The challenges of creating a continuous flow of ready-now leadership replacements are common to organizations of all sizes and across all industries worldwide. Increased market volatility and instability are making things more difficult, compounded by substantial layoffs that complicate planning to retain future leaders who may be seeking more stable employment options. Given the U.S. Chamber of Commerce’s estimate that 99% of U.S. companies have fewer than 500 employees, the unique challenges they face in maintaining an SMB leadership pipeline can feel overwhelming.

Consider that with a smaller leadership team, a single bad hire or promotion at the executive level can cause significant long-term harm and momentum loss to a smaller organization. The margin for error is substantially tighter than in larger companies due to their scale, employee base, talent market attraction presence, and greater number of employees in each function who can cover for (and recover from) poor leadership and management decision-making. A robust SMB leadership pipeline is therefore a priority for driving longer-term, more sustainable growth and stability for smaller and less-resourced businesses.

Succession issues plague even large, mature organizations

Despite common perceptions, leadership succession management remains a challenge even in large name-brand companies across the globe. Top leadership tenures have shrunk to an average of 4-7 years, and research reveals that between 50-60% of newly placed executives fail within their first 18 months on the job. Accurately assessing and predicting future job success is a notoriously difficult problem to solve, and despite industry estimates of over $200B in annual spending on leadership development, only 10% success rates are reported. 

Furthermore, formal, disciplined succession planning and management programs and processes represent a weakness for most organizations. The Association for Talent Development (ATD) reported that only 35% of organizations have a formalized process in place, and SHRM similarly found that only 44% have a plan, but with almost half saying theirs was “informal” at best. Lacking a formal plan leaves planning for and preparing replacements a hit-or-miss proposition, leaving future stability and business continuity at substantial risk.

Understanding leadership pipelines

A leadership pipeline is a group of employees identified as potential replacements for increasingly senior and more influential roles within an organization. The individuals have been considered or formally assessed as having the potential to contribute at a higher level, most often two or more levels above their current role. The “pipeline” concept is based on the idea that the identified individuals sit at different levels (e.g., senior individual contributor, manager, sr. manager, director, vice president) and, as a group, represent a “flow” of successively higher-level candidates for successively higher roles.

Unlike a traditional succession plan, which is often limited to potential replacements for senior management and executive roles, an SMB leadership pipeline is akin to an oil or water pipeline that brings a consistent flow of those liquids to the various “taps” of the organization as it needs to replace leaders in one or more jobs. It is designed to generate a continuous flow of talent that develops and grows over the years in preparation for consideration in a series of promotional and reassignment decisions.

The pipeline approach is therefore differentiated from traditional succession planning in two ways: 1) it identifies high-potential (HiPo) talent earlier in their careers, and 2) manages talent in “pools” of expertise and level. In the first case, earlier identification is well-suited to managing SMB leadership pipelines because it can handle smaller groups of employees with fewer resources and at lower cost. At the same time, managing talent pools is considered a superior strategy when extending planning and development downward through the middle and lower ranks. Much like an investment portfolio diversified across multiple companies in related industries and growth patterns, this approach reduces the risk of overinvestment or reliance on a single or a few individuals, any of whom might choose to change careers, industries, or geographic areas.

Why is a leadership pipeline so critical for SMBs?

Small-to-medium-sized businesses have a higher operational risk profile, driven by several factors, including their relative size and scale. With smaller workforce populations, the risk of not having ready-now successors is higher, as there are simply fewer employees in each function from which to select and prepare for higher-level roles. Furthermore, SMBs tend to have fewer people with the unique blend of functional expertise and experience needed to both operate successfully in and grow a smaller organization into one that can achieve greater success and become better resourced. Given this common shortfall in ready-now replacements for key roles, the likelihood that under-qualified fill-ins will underperform in the interim period is higher.

The fact is that when a solid or high-performing leader departs, the productive time lost from an open job is more painful and costly for those organizations. Unfortunately, high performers in SMBs are more likely to be poached by larger, better-resourced organizations, creating greater risk and necessitating better replacement planning and development. And when they leave, the challenges multiply. Consider the longer time to fill a key role when looking externally, the time required for the new hire to assimilate and adapt to the culture (“how we do things here”), and the time needed to start making an impact on operational goals and strategic objectives. Related to that is the relative lack of market recognition many SMBs have, which can make it harder and take longer to attract and recruit well-suited, experienced candidates.

