Feature

How succession planning saves cost

Sudipta Dev analyses how a successful succession planning strategy can be cost-effective for an organisation.

A successful succession planning programme is one of the greatest achievements for any HR department. The best answer to counter the problem of attrition, the cost savings aspects is one of the strongest reasons in favour of implementing a succession planning strategy. The truth however remains that the process of identifying and grooming the right talent to ably take over the leadership responsibility, is an achievement which few organisations can boast of.

One of the biggest advantages of succession planning is the savings factor, which actually adds up to a sizable amount if one takes into account the cost of hiring an outsider, his training and the time lost in bringing him up to the same level of productivity. “Succession planning not only saves on hiring costs, but also on the opportunity cost that is involved in hiring and training the new incumbent,” says Hamsaz Vasunia, Associate Director, EmmayHR Services. While calculating these costs, Vasunia believes that one should take into consideration not just the cost of the hiring medium (recruitment partners, advertisements, etc), but also consider the man-hours deployed by the management team in the hiring process.

Calculating the cost

Just the cost of searching for and hiring a replacement is not the only expense, several other aspects add to the total amount. J P Santhanam, Director, SecureSynergy points out, “Time of management and senior managers will not be diverted to this requirement and business opportunities will not be hit, due to uncertainty and slack that may creep into the system which would result in loss of opportunity and business.” He adds that any new person coming in, however capable, will have a learning curve directly proportional to his ability and the complexity of the business, and this learning curve will be non productive for the system and as such will impact on slowing down of business and not to mention the loss of opportunities which is intangible.

Not having a succession plan in place can be expensive for an organisation. Well developed career tracks are a great retention tool. “Retention is essential considering the recruitment fees, loss of productivity because of open key positions, cost may be extended till the new employee is hired, trained enough to carry on the function further,” asserts Geeta A Sundrani, Director, Oasis, an executive search and management consultancy.

The process of developing people for key positions has its own way of ensuring return on investment. “While people are being developed in the organisation, the most important developmental activity is job assignment or work experience, so they spend considerable time balancing the organisation’s need to fill vacant positions with assignments that will help key people grow and develop their potential,” says Sundrani. The other variety of developmental activities including mentoring, coaching, job rotation, educational programmes that again involve negligible cost in comparison to the RoI. The returns while they are being developed are also enormous as there is increase in productivity.

“We can calculate what we have saved by succession planning by taking in consideration the potential recruitment cost, training cost, average opportunity and productivity loss,” states Sundrani, adding that while there is no benchmark for calculating cost differentiate, it may vary from organisation to organisation. The calculation might not be accurate; but it is an indicator.

Hiring of outsiders

In a dynamic growth scenario, it is common for organisations to focus on business growth and overlook the need for investing in employee development. Vasunia concedes that the leadership and management of these companies are so busy taking care of the additional business and sales that developing their people to take on higher responsibilities is least of their priority, “This results in them having to look at external candidates who have been in similar roles with readymade competencies so that they can be productive on Day 1.”

K Madhava Rao, Vice-president, Global HR, Systime, explains why are internal people often overlooked for senior positions and outsiders hired:

• There is more credible process available in the organisation which creates requisite quality of talent
• Organisations often need a fresh breath, new perspectives, new convictions and a courage which is not hindered by the burden of legacies
• Internal power plays

Despite the fact that succession planning creates a positive culture, it does not solve all the problems. Rao feels that it can also lead to a degenerative effect, similar to genetic disorders that creep into marriages among close siblings because of the in-breeding process. “We need to give way to fresh blood and newer perspectives that come from hiring someone external to the organisation, which ultimately fructifies into sustained growth,” he asserts.

Succession planning is a luxury which only large organisations can afford as the opportunities are evidently more. “More opportunities are available to cross-train. In smaller companies staff turns over only when the person in the next role retires or takes a new position,” avers Sundrani. Santhanam acknowledges that most medium and small sized business may not have the luxury of having an understudy in place long enough for a smooth transition, in spite of the fact that they know that this is the ideal and correct thing to do.

It is the responsibility of any organisation to promote internal talent and the inability to do so is a reflection of its failure in HR processes.