The Impact of Succession Planning on the Productivity of a Firm

The Impact of Succession Planning on the Productivity of a Firm

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The Impact of Succession Planning on the Productivity of a Firm

Abstract

The research study focused on how a firm’s productivity is affected by succession planning. The research made use of secondary data and primary data. Furthermore, a thorough questionnaire analysis was conducted as well as the adoption of an estimation technique (Spearman’s rank correlation coefficient). Also, the study’s objectives were used to determine the existing relationship between organizational productivity and succession planning. The study also sort to examine the effectiveness of succession planning in increasing a firm’s organizational performance. Additionally two hypotheses were chosen to be tested through the use of the spearman’s rank correlation coefficient. The results from the study were that there is indeed a relationship between succession planning and firm productivity. Secondly, if succession planning takes place correctly, the performance of the employees in the firm improves. The study concluded and recommended that if a firm is to improve its productivity, it has to pay close attention to its employees. This will ensure that the maintenance and the survival of the firm occur. Strategies should be developed based upon the firms’ resources and this will improve the firms’ productivity.

Key Words: Succession Planning, Productivity, Firm, Employee Performance, Organizational Strategy

Introduction

In the past, some organizations had various managerial levels and their leaders spent a lot of time in different strategic activities including mentoring, training and improvement. Most employees expected that they work for their employer for a long time and this is after providing distinguished services. Thereafter, the employees would be able to achieve the same status as management trainees. Since the employees have ample time on their hands, supervisors could effectively see the direct reports concerning all areas of the workplace. In turn, they could assist in guiding employees with the right resources that will enable them to have exemplarily careers in the future (Reeb, 2005). It is thus recommended that all supervisors ensure that they help identify future leaders. The focus on succession planning lasted in some organizations in the 1970’s, and in the 1980’s. Most of the executives who were prominent at the time are now about to retire (Richtel, 2010). This also includes top executives working in some of the fortune 500 companies. This means that the work force is greatly affected when talent is lost.

Purpose: Many firms continue to search for better or new means of achieving competitive advantage. This means that all the functional areas of the firms have to be scrutinized in order to improve performance. The result is that succession plans strive to retain and develop employees who are high potential, and thus ensure that the firm’s productivity increases. If a firm is to succeed it will need to retain, develop and acquire talented people who have leadership abilities. Also, businesses have to come up with effective strategies that will meet their future and present needs (Rothwell, 2000). This research was meant to find out why succession plans are being incorporated in the strategic plans of many firms as well as its impact on the firm’s productivity.

Thesis: This study focused on finding out how a firm’s productivity is affected by succession planning. The world economy is growing at an extremely fast rate and thus the reason why its industries are booming. This study made an attempt to measure the processes related to succession planning upon a firm’s productivity. Furthermore, recommendations were made in order to improve organizational performance and succession planning. The study was based upon statistical data obtained from business firms. An extensive literature review on succession planning and the impact it has on a firm’s productivity was conducted. The study formulated a conceptual framework about the research topic. Lastly, the study attempted to answer the following research questions:

How does succession planning affect the overall performance of a firm?

When is the right time to introduce potential leaders to succession planning?

What needs to be done to ensure that succession planning is successful?

Literature Review

Background: In many organizations all over the world, planning is considered to be a vital aspect of management. It assists in improving the performance of organizations and this means that customers have to be served well, and the proper utilization of resources should take place. In order to achieve this, the material and human resources should be utilized well, and in the most appropriate time and manner. This will ensure that only minimal costs will be incurred in an attempt to come up with products that are of extremely high quality. Productivity can be formally defined as the summary measure of the quality and quantity of work performance. It should also take into consideration the resources that have been utilized. Productivity is then measured at the organizational, group or individual level. Furthermore, productivity tends to be expressed as the success into an organizations efficiency, effectiveness and performance (Rothwell, 2000).

In the four decades that have passed, there has been a managerial revolution and it has had an impact on succession planning. Some of the enterprises affected by succession planning include educational institutions, government and business, among others. Succession planning is quite vital as it has been stressed by many researchers. For example, in the past, production managers found out that without prior planning, mistakes showed up shortly after while working on projects. This means that certain projects halted because of the absence or misfit of needed components (Stoner, 1982).

As early as the 1940’s the idea of succession planning in an organization was conceptualized. It was claimed that planning is the process of choosing alternatives in case a problem arises at the work place. In turn, many other authors decided to come up with research on succession planning, which is a vital aspect of any successful business. Many companies around the world face the challenge of having succession planning programs and this has in turn created a leadership crisis. Part of a company’s strategic plan is having a succession plan because it is useful to all employees and not only the CEO’s. There are quite a number of disadvantages and advantages associated with succession planning as it has been witnessed. A long-term strategy has to exist if the succession planning process is to bring about the development and continuity of key people and areas. Organizations should seek to develop its key and unique people in order to boost productivity (Sahl, 1947).

