As an HR or talent professional, you’re keenly aware of the disturbance an unexpected departure can cause in your organization. When someone leaves, the priceless knowledge they build up over their tenure walks out the door with them. Established workflows and team dynamics are impacted too.

The absence of a succession plan can clearly cause disruption at every level of an organization, but the damage often goes beyond operational hiccups. There are less obvious outcomes to consider. Staying prepared with a robust strategic plan and appropriately powerful succession planning software is crucial.

Read on to learn more about the hidden costs of not having a succession plan and to see how PeopleFluent can help.

What Companies Without a Succession Plan Risk

Appropriate succession planning ensures talent with the right skills will be able to fill an unexpected vacancy—steering clear of disruptions to productivity and team dynamics. Hiring external leaders is also often more expensive than promoting from within. Recruiting fees and onboarding time can all add up quickly to account for a costly investment.

It’s not just about avoiding temporary chaos and upfront costs, though. Fail to implement succession planning, and your organization is also at risk of poor performance, strategic stagnation, loss of competitiveness, and talent attrition. Companies that neglect to plan for leadership transitions often find themselves caught in a reactive cycle that hampers long-term success. Here’s why:

Loss of Trust and Disrupted Performance

Employees need leadership continuity to build trust, without which performance can stagnate. When a key leader is replaced, teams require time to build trust with their new leader and get productivity levels back up to normal. The other side of the equation is also true: It takes time for leaders to learn to trust new teams. Losing a leader may mean reports need to prove themselves to a new manager or department head. Research shows that this can be detrimental to their well-being and affect employees' ability to perform. Employees who do not feel trusted by their employers report 2.3 times higher stress and anxiety levels, and 2.1 times worse access to relevant people, files, and resources at work. Conversely, those who do feel trusted are 1.2 times more likely to say they’re willing to go above and beyond in their roles.

This is why key leadership changes or gaps can lead to poorer performance, in addition to slowed decision-making or stalled initiatives within teams and departments. Business continuity suffers as interim leadership scrambles to build trust with their followers and stabilize team dynamics to maintain performance levels.

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Loss of Institutional Knowledge and Competitive Advantage

Veteran leaders carry invaluable insights that may not be immediately obvious. While you can map a departing leader's skillset onto a replacement fairly easily, accounting for implicit knowledge and experience will be much more difficult. It's no wonder that 50% of HR professionals consider knowledge of organizational culture the most important consideration when crafting succession plans.

While business goals and strategies can quickly be communicated to new talent, the contexts and challenges surrounding those aspects of your organization are less easily picked up. Navigating challenging client relationships, managing difficult teams, and assembling a deep understanding of existing workflows are all the results of lived experience at work.

Without proper knowledge transfer and an appropriate transition plan, the wisdom leaders accumulated will walk out the door with them when they leave. This forces new leaders to start from zero—building up their knowledge from scratch as they immerse themselves in a new environment. This can distract them from long-term goals and grind strategic innovation to a halt. When leadership gaps persist, organizations struggle to execute strategy, innovate, and respond to market changes—giving competitors the opportunity to pull ahead.

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Decreased Employee Morale and Engagement

Uncertainty about the future can create anxiety throughout the organization. When leadership roles are filled reactively (or by outsiders who do not understand the culture), trust and engagement may fall.

Employees look to senior leadership to offer a sense of stability, and even to inspire a positive vision of the future, according to Gallup researchers. They found that employees significantly valued leaders who inspire them to hope, especially if leaders are in a very senior position. “People view organizational leaders through a different lens than they do managers and colleagues,” the researchers write. Employees are 64% more likely to say they need to see hope in an organization's top leadership compared to their expectations for managers or other senior colleagues. “The more senior a leader is within an organization, the more followers look to them for hope and inspiration,” Gallup researchers write.

Without a sensible succession plan, employees may lose a positive vision of their organization's future, which is essential for preventing them from jumping ship. The risk of attrition can rise even more if a talent gap places additional pressure on employees who stay behind, leading to resentment or even burnout.

Missed Development Opportunities

Poor succession planning not only leads to talent gaps, it can also cause missed talent opportunities. There’s a hidden cost to overlooking high-potential employees. These skilled, driven people need to be appropriately challenged with fresh and targeted training that makes the most of their potential.

Without a strategic succession plan, potential internal successors may never be identified. This means they don’t receive the training or opportunities they need to grow into leadership roles. Over time, this can lead to demotivation and talent drain as ambitious employees look elsewhere for the senior roles they desire.

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Avoid These Pitfalls With Strategic Succession Planning

With the right approach, you can steer clear of the harmful outcomes above. Consider the following steps:

1) Identify Key Roles

The first step to a successful succession plan is to identify the most valuable roles within your organization. Work with stakeholders across departments to agree on which senior roles account for cohesion and productivity. Having a clear idea of where these roles exist in your organization will help you prepare for potential future vacancies.

2) Assess Internal Talent

Next, it makes sense to take a close look at the talent that currently exists within your organization. Are there high-potential candidates you could prepare to potentially step into a leadership vacancy? Collaborate with managers and team leads to gain the insights you need to nurture high-potential talent.

3) Create Development Plans

Once high-potential talent has been identified, executing a targeted development plan is crucial. Throwing whatever skills training you have to hand at the wall to see what sticks wastes time and frustrates high-potential talent. Instead, make sure you close any gaps strategically with targeted learning that addresses shortcomings to progress talent to the next level.

4) Review Succession Plans Annually

The landscape in most industries can change on a whim. It's important to review succession plans annually to keep them aligned with shifts in the environment, as well as strategic priorities and personnel changes.

Get Full Visibility and Control With the Right Software Solution

PeopleFluent Talent Management is the ideal software solution for strategic succession planning. It's a comprehensive talent management solution that gives you full visibility over the key roles and skills that exist within your business. It also provides you with the insights you need to identify high-potential talent by integrating with your existing employee data, helping you effortlessly keep track of employees who consistently outperform the rest. Comprehensive scenario planning with an intuitive drag-and-drop interface helps you prepare for tomorrow while you develop your bench today.