Published 2 hours ago
Submitted by T-Mobile
Originally published by Deloitte
By Lou DiLorenzo, Anjali Shaikh, Kristi Lamar, and Erin Clark
Readying the next generation of C-suite leaders for success is a core mission for any organization. For a variety of reasons, however, organizations often struggle to prepare their most promising future leaders. This isn’t for lack of awareness: Our own survey shows that many leaders recognize that succession planning is important, but only a few executives believe that they do it well.1
The problem, it appears, is that many companies find themselves unable to find the right balance between data-driven, “check-the-box” assessments, and broader, more interpersonal tools for identifying potential leaders. When grooming potential successors, CIOs and technology teams place special emphasis on technical capabilities, past projects, and other “deliverables.” While this focus is understandable, the result can be a narrow and shallow pipeline of future leaders, in addition to a dearth of diverse candidates to fill key roles throughout the enterprise.
According to research published in the Harvard Business Review, poorly managed CEO and C-suite transitions may result in nearly US$1 trillion in lost value in the S&P Composite 1500, which represents 90% of US market capitalization. What’s more, the analysis found that stronger succession planning could boost company valuations and investor returns anywhere from 20% to 25%.2
This is particularly true in the technology function: In a Deloitte survey of nearly 400 senior IT leaders, 75% said their technology department had an authentic commitment to diversity, equity, and inclusion (DEI), but that women and non-white workers made up only around a quarter or less of leadership teams—far from representative of the working population (figure 1). Those pledges to bring a wider range of people into technology fields may be a priority for IT leaders, but executives frequently struggle to pass the baton to diverse candidates: Companies often haven’t built diverse networks or recruited talent that more closely resembles a broader multidimensional workforce.
Still, there are some leaders who have found a way to do succession planning successfully and thereby create a viable pipeline of diverse candidates. This article, ninth in Deloitte’s DEI for Tech Leaders series, aims to capture their views and provide a set of guideposts and principles to help CIOs transform their succession-planning efforts to better prepare and promote a truly diverse slate of new leaders. These technology leaders recognize that they stand to benefit from the proven value of diverse leadership teams,3 thereby meeting stakeholder expectations for responsible and equitable business practices and creating better outcomes.
Anticipating obstacles in the distance
First, let’s consider why succession planning is difficult to do in any context. Short-termism often drives the priorities of many C-suite leaders, whether they prefer it or not. When executives focus their efforts and are rewarded on quarterly results and other near-term metrics, longer-range objectives such as succession planning don’t receive the attention they merit. Moreover, until succession planning is built into the priorities of a C-suite leader, it will be hard to get those leaders to take that responsibility seriously—especially if they think succession planning undermines their own authority.4
This is a glaring problem: Nearly a third of newly hired executives fail within the first 18 months, primarily because of poor culture fit.5 Such a high rate of immediate failure suggests that recruitment and placement efforts in the C-suite overlook significant signals of future success or failure. But is anyone being held accountable for this blind spot? The short answer is, no. In a year-long Deloitte study on the barriers and enablers of successful leadership succession activities, many leaders said they simply couldn’t identify who was accountable for driving succession plans to completion.6
The Harvard Business Review research explained the cost to the enterprise—the study shows that the decrease in intellectual capital at newly hired executives’ previous employers amounts to a US$255 billion annual reduction in total shareholder returns each year. For context within IT, in a three-year analysis of CIOs at Fortune 500 companies, just over half (54%) were internal hires. The problem, it appears, is that succession planning for these senior roles is often done on an ad hoc basis.7
“A lot of people approach succession planning by saying, ‘Who can slide into this chair, be the least disruptive, get promoted most graciously, and keep the drumbeat going?,’” says Travis Osborne, vice president of information technology for Apache Corporation. This assumption, he says, that new leaders can slide into an executive role without proper preparation is a disservice to organizations and new leaders alike. “Those can be expensive mistakes if you just ‘stay the course,’ and that’s counterproductive to succession.”
A better approach, says Osborne, is to look at succession as an opportunity to find a new set of perspectives in leadership—not just a carbon copy of the person who held the position before. As he puts it, “You need to freshen the perspective periodically, especially in technology. When you’re looking for a successor, don’t be afraid to look across the aisle toward other skill sets that you don’t have.”
Preparing high-potential talent for takeoff
CIOs have to grapple with additional hurdles to good succession planning. For example, it is assumed that future CIOs and technology leaders must have technical backgrounds and skill sets—and there is no room for compromise on those expectations. Because of the technical nature of the issues facing CIOs and the near-constant change in the technology space, CIO candidates are expected to have full mastery over a range of business-specific applications and issues such as cyberthreats, blockchain, artificial intelligence (AI), remote-working processes, and cloud, to name just a few. Projects and deep insights into these are often considered “must-haves” in a CIO candidate (figure 2).
