby Boomer generation, already retiring in huge numbers (even if delayed for many) and a continuing shortage of both quantity and quality of people to replace them results in a severe shortage of technical skills and leadership. In fact, the current layoffs have worsened the situation by depleting bench strength at all levels necessary for survival in the short term perhaps, but at the expense of the medium to long term. Even with low oil prices, cancelled pipeline projects, the devalued Canadian dollar and massive downsizing in the energy sector, there is still an underlying skills and labour gap. To reduce our talent pipeline further, as the Canadian economy suffers, younger generations may depart (to the U.S., for example) to make a better living as they did during the last recession. The water is getting inevitably warmer for two main reasons: decreasing quantity and unavailable quality of workers.
The Quantity Challenge
Here’s some simple math: there are only half the number of Gen Xers to replace retiring Boomers! We need our Millennials to step up sooner to help fill the gaps, but they need the right skills for the job.
According to a 2015 Talent Management magazine article called “Filling a Leaky Pipeline”, about 61 per cent of organizations said they had too few candidates to fill their succession needs. After the last downturn and before this one, a Manpower Group report called “The Great Talent Shortage Awakening” noted a dramatic increase in companies who believe talent shortages would negatively impact their business. Under the reasonable assumption that the size of our workforce also needs to keep pace with population growth (including immigration), Canada simply cannot replace Boomers fast enough with the younger generations. Before this economic bust, Statistics Canada projected a labor force (quantity) shortage of 2.7 million by 2031 and a skills shortage (quality) of 4.2 million as shown on the RBC chart above.
The Quality Challenge
In Alberta and worldwide, there are labor shortages of many types of expertise from skilled trades to management. Skill requirements are swiftly changing. Existing workers may not have the new skills (such as technology) that employers need. There is also a mismatch of skills available with those needed in different industries in Alberta and across Canada including energy, manufacturing, finance and IT.
A 2014 Bersin by Deloitte’s Corporate Learning Factbook highlighted the growing shortage of skills in a rapidly changing and increasingly complex world. They described how organizations were increasing their training dollars to fill critical skills gaps. They noted, in particular, the growing demand for computer science, mathematics and engineering among others. The Western Canadian oil patch was struggling with a skills shortage in some areas before the recent boom turned into yet another bust. The 2014 Alberta Government “Occupational Demand and Supply Outlook” forecast critical shortages of petroleum engineering, geology and geophysics skills over the next 10 years. Similar shortages exist in many frontline and field worker roles. The shortage in the oil industry has temporarily abated, but Boomers continue to get older and the seismic demographic shifts continue.
Another component of the quality challenge is a growing “leadership crisis.” Many Boomers who are leaving the workforce are in management and executive positions. We need to develop tomorrow’s leaders, but there is also a leadership skills shortage. In their 2014 report, called “The Leadership Deficit”, the human capital management firm APQC described leadership skills deficiencies as “large and numerous”, and that the top leadership skills needed included teamwork, collaboration, strategic planning and listening. In their “State of Succession Management 2015” the Brandon Hall Group survey showed an astonishing 84 per cent of organizations said they were suffering from a lack of ready leaders.
If there is a underlying shortage of people to fill many roles and if there is a global technical and leadership skills shortage, then surely succession planning and its' soulmate, leadership development, need attention now, more than ever before. However, there are a couple of major obstacles to that notion – priorities and dollars.
Priorities and Dollars
Succession planning (and to a lesser extent, leadership development) in the past have been an undervalued process commonly trumped by operational and financial priorities. In Calgary, if you lose a key engineer or VP the common approach has been to simply recruit one from a company a few blocks away, so why bother with succession planning when you can buy a replacement any time?
Many organizations still believe this to be true, especially with so many removed from the workforce. So the challenge is to change a long-standing practice and to persuade executives to build rather than buy talented successors. This is especially difficult right now when energy industry executives, in particular, are doing all they can just to hang on and the short term pain has all their attention. Yet so much data points to solving the insidious and growing talent crisis as a strategic imperative for future success. To date, succession planning has not been a high priority for many companies, but it needs to be. In June 2014, survey results in the HRIA “Alberta HR Trends Report” showed that 55 percent of companies (especially smaller ones) in Alberta did not have a formal succession planning process. Deloitte’s 2015 “Global Human Capital Trends” report said that “Only 6 per cent of companies feel fully ready to address their leadership issues, only 10 per cent feel comfortable with their succession program and only 7 per cent have strong programs to build Millennial leaders.”
The second challenge is that succession planning takes time and money. Companies may have some time on their hands right now, but dollars are in very short supply in Alberta.
Reported New Trends
The “State of Succession Management 2015” global report by the Brandon Hall Group, confirmed the lack of attention to succession planning but describes an important shift that is underway. Their survey concluded that commitment to succession management is on the rise and creating a formal strategy for all parts of the company was front and centre. They also reported that current succession management budgets were “modest at best” and received the third lowest investment among talent management functions, but are expected to expand significantly over the next 12 months. What is also increasing is a focus on successor development. They said that nearly 70 per cent of organizations plan to prioritize it over the next 12 months. The report states, “(Succession management) hails as the single talent process where organizations plan to invest more heavily (in the next two years).” Another survey reported by XpertHR in their 2015 Personnel Today story called “Hold on to your Rising Stars and Heroes” showed that 57 per cent of respondents expect to increase their expenditure on training and development, and 46 per cent would be increasing funding for succession planning.
