IMPACT OF SUCCESSION MANAGEMENT ON ORGANIZATION GOALS ATTAINMENT

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IMPACT OF SUCCESSION MANAGEMENT ON ORGANIZATION GOALS ATTAINMENT

CHAPTER ONE

INTRODUCTION

Background of the Study

The earliest author to support and accept the benefits of succession planning was Henry Fayol. As the managing director of a large coal mine in France, Fayol became fascinated by the practice of management, and mapped out the principles for effective organizations through his fourteen principles of management in 1916.He believed that deliberate leadership replacement planning was a requirement of managers and that it was the only way to avoid organizational missteps by putting persons in positions for which they were not ready. Stability of tenure of personnel as one of his principles, explains the need for employees to be given time to settle with their jobs, absence of which may lead to unnecessary turnover and bad management. This indicates that failure to prepare the workforce of tomorrow would lead to filing leadership vacancies improperly. Fayol was also passionate in his belief that all employees should have a chance to prosper and that talented employees could climb from the lowest to the highest levels of the hierarchy. (Rothwell 2005, Weihrich, Cannice, and Koontz 2008)

It was research into the impact of leadership changes in baseball team performance that perhaps triggered interest in succession as an important organizational activity (Azure, 2008). Gamson and Scotch (1964) put forth a ritual scapegoating theory of succession that was demonstrated through the work of their study of professional baseball. The team owners and general managers generally have a more significant role in obtaining talent and conducting the operations of the team, but when the performance of the baseball team falters, the on-field manager (or coach) is the one that is publicly fired, ultimately displacing the blame, and creating

a succession approach. (The Leadership Quarterly 2005)

Succession management as a formal mechanism probably made its biggest advances with the rise of the “corporation” in the 1950s and 1960s. Growing complexity of size and organizational scope demanded a more systematic way to capture information about individuals, their performance, potential to progress and readiness to take a greater responsibility(Azure, 2008).. Directors and shareholders of multinational companies such as Pepsico began to worry about the future success and direction of their organizations. They realized that by planning who would take over senior positions, they could help ensure company growth and stability. By following the ideas of Fayol and example of pepsico and others, major companies began to adopt succession strategies. Toyota, International Business Machines (IBM), General Electric (GE) and Microsoft are now among the globally – recognized names that use succession planning (Continuum Briefing, 2013)

Grusky (1960) who puts forth the vicious-circle theory states that succession is a universal organization process and its absence leads to organization instability. The incidence of turmoil through changes in policies and practices put forth by the new leader is a part of the vicious circle. Grusky developed research methods to test hypotheses within succession and pave the way for other researchers to follow. His basic reasons for the study of succession were hinged on the following: that administrative succession always leads to organizational instability and that succession planning is a phenomenon that all organization must cope with.

Kesner and Sebora (1994) observed that it was Walter Mahler (1980) that first recognised the advantages of succession planning to companies’ performance and encouragement to preplan for transition by focusing on impacts of succession such as company size, type, industry,

methodologies, internal versus external candidates, psychological characteristics with succession, and more in his research.

In the traditional and replacement method, when a business leader retired or died, the organization would appoint a successor, without proactive reasoning but on impulse with the belief on candidate’s abilities, or someone trained for the post would simply step into the role, or in the absence of an obvious candidate, rivals would compete against each other for the right to become leader. Allen (2005) agreed that this was the replacement method and was the traditional method used to fill vacancies in leadership and that it consisted of pre-selecting substitutes for key position. A brief training period may have been implemented to provide the future replacement with information pertaining to the job they might need to fill. Emphasis was placed only on replacement as an answer to vacancies created by a tragedy, such as death or a decision to leave for another position.

Allen (2005) points out that the replacement method has been utilized for decades with relative degree of success because:

1. Organizations were more stable and there were fewer changes in job responsibilities or titles.

2. Technical changes were not as rapid and were more easily anticipated. 3.There were more middle managers available for replacement training.

4. The human resource department employed larger members of staff that were dedicated solely to personnel development.

5. Typical career ladders were rigidly determined and employees rarely tried to deviate from the normal promotional routes.

Succession planning is different from replacement planning because it focuses on

forecasting organizational needs. It is not based upon reactions to an unforeseen event. It is based upon proactively securing the human resources needed with regard to their talent in order to ensure the conformity and prosperity of the organization. Armstrong (2009) in agreement with this posits that talent consists of those individuals who can make a difference to contribution or in the longer term by demonstrating the high levels of potentials and that talent should be observed and cultivated from within the organization.

