Software Products Aim to Streamline Succession Planning

By Ed Frauenheim

Jan. 13, 2006

Ken Nardoni isn’t alone in thinking that succession-planning software can be an expensive dud. But his view is a bit surprising given that Nardoni is vice president of sales for Pilat HR Solutions, one of several companies pitching such software.

    Nardoni argues that companies buying succession-planning applications are doomed to fail if they don’t take a close look at the way they go about tasks such as nominating possible replacements to key roles, figuring out what data to use in decision-making and ensuring that succession plans are carried out.

    “We really think process is the really important piece,” Nardoni says. “Technology is the easy part.”

    Against a backdrop of rising turnover of chief executives and fears of a coming talent shortage, large companies in recent years have been upgrading succession-planning programs. In the past, these sometimes were little more than annual executive replacement plans done on paper. Now, a number of software companies offer applications designed to make succession planning more effective and widespread in an organization.

    Some observers are skeptical that software products by themselves will aid a company’s succession-management efforts. But as organizations seek to expand their succession-management programs to include midlevel leaders and not just top executives, computerized systems with databases are crucial, says Jim Holincheck, an analyst at research firm Gartner.

    “It’s a significant difference to track 20,000 employees versus 100 people,” he says.

    Succession-planning software typically allows companies to do such things as assess the risk that various leaders may leave the company, list possible replacements for managers and document the strengths and credentials of up-and-coming employees.

    Besides managing succession and career development plans for more employees, software products in this field have other benefits, advocates say. These include more up-to-date information than paper-based plans done once a year and an improved ability to search for candidates from within a company.

    Such searching is appreciated at health insurance giant WellPoint, which uses succession-planning software from Pilat to keep tabs on some 1,400 employees. Jean Hopper, WellPoint vice president of talent management and organization development, says Pilat’s system allows for fine-grain queries–say, for people willing to work in the Northeast who have a master’s degree and a background in finance. In essence, this feature lets WellPoint seek out passive job candidates internally. “Most associates aren’t looking at the job opportunities,” Hopper says. “They’re busy doing their jobs.”

    It’s possible to install succession-planning software on a company’s internal computers or “rent” it over the Internet, where it can be accessed through a Web browser and pass code.

    Nardoni says large clients can expect to pay $150,000 to $300,000 for the installation of high-end, competency-based succession-planning systems from Pilat. Such clients then would face annual software maintenance costs of about $25,000 to $40,000. Smaller organizations–those doing succession management for fewer than 150 executives–can have access to Web-based systems from Pilat for “a few thousand dollars a month,” he says.

    A number of companies offer software for succession management, including industry titan SAP as well as smaller players such as Los Angeles-based Cornerstone OnDemand, Morristown, New Jersey-based Sapien and San Mateo, California-based SuccessFactors.

    SuccessFactors says its succession-planning product can be made more powerful by combining it with software modules for managing performance reviews and compensation decisions. That integration gives supervisors the ability to delve into and compare employees’ track records when considering promotions, says Rob Bernshteyn, senior director of product marketing at the company.

    The Web-based product also will send an automatic alert when a key position suddenly becomes vulnerable. This could occur when an executive notes in the system that an employee is likely to leave the company soon and the people designated as possible successors to that post aren’t immediately ready to assume it, have just taken other jobs in the company or have left themselves.

    About 20 percent of SuccessFactors’ 300 customers use its succession-planning software. But interest in the product is growing, Bernshteyn says. Of those companies thinking about becoming SuccessFactors customers, 25 percent are keen on succession planning, he says.

    Auto parts and services chain Pep Boys is convinced it made a sound investment when it began using software from SuccessFactors about a year ago, says Liviu Dedes, the firm’s director for training and organizational development. The software was part of a broader succession-management overhaul, which included a set of 84 round-table discussions throughout the country on employees’ potential.

    According to Dedes, SuccessFactors’ software helped the company overcome problems it discovered when it reorganized its business in 2004. The chain, with some 20,000 employees and nearly 600 stores throughout the country and in Puerto Rico, wanted to double the number of area directors to 84 in a period of two months. It was a “very painful” event thanks to internal and external talent pools that were “shallow,” Dedes recalls. For one thing, he says, Pep Boys’ paper-based system made it hard to notice quality candidates even in neighboring areas. The company also had inconsistent measures of people’s potential.

    SuccessFactors’ software, which Pep Boys accesses over the Web, has helped the company standardize its employee reviews around a set of competencies and also made it much easier to see the aspirations and abilities of some 2,000 managers throughout the company, Dedes says.

    In its first year, the software cost Pep Boys about $180,000, including implementation fees. The cost will drop in the second year to about $130,000. Given that external hires cost Pep Boys about $20,000 each, while internal hires cost roughly $10,000, Liviu is confident the SuccessFactors technology will pay for itself in its second year.

    Far from being a bust, succession-planning software served as a catalyst for the company to reflect on and improve its approach to succession management, Dedes says. “It was a great opportunity to rethink ourselves and revise the process we were using,” he says.

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

Schedule, engage, and pay your staff in one system with