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SUCCESSION PLANNING AND MANAGEMENT PRACTICES

AMONG PRIVATE SECTOR FIRMS IN MALAYSIA

KRISHNA NAIDU S/O D. SUPPIAH

GRADUATE SCHOOL OF BUSINESS


FACULTY OF BUSINESS AND ACCOUNTANCY
UNIVERSITY OF MALAYA

JUNE 2008
Succession Planning And Management Practices Among Private
Sector Firms In Malaysia

Krishna Naidu S/O D. Suppiah

Bachelor of Economics (Hons) In Finance


University Putra Malaysia
Selangor, Malaysia
1999

Submitted to the Graduate School of business


Faculty of Business and Accountancy
University of Malaya, in partial fulfilment
of the requirements for the Degree of
Master of Business Administration

June 2008

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ACKNOWLEDGEMENTS

I would to take this great opportunity to express my sincere appreciation and gratitude to

my project supervisor, Associate Professor Dr. Abdul Latif Haji Salleh for his guidance,

comments, suggestions and support to make this research project a reality.

Similarly, my special word of thanks to all my lecturers who have taught me during the

tenure of my MBA study at the University Of Malaya. Their valuable guidance and wise

counsel have helped me to develop my career further as an effective and competent

Human Resource practitioner.

My sincere thanks is also extended to Professor Dr. Tracy Taylor (Associate Dean,

Teaching & Learning), University Of Technology Sydney, Australia for all the help given

in so many ways, especially to ensure that I have selected the appropriate research

instruments to conduct the research. Also, many thanks to my head of department, Puan

Rozilawati Mohamad Zawazi for her understanding and kind cooperation in granting me

annual leave whenever possible in order for me to complete all my coursework and

exams.

This acknowledgement would not be complete if my sincere thanks are not extended to

all those respondents who have participated in this survey. Indeed, I felt very obliged to

them for sacrificing their time and efforts to complete the questionnaires.

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I would also like to extend my gratitude to all my good friends; Ms. Bel Lew, Ms. Uma

Jogulu, Ms. Ng Lee Bee, Ms. Melissa Moey, and Mr. Brandon Wong for their various

forms of support, cooperation and commitment towards ensuring the success of this

research project.

Last but not least, to my dearest mum, Madam Nagaratnam Raju and my sister Ms. Uma

Devi, I truly cherish your love, support, encouragement and faith in me to complete the

MBA programme.

Krishna Naidu Suppiah


Graduate School of Business
Faculty of Business and Accountancy
University of Malaya, Malaysia
June 2008

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ABSTRACT

Purpose

Succession planning is an important strategic management tool that helps to sustain


organizational growth and competitive advantage. A planned succession reduces
uncertainties and avoids business disruptions when there is a departure of key talents or
leadership in the organization. This study aims to empirically investigate the adoption of
succession planning program among private sector firms in Malaysia and explores its
practices and approach. Specifically, the study intends to examine the significant
relationships between succession planning characteristics, demographic/control variables
and organizational outcomes.

Design/Methodology/Approach

Managing Directors/CEOs and HR professionals of 108 private sector firms from a cross-
section of manufacturing and services sectors have participated in the survey, which
contributed to a response rate of 26.1%. The framework of succession planning
characteristics and organizational outcomes are adopted from the work of Rioux &
Bernthal (1999).

Findings

The findings show that on average firms in Malaysia employ an effective succession
planning system. A formal succession planning is practised in 56.5% of the firms which
are mostly large firms. Company growth and desire to improve business results are two
main reasons why succession planning is important for private sector firms in Malaysia.
The results of the study indicate that no significant difference is found between
succession planning characteristics and demographic variables. The Pearson’s correlation
and regression analysis also show that succession planning characteristics are significant
in determining the organizational outcomes. The hypothesis that there is a significant
relationship between succession planning characteristics and demographic variables are
only partially supported. Similarly, it is only partially supported to the claim that, there is
a significant relationship between organizational outcomes and demographic variables.

Practical Implications
The present study offers an empirical finding on practices and approach of succession
planning and its impact on organizational outcomes in the context of Malaysia.
Originality / Value
Overall, the present study adds value to existing literature by examining the influence of
demographic/control variables in determining the relationship between the succession
planning characteristics and organizational outcomes.

Keywords: succession planning; characteristics; practices; approach; demographic


variables; organizational outcomes.

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TABLE OF CONTENTS

PAGE NO.

