201

TERM PAPER OF
HUMAN RESOURCE MANAGEMENT
SUBMITTED TO: UJJWAL SIR

ABHISHEK VERMA
[K77B1B52]
03/11/2010
 Acknowledgement
In completing the task, there were always someone who helped me by contributing either
little or immense. I owe thanks to all the people who helped me and supported me during
preparation of this term paper.
My deepest thanks to our lecturer Ujjwal Sir for guiding and helping in various stages of
development with attention and care. He has taken pain to go through the project and suggest
necessary correction as and when needed
I am also grateful to the librarian to help us in searching the books needed.. I also extend my
heartfelt thanks to my family and well wishers.

Abhishek Verma
K77B1B52

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CONTENETS

[1]Introduction

[2] Need Of Succession

[3]Strategic Approach

[4]Building framework

[5]Current trends

[6]Building Framework

[7]Current Trends

[8]Challenges for organizations implementing Succession Planning

[9] Succession Planning Examples

[10]Bibliography

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Topic: Succession Planning
Succession planning is one of the most important step in business organizations that is
commonly done to to achieve its strategic goals. Today, succession planning requires more
than just an organizational chart showing who holds what job within the enterprise.

Organizations uses succession planning to develop and maintain strong leadership and to
ensure that they uses all the skills and efforts required for today's business environment.
Succession planning can also be an extremely powerful tool in motivating and retaining top
leadership.

Succession planning is a process that helps an organization to accomplish its business goals
and its human capital needs. It also ensures that an enterprise can keep pace with changes to
the business, industry, and overall marketplace. To achieve best results using succession
planning, an organization must develop a strategy that centers on organizational excellence.

The term 'succession planning' can be described as, 'a process through which leaders identify
and help groom their replacements before moving on to another position themselves.'

Succession planning also helps in recruitment as well as retention of employees by drawing

more employees to the organization and also by filling up senior level positions from within
the organization.

Need Of Succession:

There are three main reasons that can be considered for the process of succession:

Firstly,the need of succession arises when the top officials retires.A CEO cannot spend years
leading an organization.This is because during that time buisness practices and procedures
become increasingly entrenched and daily issues take precedence. At many businesses,
having little or no succession planning wreaks havoc when the organization's leader retires.
Nobody is fully prepared to assume the top post.

Second, succession planning helps an organization to prepare for an unexpected event. It is

often difficult to plan for the unimaginable. Yet, the sudden illness or death of a key
executive can reverberate throughout an organization, paralyzing both management and staff
and impeding the organization's ability to execute its business plan.

Unfortunately, diseases, automobile accidents, plane crashes, and other disasters are an
ongoing reality. Although it is not feasible to plan for every possible scenario, and
particularly for the loss of several key leaders at the same time, it is entirely realistic to map
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out a chain of command and understand who will assume control if and when a key executive
is lost. Recent world events illustrate how important succession planning is.
 When the World Trade Center attacks took place, dozens of companies lost key executives,
including CEOs and CFOs, who were on the planes or in the buildings that were destroyed.

Finally, succession planning ensures that an organization has the right personnel to function
at peak efficiency. Today, many organizations strive to identify key objectives and business
goals and shape a work-force accordingly. Although executives and senior managers play a
crucial role in defining such organizations, there is a need for specific skills and competencies
throughout the enterprise.

Not only does succession planning serve as a way to create an organizational hierarchy, but it
can also help organizations conduct an inventory of human capital and better understand
gaps. It can also help organizations manage change in a more holistic way.

Some organizations, such as the military, have considerable experience and expertise with
succession planning. In the event of a personnel change or a loss, the leadership knows
exactly who will take over and what his or her role will be—from the newest recruit all the
way up to the commander-in-chief. What's more, these organizations typically understand the
strengths and weaknesses that particular individuals within the organization possess and what
is required to fill gaps in skills and competencies. Then they train workers appropriately.

In business, however, the opposite is far too common. Many CEOs and senior management
teams fail to develop in their successors the high-level skills and competencies they will
require. Too often, leaders are too absorbed in day-to-day issues, overly focused on short-
term results or unable to adapt to change. Sometimes internal political issues prompt a CEO
to get rid of the second in command or other high-ranking officials. This is especially true at
organizations where the CEO has molded the company and engineered a specific vision.