Corporate organizations must therefore think more strategically in terms of their talent roster. An organization ability to master the abundant labour challenges may make the difference between overall organization success and failure. Some of the organizational changes that make the traditional replacement method obsolete for today’s organizations include:

1. Skilled employees have many choices. Promotion does not necessarily mean upward mobility.

2. Technology is changing faster than ever before

3. Downsizing has eliminated layers of middle managers that would have been suitable candidates for leadership mentoring.

4. Decentralization of human resource function has created a fragmented organization effort. 5.Upper level executives are met by increased demands. This makes it difficult to dedicate

the time and effort required to develop the next level of leaders

6. Executives have a multitude of choices when it comes to career opportunities and employee loyalty is relic of the past.

7. Trends such as outsourcing, automation, and global competition have increased the labour crises in corporate organization (Allen, 2005).

There has been a renewed interest in leadership planning and the need for new models that

reach beyond a single emergency successor since the mid 1990s. Hence the process of succession planning has subsequently emerged from a simple back of the envelope process in the 1960s to one that is highly strategic, objective and formalized to yield broad talent pool rather than limiting the planning process to a single successor (Fulmer and Conger, 2004).

Pearce and Robinson (2005) distinguish between the traditional and the modern methods as they posit that today’s competitive environment requires a different set of management competencies than we traditionally associate with the role. The balance has clearly shifted from attributes traditionally thought of as masculine (strong decision making, leading the troops, driving strategy washing competitive battle) to more famine qualities (listening, relationship building, and maturity). The model today is not much “take it on your shoulders” as it is to “create the environment that will enable others to carry part of the burden.” The focus is on unlocking the organization’s human asset potential. Kesler (2002) in agreement with Pearce and Robinson submits that the most important change that occurred in succession management in the recent years is the paradigm shift from replacement planning to talent development .Whereas replacement planning focuses narrowly on identifying specific back-up candidates for given senior management positions, talent development concerns itself with building a series of feeder groups up and down the entire leadership pipeline or progression (Charan, Drotter, and Noel, 2001).

Many management scholars argued that traditional succession planning as used in the 20th century is now very inappropriate and inadequate. McKinsey (1997) declares them a failure and the most under-managed asset for two decades. As a result, attention has shifted from mere replacement planning to make leadership bench deeper. Admittedly, most position driven replacement planning is a forecast which does little to change leadership readiness. In other

words, very little is different after companies invest months in completing detailed executive replacement plan. In agreement with McKinsey, Kesler (2002) opines that most position driven succession planning gently militates against change because filling in succession chart often produces a sense of accomplishment. As a result, attention is shifted to attracting and grooming best talents. Hirsh (2000) asserts that active development of a strong and deep talent pool for the future is seen as the best way for planning succession. This is also seen as vital to the attraction and retention of the ‘best’ people.

Apart from shift in emphasis from replacement planning to talent development, other changes that have taken place in the practice of succession management include:

– Planning for ‘pools’ of jobs where possible, not just for individual posts.

– A more devolved model, with only very senior roles and small high potential’ population planned for the corporate centre.

– Acceptance of the need for a more diverse senior management group with functional strength as well as general management skills.

– Consideration of future skill needs as well as current skills (linked, but not restricted to competence framework)

– Enthronement of meritocracy philosophy that is more on the performance, skills and potentials of individual.

– A collective management process for identifying successors and taking responsibility for their development.

– More involvement of the individual and a gradual shift towards a more open approach this includes adapting succession to take account of increasingly open internal job advertising.

– Less emphasis on ‘the plan’ but more on the dialogue and the valuable database which is built through the process and which can be used in a variety of ways such as during candidate search or reorganizations.

– Line ownership of succession planning process often led by the CEO with active facilitation and support from HR.

The central idea that brought about the new trend and changes in succession planning is the realization that succession planning needed to be refocused away from replacement planning to include a more comprehensive set of assessment and development practices that support flow of talent from entry level recruiting to general management selection (Dessler, 2007).

In Nigeria and other parts of Africa, family business constitutes the oldest and most dominant form of business. The traditional practices in this part of the globe support the sharing of the businessman assets among his relatives, children and sometimes wives in the event of his death. Bernes and Hershan (1976) submit that the question about succession within the family members could be very sensitive subject since it is somewhat taboo to discuss matters that could be related to death. Forrest, 1994, Wild, 1997 as in Maphosa(1999) submit that indigenous Africa enterprises have very often died with their founders. Willer (1996) in a study in Nigeria discovered that many of the founders of businesses she studied did not have clear succession plans (Maphosa, 1999).

