Determinants of Succession Planning in MNCs Operating in Denmark

Abstract

Succession planning can be an important strategic tool within the sphere of strategic international human resource management (SIHRM) and can impact a firm’s performance and valuation, as well as its corporate culture and turnover in personnel. This paper examines multinational corporations (MNCs) operating in Denmark and their use of succession plans. The approach builds on previous research in order to determine a holistic model that classifies firms as engaging in succession planning or not based on firm characteristics, internationalization strategy and management development. Firm characteristics such as size or country of origin have been found to affect the use of different HRM practices across the organization. Internationalization strategy is defined to reflect the difference in centralization or fragmentation of the organization, both in terms of the product market and the internal HRM practices. Meanwhile, management development measures different techniques utilized to develop a cadre of trained high potentials within the organization. These different drivers of succession planning are brought together in a holistic model that challenges some aspects of previous studies. A large sample consisting of more than one fourth of the MNC population in Denmark is analyzed through the use of a logistic regression model in order to determine the model. Roughly half of the firms in the sample reported engaging in succession planning. The study finds that high-performing firms are more likely to engage in succession planning than firms with a relatively poor performance. Similarly, MNCs with over 30,000 employees worldwide are more likely to engage in succession planning than smaller firms. Support is found for a firm age effect, although the magnitude of the effect is limited, and somewhat surprisingly older firms are found to be less likely to engage in succession planning, contradicting extant theory. Using a Varieties of Capitalism (VoC) approach, the study does not find support for a significant country of origin effect. Looking at internationalization strategy, the study finds support for the hypothesis that product standardization, either globally or regionally, is significantly correlated with a higher likelihood of engaging in succession planning, but fails to find support for an effect attributed to the existence of global policy bodies. Among the most important findings of this study is that management development captures an effect that has been attributed to the existence of a global policy body in many studies. This study shows that when an index of the use of management development techniques is included in the analysis, the variable measuring the existence of a global policy body ceases to be significant. This has implications for the interpretation of HRM centralization and global control in previous studies, which have only measured the existence of a global policy body, but not included management development. Instead, this paper suggests that the existence of a global policy body is driven by the utilization of management development techniques.