While tech fluency is important, it’s not the only skill set that determines success. Having such a hard-and-fast rule for past experience can be costly.8 The pool of candidates, by definition, becomes far smaller; what’s more, based on the struggles of many new CIOs, it’s clear that the resulting candidates haven’t proven that past experience is any indication of future performance.
Consider that CIOs are averaging just over four years on the job, among the shortest tenures in the C-suite, with briefer stays in role on the rise.9 Given the sheer pace of technology disruption that can emerge within that span of time, not to mention the competition for talent at all levels, organizations are at a disadvantage if they limit the kinds of candidates they consider to those with a predetermined list of demonstrated capabilities. Another flaw in a skills-based approach to succession is that it may be one-dimensional. Potential candidates do better when they have a broad exposure to other parts of the business, says Summer Houchens, associate vice president, Information and Digital Solutions at Eli Lilly and Company. Such rotations for potential IT leaders help them become well-rounded and operationally literate.
“Early on, I was given opportunities alongside my finance and marketing counterparts,” Houchens says. “I also had a mentor who worked with me on my communication skills. As we think about succession planning in IT, think about the training necessary for leaders to help them grow.”
A critical challenge facing any organization seeking candidates for leadership is context: There are many scenarios that can precede such a leadership change, and the candidates must match the expectations. In today’s environment, where the future of many organizations depends on technology, CIOs are expected to drive transformation, but are not always prepared to deliver results as fast as expected. An analysis of CEO succession at 200 organizations over 15 years found that insiders typically don’t change a company’s trajectory.
This complexity is apparent among CIOs, too. After synthesizing data from more than 200 CIO Transition Labs organized by Deloitte, internal candidates (64%) were almost twice as likely as external hires (36%) to be selected for the CIO role. But when a former CIO was demoted, asked to resign, or the CIO position did not previously exist, companies preferred external candidates by a two-to-one margin.10
“It’s not always cut-and-dried as to whether the team you have in place has the capability to step up,” says Laura Miller, CIO at Macy’s. “There are times when you have to move really fast. And when you have to do so, sometimes you have to bring in outside talent. But I think it’s got to be a combination of internal and external talent when you’re in a big transformation.”
Grappling with gravity: How people pose the biggest barriers
As much as organizations struggle with a skills-based approach to succession planning, the biggest hurdle appears to be in how future leaders are evaluated on an interpersonal level. Many organizations pay too little attention to leadership development as a person-to-person endeavor. One basic and incorrect assumption is that incoming executives don’t need much help from current leaders. Typically, candidates are asked if they are ready for a new challenge, when they should be asked how they want to be prepared for new responsibilities.11
In addition, incumbents often fail to see the value in actively participating in succession activities, viewing the process as a threat to their own standing.12
Larry Quinlan, retired Deloitte Global chief information officer, suggests that this can be overcome with a reframing of the issue for incumbents—instead of feeling threatened by succession planning, they should feel empowered as part of their legacy-setting process.
“You shouldn’t look at the organization and say clearly, there isn’t a single person who can do any part of this job and we must automatically look outside,” Quinlan says. “I look at succession in the broadest possible way: to ensure that I get my say in who could be a successor today, or tomorrow.”
To help ensure that the net is cast wider, Deloitte’s Advisory and Consulting practices have built a succession management tool that facilitates a more efficient, secure, and advanced process while enabling leaders to address bias in selecting a successor. The process prioritizes developing a diverse, inclusive, and high-performing pipeline, and deploying leaders against their highest and best use in client leadership roles. By providing a real-time view of attributes along with historical succession data, the tool provides additional views of the candidate pool and past succession decisions that may have otherwise been missed, as well as insights into the pipeline of next-generation successors to target for development. With an abundance of data and thousands of potential candidates for each leadership role, a one-stop-shop for pulling broad candidate lists has helped Deloitte to build a robust and holistic succession-planning process that balances technology and data with the offline, personal side of the equation.
As incumbents make plans to depart, up-and-coming leaders should in turn look for ways to fill the void. The onus is on successors to make the move: Lilly’s Houchens views each opportunity in which a leader steps aside as a chance to hone executive and mentorship skills.
“Step into those leadership gaps,” advises Houchens. “The person may have been someone you relied on and others relied on; what gaps have they left that you can step into, and see what you can do for others. Become a mentor for someone else. That mentor you’ve relied on has been greatly important to you and others, so use it as an opportunity to cultivate new relationships, explore new opportunities, and give back.”