Levensaler (2008) submits that there are nine key challenges facing organisations in their current business environment that compel them to embrace the practice of succession management.

They are:

– Gaps in leadership pipeline

– Creating a performance-driven culture

– Difficulty filling key employees position

– Retention problem

– Developing new skills to meet business conditions

– Hiring people quickly due to company growth

– impending retirement of key workers

– Downsizing the organisation’s workforce

In agreement with Levensaler, Cerder Crestone (2008) reports that he following challenges are crying for attention of succession management:

– Leadership gaps are not closing

– High proportion of key talents are at the risk of turnover

– Executive recruitment is producing uninspiring results

– Inadequate career paths and ineffective line management are contributing to employee turnover

– Adjusting development programme to suit business needs

– Downsizing the organisation’s workforce.

Employment or personnel planning is the process of deciding what positions the firm will have to fill and how to fill them. It covers all future positions, from Maintenance Clerk to Chief Executive Officer. However, most firms call the process of deciding how to fill the company’s most important executive jobs, succession planning (Dessler, 2007). Rothwel (2005) defines succession management as a deliberate and systematic effort by an organization to ensure leadership continuity in key positions, retain and develop intellectual and knowledge capital for the future and encourage individual advancement.

It is of great necessity at this juncture to assert that the aforesaid brings to fore the importance of succession management as a tool for employees performance. It may be an antidote for moral and performance boosting as it recognizes and develops internal talents to amiable performance. Wilk and Capelli (2003) give credence to this as they agree that forecasting the availability of inside executive candidate is particularly important in succession planning as it enhances and boost performance. The active and positive support of people can be gained through succession management and correct succession management in an organization may reduce the need to bring in new talents and therefore reduces the expense of recruiting.

The Nigeria oil industry comprises of numerous companies; prominent among which are: Oando Oil Nigeria Plc, Conoil Nigeria Plc, Total Oil Nigeria Plc, Shell Petroleum Development Company Plc, Mobil Oil Plc, MRS Oil Nigeria Plc, and Eterna Oil Plc. The Department of Petroleum Resources is the official industry regulator, with the responsibility to supervise the activities of all companies licensed to operate in the industry. Hoffman and Womack (2011) posit that the oil industry is highly specialized and technical in nature with some companies having handful of non-executive employees-including some five or six layers deep in the organization – who have a significant impact on company results. These individuals have unmatched technical knowledge and experience that is critical to the company’s core mission in key areas such as geosciences, offshore and international operations, reservoir engineering etc. losing a handful of these pivotal talents over a short time frame would cripple some companies. Therefore, it has become critical for the oil industry to tap on succession management which may provide a significant long-term competitive advantage, ensuring that the company has the talent, skills and expertise to achieve its strategic objectives over time.

Statement of the Problem

Levensaler (2008) submits that there are nine key challenges facing organisations in their current business environment that compel them to embrace the practice of succession management.

They are:

– Gaps in leadership pipeline

– Creating a performance-driven culture

– Difficulty filling key employees position

– Retention problem

– Developing new skills to meet business conditions

– Hiring people quickly due to company growth

– impending retirement of key workers

– Downsizing the organisation’s workforce

In agreement with Levensaler, CerderCrestone (2008) reports that the following challenges are crying for attention of succession management:

– Leadership gaps are not closing

– High proportion of key talents are at the risk of turnover

– Executive recruitment is producing uninspiring results

– Inadequate career paths and ineffective line management are contributing to employee turnover

– Adjusting development programme to suit business needs

– Downsizing the organisation’s workforce.

Some business organizations pay less attention to their talent/skill gaps and make poor choice of leaders during leadership transition. This can disorganize the leadership transition and open such organizations to potential losses; which could be monetary or otherwise. Often the greatest loss to an organization from an ineffective leadership transition is the loss of mission- related activity and growth. When energies are focused elsewhere, mission-related opportunities are missed or are passed over from fear of change.

The increase in worldwide labour turnover and retention problems owing to attractive incentives offered by high grade companies for accomplished managers to join them has disrupted many organizations. Companies that are not prepared for accomplished managers’ departure may experience huge financial losses in filling the vacant positions created by their departure. More so, extended and prolonged vacancies can result to delay in projects, revenues are unrealized, accounts are lost, innovation is lost and employees’ morale may suffer.

