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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
Limitations
of the Study
The
researcher had limited access to information from the oil companies mainly for
espionage reasons. This covers the fear of not divulging information of
strategic nature to their contemporaries, as they do not know the true identity
of the researcher who may be acting as an industrial spy. Some respondents
sought permission from their superior officers before they interacted with the
researcher as all information are rated ‘top secretes’ by their organizations.
It
was difficult in booking interview dates with some management staff of the
selected companies. In most cases, interview dates were cancelled and shifted
owing to exigencies of duties. Improper filling of questionnaire by some of the
respondents nearly rendered the usage for the study useless. Some respondents
found it difficult to return their questionnaire despite several calls. This
necessitated frequent visits to them which encroached on the time and finances of the researcher.
The
literature on succession management has little to show with respect to the
restrictive area of oil industry.
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