Succession management: filling the leadership pipeline; Succession management ranks high on CEOs' priority lists, yet many companies have no formal program in place. Here's how to turn talk into action—and competitive advantage

Chief Executive, The, April, 2004

A few years ago, executives at the University of Pittsburgh Medical Center recognized that a rapidly evolving business would require some changes in their ranks--and they set out to do something about it. "When you look at the changes in patients, providers, information technology and medical technology, we're talking about an industry that will be 180 degrees different tomorrow from what it is today," says Gail Wolf, senior vice president and chief nursing officer of UPMC Health System.

The health system wanted leaders who could help guide its 37,000 employees through those changes. "It became obvious to us very quickly that we can't solve tomorrow's problems with yesterday's or even today's thinking," Wolf says. "We needed a whole different dimension to our leadership."

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To secure that future leadership, UPMC created a comprehensive succession management program that finds and cultivates potential leaders within the organization and actively works to develop them into senior-level executives. The program, which features future-oriented content, mentoring and cross-organizational experience, not only has given the center a solid vehicle for ensuring that it has a steady stream of leadership candidates, but also provides a model for a new approach to developing leaders for the entire health care industry. And it has quickly produced tangible bottom-line results for the center, showing a 450 percent return on investment in its first two years. "In every regard," says Wolf, "the program is seen as a great asset to our system."

UPMC's concerns about tomorrow's leadership should sound familiar to most CEOs, judging from the results of a recent succession management survey of more than 1,200 Chief Executive readers sponsored by Development Dimensions International, the Pittsburgh-based human resources consultancy. In an uncertain, fast-moving and increasingly competitive world, having a steady, reliable supply of leaders in the pipeline is considered key. In the survey, two out of three respondents said that succession management is highly important to their organization's success, while an additional 25 percent said it was moderately important.

At the same time, the survey shows a disconnect between what executives think and what is put into practice. "The results show a disparity between the importance companies place on succession practices and the effectiveness of their practices," says Matthew Paese, Ph.D., vice president of succession management at DDI and co-author of Grow Your Own Leaders. Indeed, only 18 percent of respondents were highly satisfied with their internal succession management processes, and 33 percent expressed doubt about those processes. In addition, 39 percent reported that they don't even have a succession management program to fill senior leadership positions.

In short, there seems to be room for improvement in the way succession management is handled at many companies, and there are compelling reasons to improve. "Wall Street is paying more attention to leadership in assessing a company's potential, and there appears to be significant interest from boards as well," says Paese. Indeed, 96 percent of the chairmen surveyed ranked succession management as moderately to highly important to the success of the organization. And well they should, adds Paese, because "organizations reporting highly effective succession management practices were also significantly more likely to report that they outperform their competitors."

Process and Teamwork Produce Results

While the DDI survey highlights some gaps between concept and reality, it also points the way to potential solutions. For example, more than one-third of respondents cited the lack of a clear approach to succession management as a key constraint limiting their ability to develop senior leadership talent--often leaving executives who are trying to cultivate future leaders "flying blind." For example:

* Seventy-three percent of respondents believed that using a process for the early identification of leadership potential is highly or moderately important. But only 17 percent said their own process was highly effective.

* Sixty-four percent said that being able to define the skills, experience and attributes required for senior leadership is highly important, and another 20 percent said it was moderately important. But only 19 percent felt that their own process for doing so was highly effective.

* Respondents said that boards place moderate to high value on receiving succession management information, but significant proportions of organizations don't provide such information to their board. Most commonly lacking: information about the organization's leadership bench strength in comparison to its competitors.

* Seventy-six percent of respondents thought that gathering good data on the strengths and weaknesses of current and future leaders relative to business needs was highly or moderately important. But only 18 percent said that their own process for doing so was highly effective, and only 35 percent believed it was even moderately effective.