Locating new talent on the radar
Bolstering leadership ranks with diverse candidates is one of the most persistent challenges in the technology sphere. For instance, gender diversity ranks high as a priority for technology executives, and there’s a business case for it, as the presence of women in leadership often correlates to stronger financial performance, healthier team dynamics, and higher productivity.13 But a “leaky pipeline,” starting in the education system, results in a decreasing share of women ascending to senior leadership roles.14
Although there’s broad agreement in the IT workforce that DEI is a strategic imperative, workers from different backgrounds and experiences hold vastly different views on the progress of their organizations against these goals. For one, there’s disagreement on the expected time horizon required for achieving gender parity. In Deloitte’s 2021 survey of DEI issues in technology, women and non-white workers were less likely to believe that gender parity already exists within their current technology function. In addition, men were 1.5 times as likely as women to view themselves as “tech-fluent,” while 97% men and just 78% of women viewed themselves as a “technologist” (figure 3).
There’s also a significant gap in how men and women view their companies’ approach to inclusion, according to our research. Women in tech were less likely to believe their organization’s commitment to positive DEI outcomes, with women 22 percentage points less likely than men to believe their technology department has an authentic commitment to DEI. And while 84% of men responded that the DEI vision and strategy is known throughout the company, only 60% of women agreed—a gap of 24 percentage points. The problem appears to be closely linked with the relationship between DEI initiatives and succession planning. Even if DEI initiatives are well-structured and tracked, they have to tie back to one of the most important factors in an employee’s experience—the opportunity for advancement and promotion.
“Succession planning, especially in informal structures, tends to get done based on familiarity,” says Elizabeth Hunter, senior vice president, product and technology, at T-Mobile. “That’s been one of the holdups to introducing more diversity, especially in tech.”
As companies consider how to diversify their ranks in the context of leadership succession, it’s important to have transparency in the promotion process and clear expectations for incoming leaders. Successors and incumbents alike should also aim to build influence among their peers to move succession planning to the top of the agenda.
Miller says companies can accomplish this by inviting direct reports to observe and participate in decision-making and encouraging those team members to identify high-potential talent within their own teams. “It’s important to say, ‘I’ve got a couple of successors here, and I’d like to rotate them through so that they can understand what the job looks like,’” she says. “If you have a successor that you’re grooming, you’ve got to create those moments. And I don’t think enough of us do that conscientiously.”
Hunter’s message to prospective executives and incumbents, respectively: “It’s important to know what criteria a company has for getting to the next level so you know what to work toward—and for you as a leader to help people get there based on whatever information you’re able to share.”
Ensuring a smooth orbit: Advice for technology leaders
Two organizations involved in executive succession exercises that took different approaches show how some best practices can build trust in the process and lead to better succession planning.
One of the companies used a performance evaluation process to assess its top 50 leaders. The company emailed the leaders but didn’t specify in detail how the information would be used. This caused frustration and anxiety among the leaders. By contrast, a separate company pursuing the same goal of assessing its leaders took a more thoughtful approach. The company scheduled one-on-one meetings with each leader to discuss how performance objectives would be evaluated. Not surprisingly, leaders from the latter company were more engaged in the process and trusted its outcomes.15
Clearly, the first company was following an approach that appeared to be transparent and process-driven, but produced none of the kind of results one would hope to gain for a succession plan. By creating more questions about the motivation of the written evaluations, the company essentially closed out the possibility of more open-ended conversations with their most promising young leaders on what they are seeking to do next, and how they can achieve those goals. By comparison, the second company’s more open-ended, one-on-one meetings with young leaders led to fruitful discussions. Moreover, these discussions demonstrated that the company’s most senior leaders were seeking out future leaders with very few preconceptions about who those leaders should be.
From the examples set by technology leaders who have either had a successful transition into a leadership role or prepared someone else for one, we’ve learned some core lessons and practices that any organization can embrace.
- Adopt a succession mentality. Just as leaders should always look to inspire and support innovation, they need to maintain an ongoing focus on future talent. Succession done on an ad hoc basis is like any other strategic initiative done on the fly: It is disorganized and likely to fail. In fact, the ad hoc nature of most succession plans may explain their significant failure rate. Planning for one’s replacement should be considered a central part of any leader’s portfolio, even on their first day in a new and elevated position.
- Lead from the top. A Deloitte study on gender diversity in the boardroom in the financial industry found that “organizations with women in the top leadership positions have almost double the number of board seats held by women.” The analysis also revealed a threefold increase in senior leadership for each additional woman added to the C-suite.16 Expanded efforts, including mentoring, coaching, and sponsoring, can boost representation, says Quinlan: “Over the past few years, I spent significant time thinking about the kinds of people we needed to bring into the organization, and very intentionally asked questions about percentages of women, about my ability to actually mentor and sponsor specific people. Succession is about all the leadership roles in the organization, the kinds of people who embody the values of the organization, and people who are also going to shake up the organization. And this means making sure we specifically have women in important roles.” Both men and women can assure this, but it appears that women in senior leadership roles beget more women in the leadership pipeline.
