Future-Proofing Middle-Market Companies: The Imperative of Succession Planning

Author: Tiffany O.

In today’s whirlwind business world, middle-market companies are juggling more challenges than a circus performer on a unicycle! With talent retention doing the cha-cha, executives feeling like they are in a pressure cooker, and multi-generational dynamics resembling a family reunion gone awry, nailing succession planning is now the secret sauce for future-proofing success. This article explores how these companies can surf the tumultuous waves of change and emerge victorious. Hold on to your hats, folks!

The talent crisis financial pinch – a call to action for middle market leaders.

Let’s dig into the dirty, costly truth about inaction, futureproofing, tackling the knowledge transfer, and the ghastly words every HR leader would love to dodge:?

Succession Planning.

First, you must hack the disengagement crisis.?Recent data reveals that employee disengagement is at its highest in a decade, significantly impacting middle-market companies. According to Gallup, disengaged employees cost the global economy a staggering $8.8 trillion, equivalent to 9% of global GDP. Common causes include limited career advancement opportunities, poor leadership, and excessive workloads. Addressing these issues is crucial for retaining top talent and maintaining organizational stability.

To plan for tomorrow, you must be ready today.?What is the impact of continuing to do what we are doing? Or, driving Talent Acquisition harder? We cannot even talk about recruiting top talent before we address why the talent we have has checked out on the TV but still has luggage on the dolly and Netflix playing in the room.

The cost continues to rise.?Turnover, quiet quitting, and disengagement have significant financial repercussions. The cost to replace an employee can be as high as 33% of their annual salary, and quiet quitting can lead to a substantial drop in productivity. Forbes estimates that these combined costs can reach up to $100,000 or higher per employee annually. As Tammy Alvarez mentions in her prelude article, middle-market companies face stiff competition from larger firms and startups, making talent retention even more critical.

As the “Silver Tsunami” fast approaches the middle market shoreline, industries such as healthcare, manufacturing, and education are particularly vulnerable.?According to the U.S. Bureau of Labor Statistics, approximately 10,000 Baby Boomers reach retirement age every day. This trend is expected to continue for the next decade, creating significant gaps in the workforce.

If finding new candidates was not tough enough, the loss of skilled workers can lead to increased recruitment challenges and potential skill shortages compounded by the lack of trust candidates have in the hiring process due to fake jobs. One recent study found that 49% of scams on LinkedIn are fake job offers.

You cannot have a strategy for succession together with a policy and practice that does not protect the side door. People are required for any succession plan. Humanity in the workplace is the lifeblood of the organization’s future.

Double down on talent retention

Next, Reinforce Strategies for Retaining Talent – Yes, double down on these key focus areas:

Career Development.?Create clear career pathways to retain talent and enhance engagement. There are two ways to address this: 1) creating clear career development paths for employees, aligning their growth with organizational needs and future leadership roles; 2) career pathing for traditionally flat roles. Sometimes this is linear, and sometimes, it involves an opportunity to cross over.? Here is a case study from a healthcare system where I worked in HR and Talent Acquisition…

Case Study: Enhancing Talent Mobility through Career Pathing in a Major Health System

Background:?During the COVID-19 pandemic, the health system faced significant challenges in retaining and attracting skilled Pharmacy Technicians. With increasing demand for healthcare services, it became crucial to ensure that these roles were filled with engaged and capable staff.

Challenge:?The health system struggled with high turnover rates among Pharmacy Technicians. Many employees were considering leaving due to a lack of clear career advancement opportunities. The organization needed a strategy to engage and retain these valuable team members.

Solution:?Leadership across the organization implemented a career pathing initiative specifically for Pharmacy Technicians. This initiative involved developing a structured career ladder that outlined clear advancement opportunities and potential career trajectories within the health system.

Implementation:

• Structured Career Ladder:?The career ladder provided Pharmacy Technicians with a clear view of potential career paths, including necessary skills and experiences required for advancement.
• Cross-Departmental Collaboration:?The initiative encouraged collaboration across various departments, allowing for talent mobility and opening opportunities for employees from unexpected areas within the health system.
• Engagement and Communication:?Regular communication and engagement sessions were held to inform staff about the new career paths and how they could benefit from them.

