SUCCESSION MANAGEMENT

1. SUCCESSION MANAGEMENT Schubert Caesar C. Austero Philippine National Bank

2. Types of Conference Participants • PRISONERS • VACATIONERS • CONSUMERS • ADVENTURERS

3. SUCCESSION MANAGEMENT: WHY HAVEN’T WE GOTTEN IT RIGHT, YET? There is nothing new about Succession Management. The problem is not in finding something new, but in implementing what is already well known.

4. WHAT IS DRIVING THE SUCCESSION MANAGEMENT GLOBAL CRISIS? • 78 million Baby Boomers turning 65 in next 5 years • 16% of workforce is over 60. • 25% over 60 by 2020. • Insufficient replacements available. • The emerging focus on RISK MANAGEMENT AND MITIGATION. • Changing values in the workplace – flexibility as an emerging need • More career options available

5. The ASEAN CONTEXT 10% of the vast majority of wealth in ASEAN is about to be transferred from the hands of first-generation wealth creators to their successors • Most business are family-owned and succession management is linked to weath management • Cultural taboos - Preparing for death is “tempting fate” - Preservation of “face” - Deep respect for elders • Confidentiality of business strategies particularly among family-owned organizations • Stringent laws around inheritance According to the 2011 World Wealth Report, 88% of the HNWIs in Asia are of the view that the next generation is not able to manage inherited wealth. Statistics on succession planning in Asia substantiate those fears, as only 30% of family businesses survive into the second generation and as little as 10% into the third generation. Family disputes and rivalries are the most frequent causes of family business failures.

6. REALITY CHECK: ASEAN SURVEY Most organizations fail because they don’t have a holistic, systemic succession management process • Despite the growing importance of succession management, 41% of ASEAN respondents indicated their organisation did not have a succession management system in place compared to only 36.4% of organisations from other countries. • On a scale of 1 (not at all effective) to 10 (extremely effective) ASEAN respondents were asked to rate the overall effectiveness of their succession management system. On average ASEAN respondents rated their systems 4.5. • Over 60% of companies have no CEO replacement identified in the event of an emergency • 43% have no formal CEO succession plan at all • 67% do not have a five-year plan for management succession • Most succession management programs not aligned with the strategic planning process • Most succession management programs are not supported by deliberate and clear development plans and programs to develop successors.

7. Our learning objective:To replace intuitionandgut feel with systematic thinking

8. What % of your employees are looking for other employment? What % of your employees will retire in next five years? Can you gurantee that no one among your key talent will leave (or die) in next five years? If something were to happen to a key executive today, do you have someone who can step up to the role at a moment’s notice? Do you have an idea of when your key talents will be ready to assume certain positions and what it will take to accelerate their growth? Do you have a regular measure of the depth of your leadership bench? SO WHAT ARE YOU DOING TO MANAGE THE SITUATION?

9. One Approach…

10. SUCCESSION MANAGEMENT IS A NATURAL PROCESS IN NATURE.

11. HRM for dummies • Failure to plan means planning to fail • Whether we like it or not, attrition will happen The question is: How are you preparing for it? • There is a science around managing and developing people, including predicting and forecasting manpower needs and developing the pipeline – deliberately or quickly • Most organizations insist they have a succession plan – only, it is informal, unstructured, uncoordinated, and unwritten. If so, then it doesn’t exist. • Succession Management is an integral part of any TALENT MANAGEMENT program

12. Why is SUCCESSION MANAGEMENT still a problematic area? • Lack of clarity about who is responsible for it and what the focus should be • Forces reconsideration of some hallowed HR principles: Theory Y, Egalitarianism, Inclusivity • Preoccupation with fire fighting and transactional HR • Inability to manage the many problems around succession management • Social/political considerations

13. WHY SUCCESSION MANAGEMENT IS CRITICAL FOR HR SHRM 2013 • Global war for talent will heat up • Business leaders to look to HR for more than transactional expertise • They will look to HR for people strategies to help their companies prepare for growth and sustainability • HR professionals will come under increasing pressure to retain and develop their top talent • VECTORS • Financial Pressures • Declining Margins • Major Regulatory Changes • Lowered trade barriers • More democratic countries • Inflation rates low • Low-cost telecommunications • Rising skill levels of labor • More investment worldwide • Growth of MNCs

14. Top 15 Retention Drivers Source: Career Systems International, 2013

15. The Traditional Approach to Succession Management • Often highly political • Little thought given to what kind of leaders required in the future • Done secretly • Focus on putting names in boxes (“replacement”) • Few meaningful development conversations held

16. Succession Planning vs Succession Management SUCCESSION PLANNING The process of developing a systematic approach to building replacement workers to ensure continuity, by identifying potential successors in critical work processes. Often limited to REPLACEMENT PLANNING. SUCCESSION MANAGEMENT Succession management is the process of identifying high-potential employees, evaluating and honing their skills and abilities, and preparing them for advancement into positions which are key to the success of business operations and objectives. • Succession management involves: • Understanding the organization's long-term goals and objectives. • Identifying the high-potential candidates and their respective developmental needs. • Determining workforce trends and predictions. • Developing candidates to ensure readiness for succession • Continuous measurement and evaluation

17. Succession Management The integrated approach to workforce recruitment, development, and retention to ensure that the organization has successors whose present and future potential contribute to their individual success and the success of the organization.