- Allow technology to guide—but not dominate—the process. Thanks to data collection, companies have access to vast amounts of information on the mood, intentions, and desires of their workers. But an automated HR system is just a starting point. This is where discipline comes in handy: applying data-driven insights so that subjective factors such as familiarity or influence aren’t the only elements shaping succession-planning decisions.
- Promote the three Es. Companies should aim to reward leaders for creating leadership development opportunities and environments with three specific elements:17
- Experience gives successors the opportunity to learn through intentional, day-to-day experiences.
- Exposure grants opportunities to learn from peers both inside and outside the organization, as well as professionals within the broader ecosystem across industries and functions.
- Education develops successors through formal training focused on building capabilities.
Macy’s Miller says that a proper investment in exposure requires an overall attitude that welcomes preparedness: “They need exposure to senior leadership to build confidence with those leaders that this individual is going to be ready to step in. I’ll spend more time with these individuals. They’ll be my right-hand people, helping with strategy and thinking about the next layers of succession. When you’re trying to groom successors for your role, it’s not just about their growth and development. It’s also about giving them that exposure.”
- Make succession goals transparent. Organizations that use accessible, transparent data collection can inspire trust in their succession-planning processes. Rather than performing leadership succession in a “black box,” hidden from view, companies should speak plainly and openly about the ways they spot new talent, offer opportunities to high-potential leaders, and track progress against company goals over time. “As technology leaders, it’s our obligation to make sure that the data is available and within technology specifically, how we use that to help us get better,” says T-Mobile’s Hunter. “You have to have data. You can’t just admire your problem or hope it gets better.” Apache’s Osborne says companies should show how and why they’re working to achieve inclusion in succession-planning efforts. “Sometimes it’s the language you use, sometimes it’s where you post the positions, or sometimes it’s how you phrase responsibilities,” he says. “People are starting to understand that this isn’t a campaign. It’s important to retaining people—and understanding why they leave.”
- Establish connection points between IT and the rest of the organization. Technology is no longer solely a back-end concern. With a mandate that extends across the enterprise, CIOs can use that exposure to help companies meet their succession-planning objectives. Think of the technology ecosystem, and the same principle applies—engaging with external partners to support the core and meet strategic goals.
- Understand that leadership is context-dependent. There is a tendency in many organizations—especially in the technology function—to seek out generic qualities in future leaders. Such organizations often discuss “grooming” future leaders. But in fact, the most successful transitions to new leaders are context-dependent—sometimes, an internal, culture-first leader is required as a replacement for an outgoing leader. In other situations, a change-focused leader is necessary to oversee a major transition to a new steady state. Sometimes, internal candidates will be the right fit; in other situations, an external candidate is best. Great succession plans consider talent sources for many eventualities.
- Jeff Rosenthal et al., The holy grail of effective leadership succession planning: How to overcome the succession planning paradox , Deloitte Insights, accessed February 9, 2022.
- Claudio Fernández-Aráoz, Gregory Nagel, and Carrie Green, “The high cost of poor succession planning ,” Harvard Business Review, accessed February 9, 2022.
- Kavitha Prabhakar et al., Smashing IT’s glass ceiling: Perspectives from leading women CIOs [figure 2] , Deloitte Insights, accessed February 9, 2022.
- Rosenthal et al., The holy grail of effective leadership succession planning.
- Rich Brennen, The state of the CIO in 2018: A three-year study of a rapidly changing role , Spencer Stuart, accessed February 9, 2022.
- Khalid Kark et al., The kinetic leader: Boldly reinventing the enterprise , Deloitte Insights, May 18, 2020.
- Khalid Kark et al., Taking charge: The essential guide to CIO transitions , Deloitte University Press, accessed February 9, 2022.
- Kark et al., Taking charge: The essential guide to CIO transitions [figure 2].
- Rosenthal et al., The holy grail of effective leadership succession planning.
- Prabhakar et al., Smashing IT’s glass ceiling.
- Anjali Shaikh et al., Repairing the pipeline: Perspectives on diversity and inclusion in IT, Deloitte Insights, October 15, 2018.
- Rosenthal et al., The holy grail of effective leadership succession planning.
- Alison Rogish et al., Within reach? Achieving gender equity in financial services leadership , Deloitte Insights, November 5, 2019.
- Rosenthal et al., The holy grail of effective leadership succession planning.
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