Succession Planning Practices for Employee Retention: A Case Study of Private Banks in Ethiopia.

Date01 October 2023
AuthorTadesse, Worku Mekonnen,Diribe, Wubshet,Tadesse, Worku Mekonnen^Diribe, Wubshet


In simple terms, succession planning is concerned with recruiting and developing talents in order to fill vacant positions. The prime aim of succession planning is to make a seamless transition in order to tackle any negative effects on business operations by avoiding gaps. As noted by Durst & Wilhehn (2012), succession planning is an important aspect of human resource management in which organizations maintain stability in their operations as the need for succession can hamper a business at any time irrespective of its size. As stated by Garg and Weele (2012) "succession management is a deliberate and systematic effort by an organization to ensure leadership continuity in key positions, retention and development of intellectual and knowledge capital for the future, and encouragement of individual advancement".

Succession planning has to be regularly evaluated on a continuous basis in order to avoid gaps that were identified. Regular monitoring ensures the system meets the need of the organizations and occupy critical roles with no additional cost to be incurred. As defined by Noe et al (2000) "succession planning is a process of identifying and preparing suitable high potential employees to replace key players within the organization as their terms expire". Zhai et al (2017) further stated that all leaders within an organization should know how to weather the storms of setbacks, encourage employees in the direction of positivity when executives are passing the baton, and finally, be consistent with the employees, customers and each other so trust can be developed."

As stated by William et al (1996) " the banking industry, regardless of the expansion or contraction, the need for good managers is critical and continuous". They also expressed that the availability of the right number, the right kind of management staff at the right time and in the right positions is mandatory. Unexpected vacancies can lead to confusion and loss of efficiency as the search for a replacement would be time taking. For professionally led organizations the most important reason for having a succession plan is more important than retaining talented workers in order to create growth opportunities and job satisfaction among employees.

Therefore, for a bank that wishes to enhance its performance, allowing its high potential employees turnover is not an option, but rather arrange them in systematic successions, by enabling them to effectively perform roles traditionally reserved for managers. It also helps employees prepare for changes in their current jobs that may result from new technology, work designs or new product markets. Thus, succession planning is a necessary component of a bank's effort to improve quality, meet the challenges of global competition, cope with social change and incorporate technological advances. Ruthwell (2005) examined succession planning as a staffing responsibility that relates to promotions, terminations and retirements. In addition, succession planning has a direct impact on reducing staff turnover.

Succession planning is a process of developing talent to replace executive, leadership or other key employees when they transition to another role, leave the company, are fired, retire or die. It is an important part of the talent management process. It provides a way to identify key roles, people with the right skills and positions that may need filling in a short space of time. It also provides a way to cut the costs of recruitment, enabling organizations to manage recruitment in-house. On the other hand, employee retention is defined as an organization's ability to prevent employee turnover, or the number of people who leave their job in a certain period, either voluntarily or involuntarily. Increasing employee retention has a direct impact on business performance and success. Succession planning ensures that a business can continue running smoothly after an important role becomes vacant. Studies depicted that having a succession planning process significantly improves staff job satisfaction, which in turn has a positive effect on employee retention.

In this competitive epoch, banks in the Ethiopian market need to be thinking about succession planning more than ever. Questions like what would happen to those critical services which are vital to the very existence of the bank if a key staff member left unexpectedly, retire, die or the organization is forced internally or externally to change its strategy. Therefore, the success of the organization is largely dependent on the quality and quantity of human resources it is able to attract and retain. The key element for the organization to excel and gain a competitive advantage is its workforce. Hence, to hold on to these forces, companies need ways to identify, develop and retain their key talents and must ensure their availability at the right time, at the right place and in the right number. But, for this to happen, the implementation of real succession planning in the organization has paramount importance not only for excelling in the market but also for retaining the existing employees who are the backbone of the organization (Elegbe, 2016).

Many scholars have identified the benefits of succession planning and management in banks, which involves planning, coaching, and development of prospective successors inside a business to take on important roles in an organized process of evaluation and training. Increasing staff excitement, reducing employee turnover, and ensuring qualified and competent personnel promoted are just a few of the benefits. Furthermore, having succession planning in place in a bank assists in the execution of strategic business goals (Hunter, 2020).

Statement of the Problem

Today's banking business in Ethiopia is characterized by stiff competition and they are working neck to neck to snatch the market from each other. However, to stay and excel in the competition, banks need to have highly talented, committed and experienced employees who know about the culture of the organization and its valuable customers. Therefore, programs concerning employee retention should be well as a part of the bank's strategic aspirations.

As was noted by Alemu, (2016) despite having in place a planned succession framework, the bank is still struggling to produce the right talent who are the likely successors to the top, middle and line managerial positions. The issues related to vacant posts of these critical positions are being handled through a crisis management approach. This approach in effect has been a good source of dissatisfaction among permanent employees, the manifestation of which is characterized by high employee turnover and loose organizational sentiment.

Simon and Hinks (2001) showed that well-designed succession planning serves to increase employee retention. Here, the rationale is the cost of employee retention in terms of recruitment, training and loss of experienced talent. Garg, Van and Weele (2012) have shown their concern that the lack of proper succession planning and implementation in an organization can lead businesses to lose their market shares and ultimately threaten their existence and eventual exit from the market. On the other hand, good succession planning can foster low employee turnover, enhance productivity and customer satisfaction.

Stephan (2012), in a study on the effects of succession planning on employee retention in sugar manufacturing companies in Ethiopia uncovered that there is a link between succession planning and employee retention. The study also pointed out succession planning programs as the big influencer for employee growth and development.

In recent times, private banks have been facing challenges from the ever-growing competition within the existing commercial banks and from the new entrants. It was observed that major slides in resource mobilization and profit occurred when some banks were unable to replace the top critical management positions from within the organization on time. Some preliminary discussions made with the key informants suggest that the likely successors frequently leave the banks due to various reasons and the leadership talent loss has widened the gap in critical roles. These incidents which forced the banks to hire from the external market render many to formulate succession management frameworks. However, despite having the framework and system in place far too late, no study has been conducted to determine the effect of succession planning on employee retention in private banks in Ethiopia. Therefore, this study is motivated to assess the practice employed and establish the effects of succession planning on staff retention in the banks.

Research Questions

* What are the mechanisms employed by the private banks in Ethiopia to identify successors in the private banks in Ethiopia?

* What are the levels of employee retention in the private banks in Ethiopia?

* What are the effects of succession planning on employee retention in private banks?

The Concept of Succession Planning

As stated by Martini & Dewi (2020) succession planning is a "systematic process of preparing for leadership changes that are suited to the company's needs, vision, and mission". Succession planning can be executed well if the successor selection process and succession preparation run smoothly. The successor preparation process discusses the stages of successor development. William Rothwell (2005)...

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