ACKNOWLEDGEMENTS iii

ABSTRACT v

TABLE OF CONTENTS vi

LIST OF FIGURES viii

LIST OF TABLES ix

CHAPTER 1 : INTRODUCTION 1
1.0 Chapter Overview 1
1.1 Introduction 1
1.2 Purpose Of The Study 5
1.3 Importance Of The Study 6
1.4 Objective Of The Study 10
1.5 Scope Of The Study 11
1.6 Limitation Of The Study 11
1.7 Organization Of The Study 13

CHAPTER 2 : LITERATURE REVIEW 15


2.0 Chapter Overview 15
2.1 Concept And Definition Of Succession Planning 15
2.2 Why Succession Planning Matters? 18
2.3 Succession Planning And Employee Turnover Rate 21
2.4 Succession Planning And Firm Size 23
2.5 Succession Planning And Firm Type/Ownership 25
2.6 Succession Planning And Firm Listing (Listed/Unlisted) 26
2.7 Succession Planning And Industrial Sector 27
2.8 Succession Planning And Firm Age 27
2.9 Succession Planning And Organizational Outcomes/Performance 27
2.10 Characteristics Of Effective Succession Planning And Management 28

CHAPTER 3 : RESEARCH METHODOLOGY 38


3.0 Chapter Overview 38
3.1 Theoretical Framework 38
3.2 Research Instrument 40
3.3 Sampling Design 45
3.4 Data Collection Procedures 46
3.5 Data Analysis Techniques 47

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CHAPTER 4 : RESEARCH RESULTS 49
4.0 Chapter Overview 49
4.1 Response Rate 49
4.2 Characteristics Of The Demographic Profile 50
4.3 Characteristics Of The Succession System 54
4.4 Mean Analysis 59
4.5 Internal Consistency Reliability Assessments 63
4.6 Independent Sample T-Test 64
4.7 Factor Analysis 70
4.8 Pearson Product-Moment Correlation 77
4.9 Multiple Regression Analysis 82

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 88


5.0 Chapter Overview 88
5.1 Summary And Conclusions 88
5.2 Suggestion For Future Research 92
5.2 Implication Of The Study 94

BIBLIOGRAPHY

APPENDICES

Appendix 1 Sample Of The Survey Questionnaire

Appendix 2 SPSS Output / Results

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LIST OF FIGURES

FIGURE FIGURE TITLE PAGE

1.1 Malaysia’s Population Pyramid By Age And Sex - 2000 8

1.2 Malaysia’s Population Pyramid By Age And Sex – 2050 8

3.1 Theoretical Framework : Succession Planning Characteristics, 39


Control Variables And Organizational Outcomes

4.1 Eigenvalue Plot For Scree Test Criterion – Succession Planning 74


Characteristics

4.2 Eigenvalue Plot For Scree Test Criterion – Organizational 76


Outcomes

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LIST OF TABLES

TABLE TABLE TITLE PAGE

2.1 Relationship Between Organization Size And Succession 24


Characteristics

2.2 The Benefits Of Succession Planning For Organization And 36


Individuals

4.1 Response Rate 50

4.2 Categorization Of Firm Size 51

4.3 Characteristics Of The Demographic Profile 53

4.4 Formal Succession Plan By Firm Size 54

4.5 Firms’ Approach To Succession Planning By Industrial Sector 55

4.6 Percentage Of Total Employment By Industrial Sector In 56


Malaysia 2001-2007

4.7 Reason For Succession Planning By Firm Size 58

4.8 Organizational System Linkage To Succession Planning By 60


Firm Size, Mean And Standard Deviation

4.9 Methods Used For Evaluating Candidates For Succession 63


Planning By Firm Size, Mean And Standard Deviation

4.10 Cronbach’s Alpha Comparison Between Variables 64

4.11 Practices & Approach Of Succession Planning By Industry 65

4.12 Practices & Approach Of Succession Planning By Firm Type 66

4.13 Practices & Approach Of Succession Planning By Firm Listing 68

4.14 Significance Difference Between Succession 69


Practices/Approach, Industrial Sector, Firm Type/Ownership ,
And Firm Listing

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TABLE TABLE TITLE PAGE

4.15 Characteristics of Succession Planning: Scale Items, Means, 72


Standard Deviations (SD), KMO, Bartlett’s Test For Sphericity
And Factor Loadings

4.16 Organizational Outcomes: Scale Items, Means, Standard 76


Deviations (SD), KMO, Bartlett’s Test For Sphericity And
Factor Loadings

4.17 Descriptive Statistics And The Correlation Coefficients For 78


Independent, Control, And Dependent Variables

4.18 Summary Of Hypothesis Testing Using Pearson Product- 81


Moment Correlations Between Independent, Control, And
Dependent Variables

4.19 Results Of Regression Analysis On Organizational Outcomes 82