Outcome:?The career pathing initiative successfully attracted talent from various sectors within the health system. It fostered engagement and synergy, leading to increased talent mobility. Many staff members who had previously contemplated leaving found fulfilling opportunities within the system, resulting in improved retention rates. This initiative not only addressed immediate staffing challenges but also contributed to a more motivated and cohesive workforce.

Leadership Development with a twist.?Invest in training programs that develop effective leaders capable of inspiring and engaging their teams. But, let me provide you with a twist on this that will impact emerging leaders, which are crucial to keeping your succession pipeline primed:? Leadership Development through Experiential Learning and Gamification.

By incorporating the following creative elements into your leadership development program, you can cultivate leaders who are not only effective and inspiring but also agile and innovative in their approach.

• Leadership Bootcamp Retreats:?Organize immersive leadership retreats where participants engage in team-building exercises, role-playing scenarios, and problem-solving challenges in a relaxed, off-site environment. These retreats can foster collaboration, creativity, and strategic thinking.
• Gamified Learning Platforms:?Develop a gamified online platform where aspiring leaders can complete modules on various leadership skills. Incorporate elements like points, badges, and leaderboards to encourage participation and friendly competition. This interactive approach makes learning engaging and fun.
• Cross-Functional Projects:?Assign leaders to cross-functional teams working on real organizational challenges. This hands-on experience allows them to apply leadership skills in diverse contexts, promoting adaptability and innovation.
• Mentorship and Reverse Mentoring:?Pair emerging leaders with experienced mentors for guidance and support. Additionally, implement reverse mentoring, where younger employees share insights on current trends and technologies, fostering mutual learning and respect.
• Storytelling Workshops:?Conduct workshops focused on storytelling as a leadership tool. Encourage leaders to share personal experiences and lessons learned, enhancing their communication skills and emotional intelligence.
• Leadership Hackathons:?Host hackathon-style events where leaders collaborate to develop innovative solutions to organizational challenges. This fast-paced environment encourages creativity, quick thinking, and teamwork.
• Virtual Reality (VR) Simulations:?Utilize VR technology to create realistic leadership scenarios where participants can practice decision-making, conflict resolution, and crisis management in a safe, controlled setting.
• Coaching:?Although coaching is traditional, our take on it includes pairing emerging leaders with external coaches that can guide them through navigating their first-time roles without fear from HR or their immediate managers.

Create a Culture of Wellbeing Work-Life Balance.?Implement policies that promote a healthy work-life balance, preventing burnout and improving job satisfaction.

Focus on Executive Stress and Burnout.?Executives face high levels of stress and burnout, with a global survey from 2022 reporting that 41% of senior leaders are stressed and 36% are exhausted. This stress impacts their decision-making abilities, with nearly 70% considering quitting due to well-being concerns. Implementing support systems like coaching and mentorship can alleviate stress and improve overall productivity.

Maximize Opportunities in the Talent Shortage.?The current talent shortage presents opportunities for both employees and employers. Middle-market companies can leverage their agility, flexibility, and closer leadership-employee connections to attract and retain talent. Employees, in turn, can negotiate for better compensation, leadership roles, and professional development opportunities.

Practical Steps for Immediate Impact

• Employee Feedback:?Regularly gather and act on employee feedback to address concerns and improve engagement.
• Recognition Programs:?Celebrate achievements to boost morale.
• Transparent Communication:?Maintain open lines of communication to keep employees informed and involved.

Succession readiness is key for effective future-proofing.

The Importance of Succession Planning.

Succession planning offers a strategic approach to future-proofing companies. By aligning succession planning with talent retention strategies, companies can provide career growth opportunities and stability, ensuring a robust leadership pipeline. However, the challenge remains significant. According to Gartner's eBook "Reinvent Your Talent Strategy - 5 Steps to Close Skills Gaps in 2024," 86% of HR leaders have not successfully implemented strategic workforce planning, despite it being a top priority. This underscores the critical need for companies to focus on structured career pathing and development initiatives to close skills gaps and prepare for future leadership needs.