Developing an effective SMB leadership pipeline requires a responsive learning and development strategy that smaller organizations may find difficult to implement, given their size and scale. For example, they can face tighter budgets and limited financial flexibility to develop staff members through traditional advanced educational programs, seminars, or external resources such as executive coaches. They also have fewer job opportunities to move targeted in and out of, and to develop them slowly, as many will be elevated earlier and faster than they are prepared to handle and benefit from. Similarly, there are fewer peers to learn with and from, and fewer experienced internal mentors to shadow, counsel, and guide them in their preparatory or new roles.

Establishing an effective SMB leadership pipeline

The need to develop and maintain a solid leadership pipeline in small and midsize businesses is a critical pathway for longer-term stability and operational continuity, and can be accomplished through smart, resourceful, and flexible thinking and planning. It starts with a strategy that considers the near-term and future business growth plans and directions, identifies the types and numbers of leaders by function, and the experiences and skill sets required of each. Considerations of future geographic locations, product and service market segments, and the nature of new operations (e.g., greenfield start-up, merger or acquisition, manufacturing vs. distribution) that the future leaders will guide will inform the skills and experiences to be developed. Key operational steps that follow and support the defined strategy include:

1. Hire with a deliberate and disciplined focus on the future

As new team members are added anywhere in the organization, their hiring should be guided by criteria that support the selection of culturally aligned, technically skilled people with industry and work experience that align with the company's projected direction and aspired-to growth patterns. Recruit candidates from larger and more mature businesses with experience in introducing and growing processes, people, products, and services who can be leveraged as leaders or coaches in future roles. This kind of hiring focuses on importing skills into the organization that may address a shortage and are needed in the future. This is especially crucial when opportunities to practice and learn may be limited at lower levels of the organization.

2. Conduct a critical role assessment

A critical workforce segmentation (CWS) exercise should be conducted to understand and align leadership on the roles that have, or will have, a disproportionate impact on meeting the company’s strategic objectives. By “segmenting” those most business-critical roles, the limited budget and effort resources can be applied to the development and career management of the 7-10% of all jobs in the organization that can deliver the most important and impactful growth and value-producing outcomes. SMB leadership pipeline management becomes easier and more achievable when focused on fewer roles and people.

3. Identify the current talent objectively and rigorously

Regardless of the breadth or (organizational) depth of the roles selected to include in the leadership pipeline management, make the decision to avoid and go beyond the traditional (and still most typical) method of identifying future leaders—managerial recommendations. Relying solely on the opinions of individual managers and mid- to senior-level leaders is a recipe for inaccuracy, bias, and favoritism. Given the difficulties in defining, let alone consistently applying, the criteria for “future potential,” making decisions based on individual managers' opinions is just too risky when selecting employees for an SMB leadership pipeline.

Small-to-medium-sized businesses should rely on more impactful and objective assessment processes and practices, and use talent reviews in which groups of managers share input and evaluations on pipeline candidates. Leadership potential evaluations can be based on demonstrated capabilities and behaviors, such as those reflected in project and task leadership outcomes, a reputation as an influential peer, or a proactive drive and ability to organize others in learning or social activities in the workplace. Similarly, critical people leadership and management skills can be observed through individual demonstration of emotional intelligence and interpersonal skills, and a preference and skill for teaching, coaching, or guiding others. Other useful data can come from observations of individuals’ behaviors and actions in training classes, team technical challenge resolutions, contributions and suggestions on collaborative group work platforms, and objective performance data from sales, customer, product development, and marketing campaigns.

4. Define and assess critical skills criteria

Develop standardized descriptions of the capabilities, skills, and competencies that can be used consistently and reliably across the organization and equitably across individuals. Leadership competency models can be applied to performance reviews, pipeline candidate assessments, promotion and placement interviews, and selection processes, as well as to individual learning and development planning. Consider the skills and capabilities that are differentiators for top performers in each job covered in the SMB leadership pipeline, and define them at a behavioral level – so managers know what to look for, and how to understand the extent to which each individual exhibits and applies them successfully.

The capabilities should cover a mix of technical or “hard” skills (e.g., market analysis, financial planning, process analysis and design, or advanced manufacturing) and personal or “soft” skills (e.g., adaptability, resourcefulness, resilience, strategic and critical thinking, listening, coaching, or delegating) as they relate to each identified role. Further criteria can be used in competencies for business mission or strategy-critical elements, such as operational excellence, customer focus, expense management, or data-driven decision-making.

