With a severe talent shortage likely to hit supply management in the next 5-10 years, now's the time to start taking action to limit its effect
In casual conversations, many executives discuss the “pig in the python” phenomenon – the potential dearth of talent that may follow the retirement of the “baby boomers”. The implications of this demographic trend could be severe for the supply management function in the next 5-10 years. Organisations that do not explicitly plan to recruit, develop and retain “rising stars” and potential leaders are setting the stage for disaster.
The consequences of poor succession planning are numerous. They include the loss of deep supply market knowledge, category strategies that can’t be executed, missed budgets and targets, supply disruptions and, ultimately, a collapse in the share price.
However, succession planning is a difficult and painful topic to address. Last year I asked the “master” of strategy, former GE boss Jack Welch: are there any companies that are doing well with succession planning? His reply, published in BusinessWeek on 15 November 2007, read: “It’s sad to say, but your question would be a heck of a lot easier to answer if you had asked for examples of succession planning done wrong. The list keeps getting longer.”
Welch went on to point out that “succession planning requires talking candidly about what qualities are missing. It’s sort of like a married couple trying to calmly discuss who the perfect replacement spouse would be.”
He added: “When it comes to supply management succession, I think you have two choices. One is to have the well-thought out pipeline of people from within the function, built up over the years through a rigorous HR programme. The other is to go outside the function and bring in fresh eyes. This is a riskier approach but it can bring about a real and positive change in the function, as an outsider can bring in ‘disruptive’ ideas that cause leaps in competitiveness.”
To gain further insights into these issues, I interviewed a number of supply management experts and identified what strategies have worked in the past. I then validated the current status of succession planning with a sample of global companies that were members of the International Association of Contract and Commercial Management. The survey was completed by 80 respondents from the US (59 per cent), Europe and the Middle East (34 per cent) and Asia (8 per cent). From this, a five-step process emerged.
Step 1: Measure the gap
To begin succession planning, it is critical for firms to understand the gap they face. Key questions include how many supply managers will be retiring versus projected requirements for organisational growth in the next five years. When we asked respondents what percentage of their supply management staff would retire in the next decade, an incredible 30 per cent had no idea. Every CPO should be working with their HR group to understand what their current retirement profile is, and where the greatest talent gaps will be.
One company we spoke to has a dedicated HR person in its supply management team who focuses on measuring the skills gap, aligning the current structure of the organisation with skills and individuals, and attempting to forecast which skills, competencies and knowledge areas will be most lacking. This provides the basis for a plan to close the gaps.
Step 2: Conduct regular talent reviews
A number of experts we spoke to noted that regular talent reviews were once considered a foundation of any executive role. Some companies had entire rooms full of photos, names, coded information on job evaluation ratings, length of service and a list of successors. Some of the key takeaways from these sessions were that some managers and directors were quite good at what they did but served as blockers for others; that the rotation of cross-department moves was often poorly executed; and that enrichment opportunities were identified for future stars.
In our survey, we discovered that almost half of companies had no succession plan (see figure 1). Another third had an “informal” plan, so if the plan exists it is undocumented and has no structure or metrics.
Step 3: Develop a focused plan to recruit external talent
Talent reviews can identify internal candidates who may move into the supply management function, but some level of external recruiting is also needed, both at a university and mid-manager level. Leading companies identify the key roles in their organisation that will build a platform for supply management excellence, then work with their HR groups to target the right type of executives from other industries to bring in as directors.
Our survey suggests that respondents are taking a variety of approaches. The most popular is to recruit internally, supported by targeted external recruiting for key roles. To a lesser extent, firms are using executive shadowing and mentoring of talented younger people (see figure 2).
Many firms are recruiting from universities with supply management programmes. One HR specialist in the automotive sector told us: “We try to hire students who know a little bit about supply chain management, are excited to learn about the function, and want to work in our industry.”
Step 4: Hire ‘stewards’ from the business
To develop a mature supply management organisation, executives must build strong relationships with their key lines of business. The quickest and easiest way to do this is to recruit a “steward” for supply management from different lines of business.
For example, an executive we spoke to at a large pharmaceutical company noted that he recruited heavily from his company’s chemical R&D labs, bringing young scientists into supply management and training them through the Institute for Supply Management’s CPM programme. He also brought in speakers and training firms to bolster their skills, and assigned them to category teams with which they were most familiar.
“This allowed me to build bridges into the different lines of business through the relationships these young people had with their old colleagues,” he said. “It was a lot easier to sell them a sourcing strategy if it was coming from ‘one of our own’.”
In terms of sources of new talent, 40 per cent of respondents relied on recruiting “high potentials” from within the supply management function and bringing them into senior roles over time. Far fewer companies (25 per cent) were recruiting talent from within line of business functions.
Step 5: Develop support systems
Faced with big targets and limited resources, there is a constant danger of manager “burn out”. Having an executive mentor as a pressure valve for developing managers provides an avenue to debate and share their experiences, develop a relationship with a trusted senior executive and share personal challenges and experiences.
The role of a senior executive mentor, particularly for junior managers, is a critical element in any succession planning system. These relationships can help to retain talent and promote those individuals who are often overlooked in modern structures.
In the next 10 years there will be a dearth of talent in supply management that many companies are not prepared for. Few have thought through their succession planning and talent pipelines sufficiently; many haven’t even started to do it.
One of the first steps to correcting this is to start the debate using a number of key questions (see checklist, below). This can lead to productive discussions that become the basis for establishing a supply management talent strategy team.
The team should be asked to provide definitive answers to these questions, based on the evaluation of corporate strategy, its implications for supply management roles and responsibilities, a review of current supply managers’ ages and capabilities, and the development of a future “to be” state with explicit recognition of roles, talents and skills.
Many managers may be uncomfortable in sharing their perceptions of their direct reports in an open forum. This discomfort must be breached. They need to be honest with their colleagues and be prepared to admit if they have a talent problem staring them in the face.
CHECKLIST:
Questions to ask
Begin your discussion about succession planning by asking these questions:
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How many people will be retiring from the function in the next 10 years?
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Are we planning to replace these roles internally, and what is a realistic target for the number of positions we can fill from within in the next decade?
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What skills, experience and knowledge will these future leaders need?
If growth from within will be the primary source of succession planning:
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What roles and mentors are established to create supply management leaders?
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What performance measures are being used to motivate people to aspire to these roles?
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What approaches are in place to retain talented people before they poached?
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What career path planning approaches are in place to drive success in
these areas?
Rob Handfield (robert_handfield@scrdesign.com) is Bank of America university distinguished professor of supply chain management at North Carolina State University in Raleigh, US
