When it comes to succession planning, companies have traditionally adopted the talent pipeline approach, in which an employee works up through the levels, attaining a series of predefined promotions from post to post. Yet the name alone suggests it’s hardly the best fit for a dynamic modern age.
In fact it all sounds rather Victorian, as if companies are syphoning new recruits into a rigid duct and expending vast energy pumping them up through the organisation. Turn on the tap at the other end and out pour the leaders, swimming in a higher pay bracket.
At least a pipeline is time-tested and, you’d think, reliable. Under this model a new graduate can be taken on and have a whole 40-year career mapped out in front of their eyes, often with clockwork precision. Yet there’s an unfortunate truth facing many companies looking to develop talent in this changing business environment – this pipeline may no longer be fit for purpose.
For starters, companies don’t tend to function how they used to. Individuals can expect to work with a more diverse range of people within the organisation, across a wider geographical area, than when the pipeline model came to the fore. Reporting is becoming less linear in this collaborative age and goals are shared across departments. And those goals are changing a lot faster than they used to, as is the nature of new challenges a company will face.
It follows that companies aren’t necessarily looking at candidates in the same way these days, and there has been a move towards judging candidates less by technical nous than by soft skills such as values and standards.
Even typically hard-edged sectors are experiencing a shift. Now a company like McKinsey, typically seen as elitist, has designed a way for someone with a medical degree to thrive at the company. Meanwhile, financial services company Société Générale is quick to announce that it would rather take a measured gamble on an employee on potential and a sense of mutual trust, rather than more orthodox skills. It then benefits from leaders who know the organisation and its clients from various perspectives.
But it’s not just organisations that are changing. Individuals’ expectations of work are evolving too. “There’s a desire among people to experience different things,” says Julian Birkinshaw, professor of strategic and international management at London Business School. “Thanks in part to the rise of the internet, we have a more fluid labour market and people no longer see their role as a job for life. Hence there’s no longer any stigma around moving about.”
This is what CEB, a member-based business advisory company, defines at the “leaky” pipeline. Having worked with 16,000 senior leaders across 6,000 organisations, CEB reports that 55 per cent of high-potential candidates will leave the talent pipeline before they reach their intended post. This means that all the time, money and effort that went into grooming that particular person for that role simply seeped away before they even splashed down into the chair.
The pipeline may be flawed in other ways too. Thanks to the changing nature of companies, it may lead nowhere. According to CEB, 13 per cent of leadership positions were eliminated in the past year and 31 per cent of those who find themselves promoted to leadership do so in newly created positions.
The pipeline can also “clog”. Almost 75 per cent of people identified as potential successors do not perceive significant opportunity for career progression at their organisations, according to CEB. Then there’s what CEB calls the “rusty” pipeline where 32 per cent of organisations would change the members of their leadership team if given the opportunity. In other words, what’s coming out of the tap at the end of the pipe isn’t always drinkable.
“The old approach doesn’t work anymore,” says Steve Meyer, CEB’s group president and chairman of the Leadership Transition Institute. “We surveyed companies on the readiness of their leadership bench [those lined up to succeed in leadership roles] and found only 2 per cent felt ready for the future.” This can prove costly. According to CEB, those companies that failed to invest in their leadership bench could expect only half the revenue and profit growth of their more versatile rivals.
Anyone suffering a leaky, clogged or rusty pipeline would do worse than to look at the tech companies of Silicon Valley, where the talent model is about as far as one can get from the rigid or prescriptive. It’s an extreme model as the Valley’s labour market is unusually fluid, driven by the fact that experimental companies spring up and die out at a ferocious pace. Workers are loyal to the Valley, rather than any particular company, and everyone shares their knowledge and ideas.
The average company won’t be so free or so open about sharing their best people with their rivals. For them the answer may well lie somewhere between this and the rigid traditional pipeline, in creating a version of the Valley culture internally. “Many companies have had to realign their expectations about how much people want to be moved around,” says Professor Birkinshaw. “So they are starting to favour a hybrid succession model, somewhere between the traditional allocation of a career path and a completely free market where every job is up for grabs.”
This new model may, for example, involve keeping the organisation’s options more open and responsive to an increasingly uncertain future. When UIL Holdings, a Connecticut-based utilities company, opted to change its leadership culture from the highly specialised to a broader, enterprise perspective, it did so by training all leadership candidates to potentially lead in at least two departments.
Meanwhile roles themselves are apt to become obsolete. Russian and Indian telecoms group MTS has tackled this by identifying job roles that could become critical in the future and running them as prototypes, allowing them to prepare potential leaders to be more relevant.
Enterprise Rent-A-Car also follows a non-silo-based course of promoting from within, something which Donna Miller, European HR director, considers a “fundamental part of our company culture.” Ms Miller claims that almost all employees there have worked from the bottom up and have attained a genuine understanding of the business as a result. “We want them to apply what they have learnt during that time elsewhere in the company,” she says. “Because of the vast number of job avenues and new challenges available to employees within the business, people opt to stay at Enterprise.”