5. Invest in experiential and exposure-focused development

To address tight budgets, busy, time-constrained employees, and short development timeframes, a reliance on structured experiential development can effectively train and guide future leadership pipeline candidates in small- and mid-sized businesses. This method of leadership development is especially effective at leveraging their demonstrated capabilities to serve the organization’s immediate needs while exposing them and giving them opportunities to practice in higher-level job functions. Engage them in multiple, iterative rounds of strategic planning sessions and provide exposure to executive-level collaboration, meeting behaviors, conflict management, and decision-making by attending C-suite staff meetings. Provide them with executive insights and personalized development with regular coaching and mentoring. And use cohort-based development (monthly lecture lunches, workshops, group coaching) to build cross-functional peer relationships and connections.

6. Develop supporting networks and relationships

A critical, often underdeveloped element of success at the senior management and executive levels is the presence and use of a network of trusted, collaborative peer relationships. Success in senior management roles is significantly impacted by credibility and trust. As such, this is one of the key benefits of a managed leadership pipeline and promoting from within: the building of longer-term working relationships. Internal networks are used by successful executives to access a range of skills and expertise, better anticipate strategic change and direction, identify resources and solutions to difficult issues, foster collaboration and innovation, build a team, drive strategic change, increase influence and visibility, and develop a better and more comprehensive support system.

Networks are built by exposing HiPo employees to broader business and operational awareness and developing their savvy through cross-functional assignments, process improvement projects, functional and business unit reviews and planning sessions, mentoring by leaders outside their function, external industry speakers and events, and training (e.g., management) alongside peers from other functions.

7. Establish knowledge management

Support the efficient transfer of expertise by implementing online archives of functional and operational knowledge, often referred to as knowledge management systems. These have experts document work processes, lessons learned, technical specifications, best practices, playbooks (step-by-step “how to” guides), tools, system user guides, methodologies, research, and resources for less-experienced or knowledgeable employees. These are useful for newly hired, promoted, or transferred employees and special project teams that need on-demand learning and guidance from qualified experts.

8. Expand the pipeline to include external talent

Leading practices in succession management include identifying and tracking individuals employed by other companies with a reputation and expertise that the SMB leadership pipeline would benefit from. Such individuals can be identified through their presentations, articles, professional media posts, or relationships, such as being classmates with current employees or serving as former team members of current executives. They should be identified, tracked, and have someone influential build and maintain a relationship for future recruitment.

Extending SMB leadership pipelines to critical roles

As the pipeline approach focuses on identifying and developing people earlier in their careers and at lower levels of the organization, it will likely be seen as too early to generate the practice and preparation needed for leadership roles. At the same time, they need to develop technical and process- or functional-management expertise as they progress in their careers. As a result, the process described above can be easily extended to higher-level individual contributor or subject-matter-expert roles. This is especially the case in a flatter organization with fewer layers of management. The focus can therefore be shifted to developing a leadership and talent pipeline, with learning activities and skill development targeted toward a more strategic, comprehensive development of leadership across people, processes, products, platforms, and/or functions. In this way, better-rounded future leaders can be projected into a variety of senior-level roles.

Relevant Practices & Tools

Core Succession Management Practices to Develop Replacement Options for Top Executive Positions. >

Succession Management is a strategy and process for identifying, developing, and managing replacements for future leaders and critical role contributors so that successors are readily available as those positions become vacant due to promotions, transfers, terminations, or retirements... more »

Developing a Winning Talent Strategy to Identify Key Capabilities and the Most Appropriate Workforce Mix. >

A talent strategy defines the talent needs and associated objectives necessary to meet top business goals. It is both an integral part of the HR strategic plan and a direct informer of the talent management strategy and planning process... more »

Identifying and Calibrating Successors and HIPOs for Each Role Through Structured and Standardized Assessment Sessions. >

Naming potential successors for executive and critical roles is a collaboration between leaders that requires thought, preparation, and discussions... more »

Conducting Workforce Segmentation to Focus on the Most Valued Positions. >

Workforce Segmentation describes the process of categorizing roles in the organization and determining the value of each relative to the strategic objectives of the company... more »

The Individual Development Plan (IDP) Tool: Capture Targeted Employee Learning and Development Actions for a Performance Period. >

A plan of action to guide the employee throughout the coming performance period (e.g., year) as they continue to develop necessary knowledge, skills, abilities, and competencies for both meeting current and preparing for future job role requirements... more »