Another problem is that even the best training program cannot always supply the talent
needed to run an organization at peak efficiency. This is particularly common at companies
that are growing rapidly. Sometimes, it is essential to find talent from the outside. But this,
too, can pose a formidable challenge. An executive search, for example, can require six
months or longer. Even then, an organization might require several additional months to
"groom" and train the individual for a key position or a position higher on the corporate
ladder. Most companies can ill afford to take a year to replace key personnel and the skills
they offer.

Strategic Approach:
Although successful organizations usually focus on training to develop leadership from
within the executive circle, they also understand that it is sometimes wise to look outside for
particular skills and knowledge. Of course, the more prominent a position within an
organization, the tougher it is to find a suitable candidate. Thus, some turn to outside
consultants to manage recruiting and, sometimes, the entire succession planning process.
Consultants can provide objectivity and help develop a strategic plan that encompasses all
levels of the enterprise.
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This approach is useful to a wide range of organizations. Universities, public agencies, and
non-profit organizations, which lack the financial resources to keep extra talent on the
payroll, are prime candidates for outside consulting services. Trying to find key personnel,
such as a chancellor for a university or a chief financial officer for a large charitable
organization, can require a considerable investment of time and resources.

In fact, organizations both large and small are increasingly looking to outside expertise to
bolster their capabilities. Consultants can provide specific expertise that matches an
organization's requirements. By assessing best-in-class candidates and understanding an
organization's existing internal talent pool and needs, it is possible to identify specific skills,
competencies, and candidates from within and across industries ranging from medicine to
financial services, semiconductor manufacturing to freight shipping.

Ultimately, this allows the enterprise to focus on its core business while the partner analyzes
organizational needs. A consultant or outsourcing provider can track wages and ensure that its
client is paying appropriate compensation and benefits to attract and retain top-notch talent. It
can also ensure that hiring takes place at the right time. For example, if an organization
knows that the CFO will retire within the next year, it can hire a highly qualified candidate
well in advance and seamlessly integrate him or her into the company. Without such planning
and coordination, the new executive might not be willing to make the leap to a new company.

Building framework:
There is no simple template for putting a succession planning process in place. Every
organization is different, and each organization must develop a succession plan that fits its
specific needs. Management must guide this process and the human resources department
must oversee it. And both must focus heavily on organizational culture—what exists and
what is required in order to succeed. Effective succession planning also demands assessment
systems that can measure the development of skills, competencies, and knowledge within the
enterprise.

More than anything else, succession planning requires that an enterprise detail the structure of
the entire organization, from top to bottom. Typically, the process requires several steps that
lead through design, development, and implementation of the actual succession plan.

(i) An organization identifies its existing competencies, related to both its leadership
needs and the industry it competes in.

(ii) It evaluates and assesses current employees to determine how they match up to
organizational needs.

(iii) The organization introduces coaching, mentoring, training, and recruiting

methods that match personnel requirements—and future needs.

(iv) It develops the actual plan. Although some companies, particularly smaller ones, can
store an organization chart and succession plan on paper, many large organizations
require succession-planning applications or human-resources management
systems (HRMS) that provides visibility across the company. This is particularly
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crucial for global organizations, where talent can reside in dozens of different
countries.
Whatever said and done, it's a reality that 'Most Indian globally recognized organizations
are not properly equipped with a sound succession plan that has a serious impact on a
company's market valuations. Very few Indian companies have been able to effectively
implement a succession plan for its important and strategic positions' (As per a survey
conducted by the Associated Chambers of Commerce and Industry of India). Since, more
than half of the top 100 companies out of the top 500 are family owned, the situation is
quite complex in India. De-merger of business families, with trauma and acrimony, is
fairly common in India.

Traditionally, in India whether it is the throne or the family business, the eldest child has
been the successor. However, in today's world these values have lost its meaning. To state
a few examples we are all witness to the division of Reliance Industries, Bajaj Auto,
Escorts, and the Jumbo Group.

These organizations divided the entire family business vertically, with different
companies going to separate factions of family. Nevertheless, there is a silver lining to
this. There are organizations, though small, yet have successfully dealt with succession
issues. These are Murugappa Group, Dabur India, Thapars, and GMR Group.

GMR group has clearly articulated a set of rules to deal with management succession,
ownership succession, and the control or power sharing. The group has drafted its family
constitution and institutionalized a Family Business Board to decide as to which business
the group wants to remain in and which to quit. They have laid down policies for
consensus in decision making, media, and code of conduct.

The group has even decided the process of inducting family members into the business
and for providing benefits to those who do not want to enter the business. Issues such as
control of family wealth verses business wealth, distribution of family holding, and the
voting rights are dealt with in detail. The group has already decided that G M Rao, the
present Chairman, will step down at the age of 70.