18. A SUCCESSION MANAGEMENT PLAN MUST BE: • Strategic • Aligned with business needs • Proactive • Forward thinking, with both quantitative and qualitative ROI measures • Integrated • Clear value chain among all HR functions to maximize value, an end-to-end holistic system that connects all components

19. Why do succession management? • To avoid extended and costly vacancies in key positions and assure the stability of business operations. • To provide meaningful developmental opportunities for both the organization and its employees as it targets key leadership positions at varying levels. • To help develop a diverse workforce by enabling decision makers to look at the future make-up of the organization as a whole • To mitigate loss of organizational memory

20. Knowledge Transfer as a key goal in succession management • Every organization must have institutionalized processes to: • Document key data and policies for critical work processes • Exchange key process data and information from one individual or group to another • Define how vital and important information will be retained within the organization despite attrition

21. Tragic blunders in Succession Management – Lessons we learned • “Like me” syndrome • Blind defense of the “flat organization” • Over-reliance on performance alone • Having succession plans only for the top layers in the organization • Not engaging line managers in the succession planning and management process

22. Cloning is still not possible – there’s no one like you • When positioning employees for succession, most are guilty of the “like-me” syndrome. • Organizations tend to take comfort in advancing those employees to key positions who closely resemble incumbents in ways such “as age, education, leadership style, industry experience, career trajectory and of course, race and gender”. • Assessment tools can be used to reduce biased selection practices. • There are no perfect clones and most successful organizations tend to be those that value diversity.

23. The myth of flat organizations • Most organizations may have a mechanistic TO that shows a flat organization, but in reality they are networked, organic, and team-based • Many reporting and coordinating relationships are not captured in the formal TO • Broad banding is now more commonly practiced • Creative solutions are being pursued to balance the need to be flat with the need to provide more vertical growth opportunities

24. Institutionalizing a myth Chief Executive Chief Executive

25. Past Performance…Future Success? • High performers in a current role are loaded with talent and capability • It is perceived that they have inherent leadership traits which will help them to excel…but are those enough? • Past performance doesn’t guarantee future success • Will they be able to sustain their performance in leadership positions? • Can they transition to thinking strategically, delegating efficiently, and in the end, leading effectively? • Are their current competencies aligned with future requirements?

26. Performance/Potential Inventory LOW POTENTIAL HIGH PERFORMANCE HIGH POTENTIAL HIGH PERFORMANCE PERFORMANCE LOW POTENTIAL LOW PERFORMANCE HIGH POTENTIAL LOW PERFORMANCE POTENTIAL

27. Performance/Potential Inventory9 box model 4 2 1 Does extremely well at current job with potential to do more, give stretch assignments to help prepare leader for next management level. Highly valued, seasoned professional in current role; remain at current level Consistently performs well in a variety of assignments, prime targets for recruitment by other companies. PERFORMANCE 7 5 3 These individuals should be considered for a bigger job at the same level if they can deliver better results Current role may still provide opportunity for growth/ development; focus should be on helping them improve performance. Probably solid performers in current roles. Could progress higher in specialty and become a box 4. 8 9 6 Maybe job mismatch, new hire with lots of potential, or new assignment. May require coaching to improve performance Tight performance management is crucial, consider helping leader manage time more effectively Consider reassignment, reclassification or exit. POTENTIAL

28. HOW should we best identify high-potential employees?

29. Performance/Results: ‘Past’ measures • Performance metrics • Track record Results • Competencies • e.g. • Behaviours • Skills Potential Competencies • Potential • e.g.: • Motive • Personality • Values • Cognitive Business Strategy

30. Below average / Development Area Average Above average / Strength Area Results Tomorrows Star Today’s Provider Potential Competencies Unreviewed Business Strategy

31. For whom? For mission critical posts • Individuals who have the capability to make a significant difference to the current and future performance of the company (The Conference Board, Morton, 2005). • Core employees and leaders that drive the business forward (Hansen, 2007). • Top achievers and the ones inspiring others to deliver superior performance. Talents eximplify the core competencies of the organization and represent a small percentage of the employees (Berger & Berger, 2004). • CORE CONCEPTS: • key people • who make the most impact on the business today and in the future • through their contributions and potentials • and who can influence others in the organization

32. LESSONS WE LEARNED • Objective, scientific, reliable process of identifying successors • Clear understanding of career paths in the organization (dual paths, multi-paths, etc) • Performance alone is not a reliable measure of successor effectiveness • Succession management applies to mission critical tasks not just the top layer • Succession management is everyone’s responsibility – there is a role that is played by the board, the CEO, line managers, HR, etc.