Succession planning dates back to the 1940’s after being conceptualized by Goetz. He believed that planning involves choosing options that will deal with problems that are likely to arise. An alternative solution or action exists in matters that concern succession planning. There is a direct relationship between decision making and succession planning. It is thus recommended that planning is done in advance and it should be done by the right people at the right time (Rothwell, 2000). This means that the right alternatives have to be chosen as it will influence future actions. Departmental goals will be effectively achieved because they have been planned for in advance. Succession planning considers the future environments nature whereby planning actions and decisions will operate.

Critique: Charles Sawyer (2006) has raised some issues concerning succession planning on a firm’s productivity. The depth at which formal succession plans are part of a firm is not yet known. Crisis management is today used in the selection of leaders in various organizations. The organizations continue to fail to have succession plans and even resources to be used in the implementation of succession plans. Leadership development and succession planning does not have the adequate focus that middle level managers need (Chirico, 2008). The two strategies have to be urgently considered with special emphasize on middle-level managers. This proves that Chirico (2008) and Sawyer (2006) do not believe that a firm acquires competitive advantage because it makes use of succession plans. The key elements that are needed in the success of a firm, is having talented employees who are motivated to achieve and obtain the best results at the work place.

Solutions: There are three objectives that are meant to be fulfilled by succession planning in a firm. Firstly, it is meant to ensure the proper continuity of the existing leadership in various critical positions. Secondly, it is meant to develop and retain intellectual capital in order to enhance future growth. Lastly, it is meant to motivate and encourage high potential employees that have career advancement aspirations. Most of the top organizations in the world have succession plans because they are fully aware of its importance. For example, in the year 2004, after the sudden death of Jim Cantalupo, the McDonalds Chief Executive Officer and chairman, succession planning was evident. He was replaced within a six hour period by Charlie Bell, the former Chief Operating Officer and company president. This swift act reassured all the investors, franchise owners and employees that a qualified leader could maintain, and provide continuity of the company’s mission (Sawyer, 2006). From the presented case it is evident that succession planning is a business necessity and not a luxury. As a result of having good implementation and succession plans, there is massive productivity and huge savings.

Human productivity is a key issue in the field of business as they are responsible for its success. Human beings are judged upon the quantity and quality of work that they do. It is thus conclusive to claim that productivity is concerned with efficiency and effectiveness (Hirsh, 2011). A management theory founding father Peter Drucker (2003) claimed that in order for success to be achieved effectiveness has to exist. Doing things which are right is associated with effectiveness and efficiency deals with doing things the right way.

In the world’s global organizations, there are quite a number of initiatives based on leadership development. This is known to be an important part of any successful corporate strategy. In a leadership study conducted by Hewitt Associates, a Global Human Resources company, information concerning succession planning was obtained. It was found out that in the top twenty leading companies in the world, 91 percent of them had a way of identifying leaders. This is compared to the rest, which had only a 61 percent success rate of identifying leaders. Also, 82 percent of the world’s top organizations have mentoring programs as compared to the others in the list. In fact, IBM leads as it has eleven leadership competencies at the various management levels (Avanesh, 2011).

The employees who have leadership abilities and are working at IBM are assessed based upon certain competencies. They are then considered when succession planning is taking place in the organization. Secondly, Microsoft came second as it attracts rare talent and potential leaders are identified during the hiring stage. Potential leaders are then groomed later on so that they can take up leadership positions in the future. Cutting Edge, an American research firm dealing in business had a report concerning succession planning (Avanesh, 2011). It found out that a majority of companies have succession plans, but few of them fail to follow through with the implementation requirements. It is estimated that as a result of succession planning, as much as 70 percent of all succession plans fail. The information obtained in the literature review will be extremely beneficial when coming up with a methodology that related to succession planning and its relation to the productivity of a firm.

Methodology

Explanation: The study in this research was quantitative and descriptive in nature. The aim of using quantitative data was to succeed in fact finding. In order to collect the required data, a questionnaire method was adapted (Amaratunga & Baldry & Sarshar & Newton, 2002). The sources of data were secondary data and primary data. The primary data was collected from the filled questionnaires that the Project Leaders in the various respondent units provided. The secondary data was collected from the internet, previous research, magazines, journals and books.

Research Instrument: The questionnaire method was adopted in the collection of data. Furthermore, the questionnaires will have closed and open ended questions. Later on, questionnaires were administered to the respondents chosen to participate in the study. The obtained data was analyzed and later on interpreted based on the available percentage and number of the existing socio-economic characteristics. The standard deviation and mean were computed in order to provide an interpretation of the firm’s performance and succession planning performance (Mugenda & Mugenda, 2003). Thereafter, a comparison of the acquired‘s’-‘t’ test was tested and employed to find out the significance. The correlation coefficient was used to establish the relationship between the firm productivity and succession planning performance. Lastly, the association between firm productivity and succession planning performance was assessed through the use of the Chi-square test application.

