While the current labour market is highly competitive at all levels of experience, there is no more precious commodity than candidates for leadership roles. Despite effective leaders being widely recognised as the cornerstone of business success, our latest research shows that many organisations are quite simply failing at succession planning.

The majority (63%) of the 1,000 senior professionals we surveyed don’t have a formal plan for the leadership pipeline in their organisation.

This is especially surprising when you consider another key finding of our research: internal recruits are twice as popular as external hires for a company’s top jobs (31% vs. 15%). This leads me to the conclusion that leadership is being left to chance by many companies, with a silent hope that the individual who will take the business forward in the future already exists within its ranks.

However, they are not actively doing anything about finding and developing these rising stars and potentially risk losing them altogether as a result of perceived lack of investment in their careers.

Grow your own leaders

Generally, internal candidates seem to be preferred for senior management openings as a lower cost option, both from a recruitment and training resource point of view, and one that carries reduced risk as a ‘try before you buy’ strategy.

There also appears to be concern that externally-hired senior leaders don’t last as long as expected in the role

There also appears to be concern that externally-hired senior leaders don’t last as long as expected in the role (one third of professionals agreed with this statement). Another associated anxiety, but to a lesser extent, was around the perhaps negative image a company presents by not promoting from within.

Of course, the picture is not completely one-sided. There were many recognised benefits of looking outside the organisation for new leaders, most notably that they can bring an influx of fresh ideas into the senior team (52% agreed with this statement) and that external recruits are likely to be less affected by office politics (46% agreed).

Given that most companies do favour finding their next chief executive within the existing workforce, the burning question is: what can companies do now in order to grow their own leaders? As with any corporate sustainability issue, this boils down to taking a long-term, organisation-wide perspective and making sure new recruits and junior staff members are set on a path of continuous career progression from day one.

The Gen Y perspective

Sadly, according to a separate research project conducted with Generation Y employees by Penna, career planning, in addition to succession planning, is an area where employers are falling short. This is a real missed opportunity as we found that young people are currently very eager to advance their careers; ‘strong progression opportunities’ is one of the top factors that 18-24 year olds look for in an employer, and most name ‘getting promoted’ as their top short-term ambition.

The figures show that young recruits are not having their high expectations of support towards their development and progression met, and almost a third (32%) think that their employer hasn’t done enough to recognise their potential.

Career planning, in addition to succession planning, is an area where employers are falling short.

Gen Y are often characterised as capricious when it comes to their careers. But, our research suggests that they are seeking fulfilment and opportunities first and foremost, and the reason why they might be jumping ship is likely to be because they feel they’re not getting ahead at work as much as they desire to, so they are simply changing employers in order to move up the ladder.

Opportunity knocks

Career development is a much bandied about phrase, but what does an ‘opportunity’ look like in real terms? It is important that an organisation has a system in place for identifying every employee’s strengths and potential. This enables management to take a cross-organisational perspective on career development rather than a linear one, where only the chances for them to grow in the role they are in currently are discussed.

We are seeing the annual appraisal process – which has sat at the centre of most career development programmes up till now – go into gradual decline to be replaced by a system of ongoing feedback by many companies, facilitating a more timely approach to development.

This means openings to work on different projects or with new teams can be flagged as they arise – helping an employee to feel they are moving forward. And, it should not be forgotten that part of ambitions of rising up through the ranks will be about achieving pay growth.

If employers can better deliver development opportunities to their employers, especially at the entry level, it naturally follows that companies will have healthier pipelines for when leadership vacancies arise. Building a leadership succession plan means being able to spot and develop potential and companies that are doing this well have a real source of competitive advantage.

The bottom line

Obviously the need to look outside the organisation will never be eradicated completely, regardless of how good a company gets at ensuring excellent career development. When it comes to external recruitment for leadership roles, it is worth bearing in mind what the research tells us about the advantages of this method and then working to leverage these gains.

External hires do bring valuable competitor insight to the table.

For example, external hires do bring valuable competitor insight to the table so make sure you set in place a means of garnering this information from them and helping it reach the parts of the business that it will benefit.

Getting the senior management team wrong can be an expensive mistake considering that 30% of shareholder decisions are based on the quality of leadership. Investing the time in planning leadership pipelines now will help organisations reduce the risk of future leadership shortfalls acting as a drag on business growth. On that basis, it is a gamble that any company can ill-afford to make.