Succession Planning and Financial Performance: Does Competition Matter?

Abstract

Succession planning has been defined as the process by which one or more successors are identified for key positions, development activities are planned for identified successors, or both. Limited research exists pertaining to the relationship between hospital succession planning and financial performance, particularly in the context of market competition. We used the resource-based view framework to analyze the differential effect of succession planning on hospitals' financial performance based on market competition. According to RBV, organizations can achieve higher performance by using their superior resources and capabilities. We used a panel design consisting of a national sample of hospitals in the United States for 2006-2010. We analyzed data using multivariate linear regression with facility random effects and year and state fixed effects. The sample included 22,717 hospital-year observations; more than one half of the hospitals (55.4%) had a succession planning program. The study found a positive relationship between the presence of succession planning and financial performance (β = 1.41, p < .01), which was stronger in competitive markets (β = 2.31, p = .03) than in monopolistic markets (β = 1.06, p = .01). Hospitals can use these results to make informed decisions about investing in succession planning programs on the basis of competition in their market.