The three next generation successors will decide the next chairman. In case of dispute the
group has already decided upon a deadlock trustee, who will intervene and help resolve
the situation. Family members are to be appointed on merit and be paid on par with other
professionals employed. Of course, their economic benefits from the shareholding are
separate.

WalMart is a perfect example of a successful succession planning implemented by a

family run business. It has de-linked the ownership and the management of day-to-day
operations. In this approach, though the family owns the controlling shares, it inducts
professional managers to run their business. For example, Rob Walton is the Chairman
but day-to-day operations are handled by Lee Scott, the CEO.

In India, Ranbaxy, one of the top five pharmaceutical companies, adopted the same
approach long back. Its founder Chairman, Bhai Mohan Singh groomed his son Dr.
Parvinder Singh (a doctorate in pharmacy from the University of Michigan) to become his
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successor. However, Dr. Parvinder Singh instead of handing over the reins to his sons
decided in favor of D.S. Brar who joined Ranbaxy as a Business Development Manager.
In 1993, D.S. Brar became the President (Pharmaceuticals) and a whole time Director of
Ranbaxy. In 1997, Brar revealed his plans to retire in 2002. In 2003, Dr. Brian Tempest
(President, Pharmaceutical Division, Ranbaxy) took over the reins of Ranbaxy from Brar
as the CEO and MD. Though the current CEO & MD, Malvinder Singh, is part of the
family yet the company made sure that he is groomed well before taking on the
responsibilities for the position..

CurrentTrends:

As seen in the statistics above, executive turnover is poised to increase

significantly over the next few years as baby boomers retire. So what has been
happening recently? Consider the following:

57% of executives are in transition, and the ranks of executives who are "employed and
actively in a job search" increased to 28% (up from 22% in 2004 and 14% in 2003)
(ExecuNet) Turnover of chief financial officers at Fortune 500 companies increased by
23% from 2003 to 2004 (Russell Reynolds Associates, 2005)
The top 100 branded companies have new chief marketers every 23 months on average
(Spencer Stuart) Some of the world's leading companies stand to lose more than 30% of
their top employees (Best Practices, LLC research)

Challenges for organizations implementing

Succession Planning
Time and resources are the prominent challenges cited by organizations considering
succession planning. Typically the day-to-day challenges of running the organization
overpower the organization's ability to proactively engage in succession planning. Other
challenges often occur when managers feel threatened as they are asked to groom their
successors. Predicting future needs of the organization is another challenge.

Many organizations don't have internal career development programs in place, or career
pathways defined. Being able to quickly and easily identify internal candidates with the
necessary skills, experience and competencies to fill various needs is a common challenge.
Automating the collection and retrieval of such data enables the implementation of succession
planning activities. By identifying skills and abilities needed for various positions, and by
communicating them to the workforce, companies have the opportunity to proactively source
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internal talent, and employees are enabled to proactively manage their careers.
Succession Planning Examples
At the Tata Steel annual general meeting (AGM) in mid-August, shareholders' tributes for
chairman Ratan Tata were louder than usual. Tata Sons, the holding company of the Tata
Group, had just set up a panel to find a successor for Ratan Tata, who is the chairman of the
group and several of its larger companies. "Don't leave us," implored one shareholder. "We
cannot lose our Ratan (jewel in Hindi)," said another.

Ratan Tata will still be around at the next AGM; he isn't due to step down until December
2012. He hopes to have some presence after that -- as someone "sitting in the audience asking
questions," he told audience members at the AGM. But the question that is being asked today
is: Who will succeed him?

Observers agree that filling Tata's shoes is not going to be an easy task. In the early days after
he took over from J.R.D. Tata in 1991, he was widely criticized for daring to take on the
satraps, as the independent-minded CEOs of the larger group companies were then described.
There were battles fought in boardrooms and the business press, but eventually the old guard
retired. More recently, there was criticism that the acquisition of automobile manufacturer
Jaguar Land Rover (JLR) and steelmaker Corus would deluge the group in debt. In results
declared in August 2010, however, both Tata Motors (including JLR) and Tata Steel (with
Corus) have returned to profits. The Tatas are also now the country's most valuable group
with a market capitalization of US$80 billion.

Succession in tata
The frontrunner in the Tata race appears to be Noel Tata, Ratan Tata's half brother who was
recently promoted to overseeing the group's international operations. Some 65% of the
conglomerate's US$70.8 billion revenue (April-March 2008-2009) comes from outside India,
so this is a significant responsibility. Additionally, Noel Tata is the son-in-law of Pallonji
Mistry, who owns 18.4% in Tata Sons, which makes him the single largest individual
shareholder (most of the equity is held by charitable trusts).