Reliability and Validity: The research questionnaires were developed using available literature to ensure its validity. Questions that appeared or seemed to be vague were rephrased in order to convey the intended meaning that was meant to be understood by the respondents. The number and quality of the questionnaires given to the respondents ensured that a statistical analysis of the relation between the two variables was known. It was possible to ascertain the research instruments reliability through data analysis (Mugenda & Mugenda, 2003).

Population: The research used the non-probability sampling technique that was narrowed down to the convenience sampling method. This means that the respondents in the research provided their information based upon their willingness and availability to respond. In this research, the respondents were from the various Saudi Arabian banks. The chosen form of sampling is extremely favorable because it is timely, less expensive and easy to administer questionnaires to the respondents. The help of management consultants was used in this research as they helped in identifying the firms that would be sampled. Furthermore, the firms needed to be practicing their succession plans for at least five years and were based in Saudi Arabia. The companies had their interests in the banking sector of the economy. Lastly, a total of six project managers were selected using a random method in order to have 6 respondents in the study.

List of Sample Saudi Arabian Companies

Islamic Development Bank

Riyadh Bank

Wegaya

Jadwa Investment

DMI Trust

Alinma Bank

Research Hypotheses:

HYPOTHESIS ONE: Null Hypothesis (Ho): Succession planning has no relationship with firm productivity. Alternative Hypothesis (Hi): Succession planning has a relationship with firm productivity.

HYPOTHESIS TWO: Null Hypothesis (Ho): Succession planning does not lead to positive employee performance in a firm. Alternative Hypothesis (Hi): Succession planning leads to improved employee’s performance is a firm.

Logical and Ethical Considerations: It is vital that this research considers the privacy and confidentiality of the respondents. This is to ensure that the respondent’s integrity is not jeopardized in any way. Furthermore, the research will not be in any way plagiarized as the words used are original and not borrowed directly from other sources. Words and ideas that are not ours will be cited in the most appropriate manner so as to avoid committing plagiarism.

Conceptual Model: Upon coming up with a literature review, it was possible to come up with a conceptual framework that was used to give an explanation of the relationship between a firms productivity and succession planning.

Independent Variables Dependent Variables

Firm Productivity Succession Planning

38042855715Quality Costs

Return on Investment

New Business Expansion

Repeat Business

Market Share

Competence Level

Corporate Image

Employee Satisfaction

Employee Retention

Quality Costs

Return on Investment

New Business Expansion

Repeat Business

Market Share

Competence Level

Corporate Image

Employee Satisfaction

Employee Retention

18986566040Employee attitudes &Values

Working & Strategic Plan

Extends to every organizational level

Dedicated Responsibility

Employee Training

Needs Driven Assessment

Top Management Support

Employee attitudes &Values

Working & Strategic Plan

Extends to every organizational level

Dedicated Responsibility

Employee Training

Needs Driven Assessment

Top Management Support

Figure 2: Conceptual Framework showing the relationship between the independent and dependent variables.

Source: (Researcher, 2013)

Findings

The research was aimed at finding out if succession planning has an impact on the productivity of a firm. Most of the respondents in the research were males and belonged to the 27-35 age group. They had a working experience between 5 – 12 years, as well as an average salary. It was found out that most of the employees working in the different companies wanted to be included in the succession plans. In turn, most of them strived to attain higher academic qualifications such as post graduate degrees in their respective careers.

Discussion and Implications: There is a positive relationship between productivity in a firm and succession planning. Also, there is a difference between the meanings of succession planning between the different respondents. Young respondents have better attitudes towards succession planning as compared to older respondents. The experience of an individual is what dictates whether an employee can be part of a firm’s succession planning road map. Based on the provided discussions, there are some implications that arose because of succession planning. All the levels of a firm need to be involved in succession planning so as to boost the overall performance and productivity. The heads of department need to come up with detailed criteria for choosing the various successors, and especially at the senior level. The articulation and definition of the steps should be known to all the employees so that those in lower positions can increase their competencies. A successful succession plan has to be communicated in all the departments in the firm. It is quite unfortunate that many firms in the modern world only have succession plans for their senior employees. Therefore, in order for succession plans to be truly effective, they must also target the lower and middle levels. This will promote participation accountability at all levels (Taylor & Mc Graw, 2004).