33. HOW TO IMPLEMENT A SUCCESSION MANAGEMENT PROGRAM

35. HOUSTON, WE HAVE A PROBLEM! • We’ve always had a “program” in place since the 80s. Replacement charts were done every year. • Serious attrition at senior and middle management levels • Successors in place, but lots of empty boxes and OICs • Too many “extendees” • We were on a treadmill 24/7 • Exodus of “teams”

36. Succession Management Program in 5 Steps • Institutionalize the process and capture top stakeholders support • Assess Organization’s Needs a. Forecast needs b. Assess current state c. Conduct gap analysis • Identify strategies • Implement Succession Management programs • Evaluate, improve, measure continuously

37. Step 1Institutionalize the process and capture top stakeholders support • Gain commitment from decision makers • Demonstrate why it’s needed and the benefits • Clearly define the objectives for the program – what it covers/does not cover • Link Succession Program to the strategic vision and goals of the organization • Make succession management a priority • Strategic plan will determine number of future employees and competencies needed • Simplify reports and make them user friendly • Incorporate succession management into your organization’s values

38. Lessons we learned • People will not see the value of succession management program unless it becomes a problem for them – show how it is a problem. Speak their language. • To be successful, it must be driven from the very top. • Make the work easy, simple, routine for everyone. • Make reports easily understandable – use symbols, colors, quick figures • Measure results • Celebrate success

39. Ready Now Ready in 6 months -2 years Ready in 3-5 years

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41. Step 2 Assess Organization’s Needs • Current state • Demand Forecast • Gap Analysis • CURRENT STATE • HR metrics (from attrition to engagement) • State of pipeline • What are critical areas? • Development programs in place • DEMAND FORECAST • Organizational leadership needs in 5 years – business, manpower, etc • Competency requirements • Manpower requirements • Etc • GAP ANALYSIS • What, where are the gaps and when? • Surplus?

42. Current State Assessment • Collect and analyze organization and demographic data • Retirements? • New leaders being developed? • Are you identifying new leaders? • What is average age and tenure of current employees? • What are attrition and vacancy rates? • Identity and prioritize key work processes/positions • Which are most critical? • Which have the least amount of resource depth? • Which processes are documented? • Are future leaders prepared? • Identify condition and availability of resources and systems • What items are needed to do work? Maps, policies/procedures, training guides? • Are they accessible and up to date? • What technology systems are currently in use?

43. Internal Candidate Development Plan

44. Replacement Chart

45. Candidate Assessment Form

46. Lessons we learned • Regardless of how many times they have done it, doing succession management work remains a difficult and tedious process for everyone. • Build it into the strategic planning exercise • Do workshops • Set clear accountabilities, follow up, and use carrot and stick • Link succession management metrics to other HR metrics so that work is not duplicated

47. DEMAND FORECAST Ask questions to assess what tomorrow’s business and roles may look like: • How will the state of the business today affect the business operations of the next 1-5 years? • What operations are critical to the future of the business? • Will they be discontinued or downsized, or will they grow or remain constant? • Will reengineering, process improvement or technology impact the business in the future? • What job functions, if any, will be consolidated? • Will the projected workload volume increase or decrease? • Will staffing levels change? If so, how? • What skills and abilities will be needed to match these changes?

48. Lessons we learned • You cannot assume line managers know how to forecast manpower needs • HR is most needed in integrating strategic plans and in reducing complex issues into what really matters • The need to put the spotlight on the soft issues of succession management – sustainability and ease in implementation, acceptability, impact on morale, teamwork • HR MUST ESTABLISH STANDARDS, TEMPLATES, FORMULAS, ETC.

49. Gap Analysis How does CURRENT STATE of the organization fall short of the DEMAND FORECAST? • Workforce • Do current organizational demographics look like the future ones? • Are you prepared to handle shifts in demographics? • Do we have the people skills to keep up with the change? • Processes • Which ones are most susceptible to changes in personnel? • Where are we most susceptible to losing essential knowledge? • Systems/Resources • What info will we need or not need in the future? • What information needs to be more accessible? • How will technology change our resource needs? • Determine the talent needs on the long run • Identify the core leadership KSAs to bridge the gap. • What will future leaders look like? • What skills and behaviors will make them successful?

50. Lessons we learned • You will need analytics! Know how to mine your data. • Prioritize gaps based on careful balance among business needs, organizational needs, and individual needs • You will need to manage for the long-term – quick hits vs. long yields