When organizations put unsound human resource policies and practices (such as poor career development and disregard for skill and leadership development among others) in place employees feel unsatisfied, unsafe and may not work to their full potentials. The need to seek opportunities elsewhere is therefore encouraged and promoted.

The corporate environment has historically promoted employees with leadership roles thoroughly evaluating true capabilities of the individuals. Possessing a technical skill often times has been the basic reason for promotion. However, technical skill does not always translate into

leadership ability. Many of these talented individual drown in their new roles largely occasioned by lack of leadership training.

Scholars have extensively discussed the principles and operational procedures of succession management. However, there has been insufficient information on the implementation of succession management and its effect on survival and goal attainment in Nigerian oil and gas industry. Against this background a study of the effect of management succession on corporate survival and goal attainment in the Nigerian oil and gas industry is pertinent.

Objectives of the Study

The task before the researcher calls for the examination of the effects of succession management on corporate survival and goal attainment in corporate organizations in Nigeria using the oil and gas industry as a case study. To this end the following specific objectives have been formulated:

i. To ascertain the extent to which succession management can function as a strategy for growth and profitability in Nigerian oil and gas industry.

ii. To assess the extent to which succession management encourages healthy competition and advances continuity of corporate objectives in Nigerian oil industry.

iii. To ascertain the extent to which challenges of succession management influence survival and goal attainment in Nigerian oil and gas industry.

iv. To determine the prospects associated with the adoption of succession management in Nigerian oil and gas industry.

v. To ascertain the extent to which succession management engenders labour retention among employees in Nigerian oil and gas industry.

Research Questions

The following research questions are formulated in this study:

i. To what extent does succession management function as a strategy for growth and profitability in Nigerian oil and gas industry?

ii. How do we assess succession management efficiency in terms of competition and advancement of continuity of corporate objectives in Nigerian oil industry?

iii. To What extent do challenges of succession management influence the survival and goal attainment in Nigerian oil and gas industry?

iv. What prospects are associated with the adoption of succession management in Nigerian oil industry?

v. To what extent does succession management engender significant labour retention among employees in Nigerian oil industry?

Research Hypotheses

The following hypotheses are formulated to guide this study:

i. Succession management to a large extent functions as a strategy for growth and profitability in Nigerian oil and gas industry.

ii. Succession management significantly engenders healthy competition and advancement of continuity of corporate objectives in Nigerian oil industry.

iii. The challenges of succession management to a large extent influence the survival and goal attainment through gaps in leadership pipeline, difficulty in filling key employee’s positions, inadequate career paths and ineffective line management in Nigerian oil and gas industry.

iv. Succession management to a large extent ensures the supply of talented, experienced and motivated staff ready for key positions, encourage employee’s morale and cope with the effect of attrition in Nigerian oil and gas industry.

v. Succession management significantly engenders labour retention among employees in Nigerian oil and gas industry.

Significance of the Study

This work will expose the usefulness of succession management as one of the ways of curbing leadership crises in the industry and other corporate organizations. It is therefore of relevant assistance to management and staff of the industry other management practitioners as it will educate them on how to cope with leadership crises and talent management.

It is also of great relevance to the shareholders. As owners of the companies, they will benefit from high dividend payment as well as retained profits for future growth with the adoption of succession management by their companies. Government economic policy makers will benefit greatly from this work in their policies making.

The study is also of relevance to students and future researchers who may wish to carryout research work on succession management. More so, the study points out areas of further research which act as a guide to the aforementioned prospective researchers.

Scope of the Study

This study is specifically an investigation into the effects of management succession on corporate performance in the oil industry between 2009 and 2014. Following the creation of Niger Delta Ministry, the year 2009 was the year 15000 insurgents across the Niger Delta turned both themselves and their guns in and declared an indefinite ceasefire(Economist 2009, Davis

2009) thus creating enabling environment for corporate governance and management of oil and gas industry.

This work has succession management as the independent variable. Corporate survival and goal attainment are the dependent variables. The work also covers the leadership transition and activities of the executive directors/management of some selected oil companies with head offices and operational areas located in south-western and south-southern Nigeria respectively. To this end the following companies which are some of the major players in the Nigerian oil industry (owing to their high staff strength and large operational capacity) have been selected for this study:

Shell Petroleum Development Company Nigeria Plc Oando Oil Company Nigeria Plc

Conoil Nigeria Plc Total Nigeria Plc MRS Oil Nigeria Plc

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