But others are in the race, too. The Economic Times speculates that the internal candidates
include Tata Sons executive directors Ishaat Hussain and R. Gopalakrishnan; and B.
Muthuraman, Ravi Kant and S. Ramadorai, vice chairmen of Tata Steel, Tata Motors and
Tata Consultancy Services (TCS), respectively. The younger group includes the CEOs of
TCS (N. Chandrasekaran) and Titan (Bhaskar Bhat). But they are long shots at best,
observers say.

There is also speculation that, given the group's increasing global focus, the choice need not
be an Indian. The Times of India says that the candidates could include Indra Nooyi of
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PepsiCo, former Vodafone head Arun Sarin and Renault Nissan chief Carlos Ghosn. "The
selection process would consider suitable persons from within the Tata companies, other
professionals in India as well as persons overseas with global experience," says a Tata Sons
press release.

Ratan Tata has also clarified that the new chief need not be either a Parsi or a Tata. (The
Parsis are a wealthy business community in India, and the Tata chief has traditionally been a
Parsi.) The Parsis are a shrinking community. Birth rates are very low and women who marry
outside the community are excommunicated. There are now less than 60,000 Parsis left in
India, and it is inevitable that the Tata baton will pass on to a non-Parsi sooner or later.

It will have to pass on to a non-Tata, too. The Tatas are a small clan. Apart from Ratan, there
is his 80-year-old French stepmother, Simone, who is obviously not in the running for his job.
His brother, Jimmy, is close to 70 and has retired from Tata Power. Aloo Tata (who is by
birth a Mistry) won't get precedence over her husband, Noel. And their three children -- Liya,
Maya and Neville -- are still studying. So, Noel is the only Tata who is eligible.

The composition of the selection panel has some critics speculating that the choice of Noel is
pre-decided. It consists of Tata Sons directors R.K. Krishna Kumar and Cyrus Mistry (who is
Noel Tata's brother-in-law), Tata veteran N.S. Soonawala, group legal advisor Shirin Barucha
and independent member Lord Kumar Bhattacharya of the Warwick Manufacturing Group of
the U.K. "There is only one external member," says Pradeep Mukerjee, founder-director of
Confluence Coaching and Consulting. Mukerjee, who has worked for several years in the HR
area with Citigroup in the U.S., says that in the West, such selection panels have many more
external members. "What good is a panel stuffed with internal members? I wonder what the
true purpose is."

Infosys: Looking on the Outside

Mukerjee contrasts the Tata situation with the nominations committee at Infosys, which has
just embarked on the task of finding a successor for chairman and chief mentor N.R.
Narayana Murthy, who retires in August 2011. The Infosys nominations committee consists
of Cornell University professor of law Jeffrey S. Lehman; HDFC Standard Life CEO and
managing director Deepak M. Satwalekar; and ICICI Bank non-executive chairman K.V.
Kamath.

"We do not discuss internal processes while they are going on, lest the discussion give rise to
misleading speculation," Lehman told India Knowledge@Wharton. "Let me state simply that
the leadership duties of the board chair are well understood and we are committed to selecting
an individual who will carry out those duties with full professional competence. We do not
have any 'litmus tests' that we apply regarding the individual's background. I am absolutely
certain that we will make a decision and we will make a public announcement with
appropriate lead time."

These two headline-grabbing selection processes have cast in the shade similar exercises
going on in corporate India. At Larsen & Toubro (L&T), for instance, there is speculation that
Ravi Uppal, who has come in from multinational ABB to head the power business, has
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already been selected to replace chairman A.M. Naik when he retires in a couple of years.
At family-owned but professionally run groups like Dabur and Godrej, "facilitators" and
committees have been appointed to look at succession issues. "There is a strong succession
plan for more than 150 senior managers across the group," says Godrej group chairman Adi
Godrej. "It covers two aspects -- sudden resignation or demise, as well as for when the
manager retires.... Godrej group companies have very strong boards -- the independent
directors are professionals with expertise in their fields, not industrialist friends of the
family." According to Raveendra Chittoor, assistant professor of strategy at the Hyderabad-
based Indian School of Business (ISB): "Over the past decade, there has been a growing trend
of appointing professional CEOs even in family-owned companies."