Conclusion

A key issue that has come up after conducting the research is that employees with leadership abilities need to be chosen and trained as part of a firm’s succession plans. This will result in increased productivity because resources have been well utilized and combined in order to achieve specific needed results. Therefore, the objectives established by the firm should be carefully pursued and articulated to also achieve productivity. There is no benefit in claiming that a firm’s success only depends on the effectiveness of their succession plans. Various industries offer vast products, and thus the effectiveness and efficiency will only be measured with how well the services or products are received by customers. In the recent years, many sectors of the world’s economy have experienced tremendous growth. Succession plans need to be simple and not complex as others have proven to be. Realism must be followed when coming up with succession plans so that development can take place in the right direction. Therefore, succession planning should be used in the identification of the firm’s future leaders who will contribute towards improving productivity.

Recommendations: These are the suggestions, which need to be followed up to ensure that the culture of succession planning is always more effective and meaningful. Also, so that it will enhance the productivity of a firm.

The succession planning results should be regularly evaluated and reviewed.

The process of implementing plans should be successful through the dissemination of information.

Sufficient management attention and resources should be allocated in order to sustain the program.

All employees in line management should be held accountable by the CEO for coming up with succession models and future leaders.

Firms should provide employees with professional development opportunities through job rotation, job shadowing and training.

Needs assessment should be conducted regularly in order to identity job positions that will benefit from succession planning.

Some of the succession tools that should be used by a firm are reinventing exit interviews, having systematic selection procedures and identifying high fliers.

Lastly, succession planning should be benchmarked with other management practices that exist in the firm.

Future Research Recommendations:

A variety of non-probability sampling methods should be used, such as stratified random sampling.

Other companies in various sectors of the economy should be included in the research.

A comparison and benchmark between the different banking companies should be done.

References

Amaratunga, D. & Baldry, D. & Sarshar, M. & Newton, R. (2002). Quantitative and qualitative research in the built environment, Work Study, 51, 1.

Avanesh, Neetha. (2011). A Study on Succession Planning and its Impact on Organizational Performance in the IT Sector. International Refereed Research Journal, 2, 1, 2231-4172.

Chirico, Francesco. (2008). Knowledge Accumulation in Family Firms: Evidence from Four Case Studies International Small Business Journal August, 26, 1, 433-462.

Drucker, P. (2003). The Theory and Practice of Management, a broader perspective. New York: New York Press.

Gabrielsson, Jonas. (2007). Boards of Directors and Entrepreneurial Posture in Medium-size Companies: Putting the Board Demography Approach to a Test International Small Business Journal, 25, 1, 511-537.

Hirsh, Wendy. (2011). Succession Planning: Current Practice and Future Issues. International Journal of Career Management, 3, 2, 345-367.

Mugenda, Olive. & Mugenda. Abel. (2003). Research Methods: Quantitative & Qualitative Approaches. Nairobi. Acts Press.

Reeb, William. (2005). Securing the Future: Building a Succession Plan for Your Firm. New York: AICPA.

Richtel, Matt. (2010).“Growing Up Digital, Wired for Distraction.” Retrieved from The New York Times. HYPERLINK “http://www.nytimes.com/2010/11/21/technology/21brain.html” http://www.nytimes.com/2010/11/21/technology/21brain.html?

Rothwell, W. (2000). Effective Succession Planning: Ensuring Leadership Continuity and Building Talent from within. New York: Amacom.

Sahl, R. (1987). Succession Planning-A Blueprint for your company future. Personnel Administrator, 32, 9, 101-106.

Sawyer, Charles. (2006). Beyond Leadership: Approaches to Comprehensive Succession Planning. New York: Pearson.

Stoner, J. (1982). Management and Planning, a broader perspective. New Jersey: Prentice Hall Publication limited.

Taylor, T. & Mc Graw, P. (2004). Succession Management practices in Australian organizations. International Journal of Manpower, 25, 8, 741-758.

Appendices:

Table 1: Respondents by Experience, Age-Group and Sex

Characteristics Category Number Percent

Sex Female 32 64.0

Male 18 36.0

Age-Group 24-30 15 30.0

31-36 35 70.0

Experience 2-6 years 19 38.0

7-13 years 31 62.0

Total 50 100

Table 2: Questionnaire

Respondent Demographic Information

Position………………………………………………………………..

Gender…………………………………………………………………

Age…………………………………………………………………….

Length of Service………………………………………………………

Place of Work…………………………………………………………

Does the bank you work for have a Succession plan? (Circle the correct option)

Yes………………………………………………………

No………………………………………………………….

Are the bank’s Succession plans targeted towards all the employees? (Circle the correct option)

Yes……………………………………………………..

No………………………………………………………

Do you think that employees who are included in the bank’s Succession plans are more productive as compared to other employees?

Yes……………………………………………………..

No………………………………………………………

Give examples of how the productivity at the bank has improved as a results of having a Succession plan

……………………………………………………………………

……………………………………………………………………

…………………………………………………………………..

………………………………………………………………….

………………………………………………………………

Is there an established means through which the results of the Succession plans can be measured?

Yes………………………………………………………….

No……………………………………………………………

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