Companies must consider succession planning

With more than a quarter-million Americans turning 65 each month, there has never been a more important time for organizations to implement succession planning.

The next several years will be a crucial time for organizations to begin hiring employees to fill the large gap left by retiring Baby Boomers. As the economy begins to gain steam, Boomers’ retirement savings may finally see positive returns large enough to begin planning an exit strategy from the workforce.  The biggest challenge here is that there are not enough Generation X employees to fill the gap.

Young employee smiling. Organizations will need to hire from the Millennial generation, which will mean having to bring them up to speed very quickly. The questions organizations have to ask are whether they are willing to take the risk of waiting to see what the Boomers do, or be proactive and begin forming a succession planning strategy and not be caught short-handed.

To do this organizations have to assess their future manpower needs.  A thorough skills assessment can help point to areas where deficiencies can exist. Succession planning begins with hiring candidates who show potential leadership characteristics, not just skills to do the job they are looking to fill. It may take more work and a bit longer to find the right person, but it is an opportunity to build a long-term sustainable workforce. Also, managers should be looking to identify those individuals who are currently employed and who show an aptitude for leadership. Instituting a formal development program where employees can map their career track can be a tremendous incentive. One example is developing a mentorship program which is a great way to align senior leaders with those who exhibit potential.

With a potential exodus of a significant number of Boomers exiting the workforce in the near future, probably the largest concern for organizations is the loss of the “Knowledge Worker”.  Succession planning is more than just filling the positions of retired workers.  It is about facilitating a transfer of knowledge between the senior employee and the entry or mid-level individual who will have to assume a new role. This is where a mentorship program can help bridge the knowledge gap.

Due to the need to not only develop new workers but to transition older workers out of the organization, companies have incentivized higher-paid employees to take voluntary retirement packages so they can save payroll costs.  Employees who decline voluntary retirement may be laid off with an “involuntary package,” which is typically not as generous. The idea here is to create opportunities for the younger employees who will earn less, even with a pay increase and promotion. Although this sounds a bit harsh, I have seen employees who took the packages come back as consultants or contract workers for the same organizations and work on more short-term type projects. Unfortunately, when the project or contract ends, so does the relationship with the employee. For those who still need a steady paycheck, this can be a difficult lifestyle to lead.  Many of these “contract employees” end up looking to work elsewhere for a more stable income stream. It may be a good opportunity to fill a short-term gap but not necessarily a sustainable initiative.

Stephen Covey once said if you look to see how an organization today values its employees, look at a balance sheet.  Employees are found in the Liabilities column, under “Expenses”, because employees cost money! Wall Street has rewarded large companies for downsizing or restructuring through layoffs and severance packages. One of the quickest ways to cut costs is to lay off personnel, because within one payroll period, costs will improve; in some cases dramatically.

It is important to remember that down-sizing is necessary in many cases. Reducing payroll costs can keep a company operating in difficult times and still offer opportunities to the remaining employees and provide products and services to their customers. Baby Boomers, Gen-Xers and Millennials have all witnessed their parents’ losing their jobs after years of loyal and hard work. In my lifetime, I have seen my parents impacted by recessions in 1973, 1981, and 1990. Each of them worked hard, never took sick days, and went to work on scheduled days off without complaint. I remember it taking my father a very long time to find work again. I was a victim of the 1990 and 2008 recession and my family witnessed that for themselves. There was a feeling throughout our household that company loyalty no longer existed.

So how can we instill employee loyalty to organizations that seem to lay-off personnel in an effort to increase share price and show their skill at managing costs?  That’s where the Human Resources Department comes in with the manpower assessment I mentioned earlier. Managing human capital is just as important as managing product inventory or excessive travel expenses. If you subscribe to the idea that recessions occur every ten years, organizations can begin planning early for reduction in hiring as opposed to reduction in current workforce. Just as not wanting to sit on too much unsold inventory or utilizing more technology to reduce travel expenses, a proper succession plan can help stabilize organizations’ manpower operations and prepare for unexpected events.

When employees see that senior management has created a solid manpower plan, cut costs in all other areas before announcing lay-offs, there will be more buy-in.  If employees know there is a crisis looming and management has already reduced spending in other areas, they are more likely to feel like they too need to help in order to help the company weather a storm. Employees themselves can come up with innovative ideas to further improve efficiencies. This all starts at the top! If the senior leaders of the organizations are sacrificing, then others will too.


Chris Szpryngel is the Acting Dean of the Malcolm Baldrige School of Business at Post University. Szpryngel has over 25 years of experience in the Environmental Services industry as an entrepreneur, consultant, manager, and educator. He has developed, designed, and currently teaches courses at the undergraduate and graduate level, and is a recognized expert in leadership and business development, organizational learning, and management.

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