In the newest Alberta downturn, organizations may not have spare dollars but they may have some spare time for a strategic priority. Here are five no-cost solutions to cool down the boiling frog.
No-cost solution #1: Where do we start?
Whether you just need to know what your first steps and priorities should be, or have been developing your strategic planning and need to check in against best practices to measure your progress, what do you do? Creating a strategy or plan needs a starting point. Perhaps start by reading the “State of Succession Management 2015” report by the Brandon Hall Group. It identifies the eight top findings from their study which include current challenges and trends. It also includes the current eight leading practices of effective succession management. It will help you identify a place to start. It may also help inform your executives. You can also evaluate your current status with a succession planning diagnostic.
No-cost solution #2: Do we really know what our mission critical roles are?
Most companies have not identified those roles that are critical to achieving business goals. We define them as “Roles at any level that your organization cannot run without or, if left unfilled, would have a significant impact on corporate performance.” Get the right people into a room and decide what your mission critical roles, both leader and non-leader truly are. Before you start, define your criteria for the factors that constitute a mission critical role so you are using a disciplined and consistent approach. A balanced scorecard could work.
No-cost solution #3: How do we identify succession candidates?
Other questions lie in the weeds of this one, such as which assessments should be used, or how consistent are our performance management ratings? However, there some no-cost starting points, with the assumption that executives and middle managers understand the importance of collaborating on developing a healthy talent pipeline and agree to share resources rather than protect them in their silo. We define a succession candidate as: “An employee who has been assessed as having the ability, aspiration, organizational commitment and motivation to succeed in more senior mission critical roles throughout the organization.” There are numerous tools and methods available to define, assess and identify succession candidates. You just need the stakeholders (Executives, HR and managers) to set aside the time to agree on and create and the identification criteria to create a repeatable and consistent process.
No-cost solution #4: How do we encourage executives to prioritize (and own) succession planning?
According to Bersin by Deloitte in their 2014 High-Impact Succession Management report, 74 per cent of companies at lower levels of succession management maturity have a lack of collaboration between HR and senior management. “Succession planning is not yet valued as a tool to run the company.” Give your senior leaders the data they need to prioritize it. There is ample research from credible sources identifying the unstoppable demographic changes in the workforce growing skilled labour and leadership shortages. There are also many surveys and reports highlighting the critical importance of focusing on succession and data from companies who have done this effectively, including their leading practices and business benefits gained.
No-cost solution #5: Our succession planning, learning and development and performance management are separate, inconsistent and in various stages of maturity
You may not be able to afford an HRMS or “integrated suite” right now, but you could do some research and develop practices. Some planning, preparation and integration of some processes could help to evolve your talent management. You may have some recommendations ready when budgets reappear. Other preparation could include the creation of leadership competencies for different management levels and building career or development plan templates for high potentials.
The Undeniable Benefits of Succession Planning
The data continues to flow in about the numerous benefits to business from succession planning deep into the organization. Common sense tells us it’s the right thing to do. With the growing skilled labour and leadership shortage and despite any downturns, it has already become a critical survival factor for most companies in the next five to ten years. If you survive the downturn only to lose mission critical roles that you can’t replace internally, you’re in trouble immediately.
Replacing key executive roles is the most common aspect of succession that companies may have in place. The value of increasing the focus deeper into the organization and linking it to leadership development and skills training is huge and now is becoming critical for businesses to prioritize. The compelling reasons to focus more time and if possible, money on succession planning include:
- Business continuity is assured. Even in survival mode, a business continues operating. As conditions improve, you need your employees and managers to lift you out the other side.
- Mission critical roles at any level (especially with looming retirements) are identified and successors are being developed.
- Leadership bench strength at all levels is addressed now and for the next five years at least. This is risk mitigation.
- Retention of high potentials and high performers at any level is 1.7 times more effective, according to research, as their career opportunities are more clear.
- Organizations with mature succession planning are twice as effective at improving employee engagement.
When the economy recovers, we need to be ready to respond, not caught flat-footed and exhausted. A steady, consistent succession planning process can be a welcome stabilizing force amidst the reactivity created by this perfect storm of declining economic conditions, especially for your high performers, high potentials and future leaders. It’s more important than ever to be clear about what skills, competencies, and leadership capacity the company needs at any given time (now and five years from now) in the context of the companies’ strategic goals. If the strategy shifts, a well-developed succession planning process can adjust the focus as needed. In boom times, the focus may be on developing high potential employees for future leadership roles to meet the growth of the company. In downturns, the focus may be on ensuring mission critical roles are filled and that there is succession in place to mitigate risk. It may also be focused on redefining what is required to meet the needs of the new strategic direction and then ensuring the succession planning process is in place to meet this.
Alberta and the world are in a period of significant economic transition and any signs of recovery seem far off, especially in the oil patch. Despite current layoffs, critical skills at all levels are becoming increasingly scarce. This is not a trivial problem. As Bersin by Deloitte said in their “Providing Upskilling Opportunities to Employees” report, “Skilled talent is the lifeblood of an organization. Those organizations that successfully build the capability to develop skilled employees internally put themselves at a significant advantage over their competition.” Why not use the slowdown to focus on one of the most critical success factors of your future?
First published in the Human Resources Institute of Alberta (HRIA) HUMANCapital Magazine, Spring 2016