Raphael (Raffi) Amit, Wharton professor of entrepreneurship and management, says Ratan
Tata's and Narayana Murthy's desire to find professionals to lead their companies -- not
necessarily family members or insiders -- is in line with the findings of substantial research
he has done in this area. "On average, when these types of succession issues come up, the
business is better off finding a professional manager rather than a family member," he says,
citing a May 2006 paper he co-authored, titled "How Do Family Ownership, Control and
Management Affect Firm Value?"

hile you are inclined to find a family member to lead a particular business or the group as a
whole, first and foremost you want to make sure the longevity and prosperity of the business
that you have started -- or was started by the previous generation -- is maintained," Amit says.
"Often, a family member is not available or willing, or not as capable as a professional."
What Tata and Murthy are doing in this matter "is in the best interests of the long term
sustainability, longevity and prosperity of the businesses," he adds.

"There is no reason to believe India should be different in succession planning," he says,

referring to the findings of his research. However, generally speaking, in Asia, "cultural
issues" are perhaps more prevalent than in the U.S. or Europe, he notes. "The belief may be
[that] non-family members cannot be trusted to the extent family members can be trusted.
That is one of the biases for them to appoint family members, whereas the most appropriate
person may not be a family member. Even though rationally people understand the issues,
emotionally people have a hard time thinking that a non-family member can be trusted to the
extent a family member can be trusted. It is not so much an economic or business issue as it is
a cultural issue."

According to a study by global business and strategy consulting firm Bain & Company,
attention to succession planning in Indian companies is woefully inadequate. "Research in
2008 showed that board members discussed CEO succession at least once a year in more than
60% of the S&P 500 companies," says Ashish Singh, Bain India managing director. "In India,
we find the picture very different: More than 75% of the respondents in Bain's survey of 44
leading Indian companies said their boards did not discuss CEO succession planning at all.
This gap needs to be addressed if we are to significantly improve corporate governance."

It is a failure of the board of directors, he continues. "The independent directors can -- and
should -- play a more active role in demanding that succession planning be implemented,
given that they have less at stake in being on the 'right side' of the CEO or the promoter.
Boards in India -- with several notable exceptions -- have a long way to go to play the
governance and oversight role that they play in developed markets. We are long overdue for
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an accelerated transition to more engaged boards."

The Cons of Traditional Succession Planning
Peter Cappelli, Wharton management professor and director of the school's Center for Human
Resources, notes that the problems extend to U.S. boards. "Most U.S. firms do no succession
planning," he says. Cappelli, who has done a great deal of research on the subject for his 2008
book, Talent on Demand: Managing Talent in an Uncertain Age, feels that succession
planning as traditionally performed doesn't work very well. "The reason is that it has to
anticipate today what the job will require years in advance," he says. "And it also has to
assume that the person you are picking today will still be of the caliber required years in
advance -- no scandals, no illnesses. If anything changes in the business or with the people,
the plan doesn't work." And today, the world is changing faster than ever before.

Cappelli notes that earlier there were two common methods of choosing a successor: the
"relay," where the person is appointed years in advance, or the "horserace," where several
candidates are competing until the end. The most common method now in the U.S. is the
third, where companies get help from a search firm to consider possible candidates from
outside as well.

The Tatas have gone down this road before. In 1981, group company Voltas hired a search
firm to find a CEO. "There was a worldwide search," says P.N. Singh, who was in charge of
HR at Voltas when the exercise took place. "A global agency was employed. There were ads
in global media and people were asked to apply for the job of CEO. Finally, Ramesh Sarin
from tobacco-to-hotels major ITC was chosen as MD." The experiment worked for only a
few years. Chairman A.H. Tobaccowala and Sarin fell out. "It was a question of culture and
control," says Singh, who is now chairman of Grid Consultants, which conducts Blake &
Mouton grid seminars. "ITC had a different culture and Tobaccowala had a different idea of
control. He was unwilling to let go. Tobaccowala was an 'entrepreneur' and Sarin was a
manager. So the two should actually have worked well together."

Amit strongly urges "unbundling" ownership, control and management. "You can control and
be the owner, but you don't necessarily have to be the manager," he says. "Data points to the
fact that by making a distinction between ownership and management, you don't lose but
gain." What's more, if the business does well, it helps boost "family harmony and happiness;
there will be less conflict in the family. If we care about the happiness of the family and the
prosperity of the business, it is prudent to appoint the most competent and most capable
people to run these businesses."

But in Singh's opinion, however, it is generally a mistake to bring in someone from outside
the organization. "Personally, I think it is a weakness if you have to go out to search for a
leader," he says.
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Bibliography

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