I regularly facilitate training for executives seeking to deploy succession planning. Here is what I consistently hear:

• Confusion between replacement planning and succession planning
• It’s hard, and there is organizational misalignment between the strategic plan and the current culture and appetite for change
• Too much resistance, and a lack of change management, readiness, and stakeholder engagement plans

These concerns emphasize the need for ensuring Succession Planning is included in the Strategic Plan as a talent management imperative. One of my clients is implementing such an approach for 7,000 employees.? We have provided them with a framework for creating a center of excellence to drive organizational readiness, implementation, training, and adoption for the shift. Below are lessons I have learned from working with these executive groups.

6 Mistakes to Avoid:

1. Lack of Clarity.?What roles are most at risk? Knowing what the critical/emergent roles are and having a strategy in place to enable an unbiased selection, development plan of high-potential talent across the organization, paired with an effective transfer of tacit and explicit knowledge, mitigates the risk of loss of both institutional knowledge from untimely departures and top talent who have been snatched by the competition.
2. Lack of Strategic Intention.?Succession Planning becomes “sticky” and embraced when it is tied to the strategic plan; when there is a consistent, and repeatable, transparent process, and when the culture matches the intention.
3. Waiting too Late to Begin.?Waiting until the need is apparent is a big mistake. Once the pain begins, the festering of the wound will soon follow. This is too late to mobilize to sustain the life of the organization without significant casualty.
4. Narrow Focus.?Only focusing on the most senior leader roles vs. the most critical and difficult-to-fill roles without redundancy in the organization. A narrow focus on only the top implies the rest of the organization will be left without a growth path and signals the organization is not prepared to engage leadership from the front door to the boardroom door.
5. Keeping it a Secret.? During periods of change and transition, in the absence of knowledge, shared vision, and co-creation of a future state, there is fear.? Transparency, awareness, and an effective change model mitigates the fear and supports the people in the process.
6. No Technology.? I am all for low tech solutions to pilot.? However, in the age of AI, data is driving almost everything, including recruitment. Not to mention the complexity of the workforce and workplace (remote and multi-generation). An integrated performance management and HRIS systems with a succession planning module can simplify the process.? You need an “easy” button on tapping into talent and scaling adoption.? Otherwise, you will need to consider the size of your implementation team to manage and organize all of the moving pieces.

Let’s face it. Getting started may not be considered fun, but it can create a buzz when the talent focus areas above are in place. You then have an ecosystem for attracting, training, and retaining talent, while at the same time future-proofing your organization.

Succession readiness is like having a spare tire for your organization—essential for those unexpected bumps on the road to the future. Without it, you might find yourself stuck in the corporate wilderness, wondering why you didn't pack a map. So, gear up and ensure you've got a plan in place, unless your idea of adventure is navigating chaos without a compass!

Do not leave it to chance – we are here to help!

If you are like most leaders, they know they NEED to begin but are not sure how to get started. No worries.? We have a checklist just for you, and lifeline ready.? Just follow the link here to schedule a call with me and our team to discuss your current state, your challenges, fears, and how to prepare your roadmap.

Succession Planning Readiness Checklist

• Identify Key Roles:?Have you identified critical positions requiring succession planning?
• Assess Current Talent:?Do you have a process for evaluating the skills and potential of current employees?
• Develop Internal Talent:?Are there training programs tailored to prepare employees for future roles?
• Create a Succession Plan:?Is there a documented plan outlining steps for role transitions?
• Engage Leadership:?Are leaders actively involved in identifying and nurturing future talent?
• Communicate the Plan:?Is there a strategy to inform stakeholders about the succession plan?
• Monitor and Adjust:?Do you regularly review and update the succession plan?

By focusing on retaining current staff and implementing effective succession planning, middle-market companies can mitigate the talent crisis and ensure long-term success. Embracing strategies that address disengagement, executive stress, and multi-generational dynamics will position these companies for sustained growth and innovation.

If you are curious about other ways to sure up your talent strategies:

• Part 3:? next week please watch for next week’s article for leaders seeking to crush burnout and master retention!

If you are an employee looking to leverage this unique time, check out:

• Part 4: Maximizing Opportunities in the Talent Shortage: Why Middle Market Companies Could Be Your Best Move

Links to Sources:

• Talent Acquisition Trends 2024:?Korn Ferry Talent Acquisition Trends 2024
• SHRM - Developing Employee Career Paths and Ladders:?SHRM Career Paths and Ladders