Business succession planning is crucial to ensuring your company’s longevity and security. If you make a succession plan early on, it will be easy for your organization to handle changes in leadership and other unplanned events.
Identifying key positions, choosing qualified candidates, and training employees who show promise are all essential parts of a succession plan. Let’s discuss succession planning, examples, and how your organization can benefit from it.
What Is Succession Planning and Why Is It Important?
Succession planning is a strategy by which businesses delegate management responsibilities to a different employee or group. It ensures that companies continue to run smoothly without interruption after key staffs move on to new opportunities, retire, or pass away.
Furthermore, it is a good way for businesses to ensure they are ready to promote and advance all employees, not just those in management or executive positions.
Why Is Succession Planning Important?
Succession planning helps ensure that if or when someone leaves your organization, your programs and services are not interrupted. It ensures that your organization can continue delivering on its mission.
Components of Effective Succession Planning
The succession planning process involves choosing qualified individuals to be promoted to high-ranking organizational roles. Most organizations have succession plans for their executive team, including the CEO, CFO, and president. Other succession plans include replacements for department heads, managerial roles, and key positions.
There are several essential components to consider when succession planning. These include:
#1. The Position to be Succeeded
The first component of succession planning is identifying the positions that need to be filled. Succession plans usually revolve around roles critical to the company’s ability to function.
#2. Succession Candidates
The succession candidates include qualified employees willing to fill the necessary roles. Most succession plans maintain two to three candidates for each position. That way, if any of them decide to leave the company or relocate, there is no need for the process to restart.
#3. Incumbent
The incumbent is the person who currently fills the position. When forming a succession plan, consider whether or not the incumbent is high-risk. For example, an older incumbent with known health issues necessitates a more accelerated succession plan than someone younger and physically fit.
#4. Readiness Rating
Succession plans should include a rating system that measures a candidate’s readiness to step into a role.
#5. Timeline
Another crucial element is the succession timeline. Many companies plan for retirement and death/accident. Death/accident plans are for worst-case scenarios and should be completed well in advance. Retirement succession plans are usually implemented slowly over several years, focusing on a future date.
How to Create an Efficient Succession Plan
Following are some actions you can take to create effective succession plans that will aid you in managing leadership changes:
#1. Collaboration
Involving other members of your leadership team is one way to increase the effectiveness of your plan. They probably know some of your staff better than you do, so they could offer advice on which applicants can succeed.
#2. Multiple Candidates
Business owners often choose to leave the company to their children or one of their business partners. While this is undoubtedly a good decision, you should also select one or more other candidates who can take over in the event of a tragedy.
#3. Use an Efficient Format
Succession plans can take many different forms. Some business owners maintain a simple chart, while others draft multi-page documents. Finding the structure of a succession plan most appropriate for your business can be accomplished by conducting thorough research and examining various examples.
#4. Determine the Value of Your Business
Calculating the worth of your business is a crucial task that frequently supports the succession plan. Before retiring, you must find out the value of your business to calculate your net worth.
#5. Consider the Funding
If your succession plan involves someone else buying or running your business, ensure they can afford it. Leaving your business to someone who is not financially capable may result in a loss of profits or even bankruptcy.
The Benefits of Succession Planning
Several benefits come with having a documented succession plan in place, and these benefits extend to both the employees and the employers:
- Employee empowerment and job satisfaction may increase when they know of opportunities for advancement.
- As a result of management’s commitment to succession planning, supervisors mentor employees to facilitate the transfer of knowledge and skills.
- The management maintains a more accurate record of the value of employees to fill open positions from within the organization.
- Employees and management can better communicate the company’s values and vision.
- When the CEO retires, shareholders aware of the succession plan won’t sell their shares.
What are the Seven Steps to Succession Planning?
There are seven steps you can take to instill succession planning within your business effectively:
#1. Identify Key Roles
Look at all the roles within your team and identify those you feel need a plan.
#2. Create Role Profiles
It is essential to understand what each role in your team involves daily and the knowledge, capabilities, and attributes needed to succeed in the position.
#3. Identify Potential Successors
By clearly understanding your employee’s knowledge and skills, you can identify who could be suitable to step into someone’s shoes. Identify who would be emergency cover for a role, who would be ready in the short term, and who could be a replacement in a long time.
#4. Assessment
Not all team members will be high-performance, high-potential employees. You should use systems to identify areas for growth and development and identify potential successors and the areas they can improve on.
#5. Strategic Development
By this stage, you should have effectively assessed the performance and potential of your employees and identified their skills, knowledge capabilities, and gaps.
#6. Implement Your Strategy
Once you have identified how to develop your employees, you need to implement these strategies with SMART objectives, which you can measure and track performance within a time frame.
#7. Analyse and Evaluate
Regularly evaluate its effectiveness against your SMART objectives. Make sure you are flexible with your approach, as you may need to adjust objectives for unexpected events and situations or add additional ones that may arise.
What is Another Name for Succession Planning?
In business, succession planning is also sometimes referred to as replacement planning, and it sometimes entails transferring control of a company to another individual.
What are the Types of Succession Planning?
Business succession planning has different but related types: board succession, planned leadership succession, emergency leadership succession, and staff succession.
#1. Board Succession Planning
The board succession planning process aims to keep your board’s turnover rate healthy. A board succession plan is a strategic document that outlines the process that boards and committees must follow when replacing board members, board leadership, or the executive director.
It is crucial for ensuring the long-term sustainability of an organization and maintaining effective leadership
#2. Planned Leadership Succession
This type of succession plan focuses on identifying and preparing potential candidates to take over key leadership positions within the organization. This includes positions such as CEO, C-suite executives, and high-level directors.
The goal is to ensure that the organization continues to operate efficiently and effectively when current leaders step down, retire, or leave the company for other reasons.
#3. Emergency Succession Planning
The emergency succession planning process entails keeping a record of the vital information required to keep the business operating. These include information on those who sign checks, the names of your bankers, bank accounts, insurance policies, brokers, and the organization’s most important records.
The CEO typically holds all of these crucial pieces of information; by completing an emergency succession, you can give at least one other person access to them.
#4. Staff Succession Planning
Similar principles drive staff succession planning. It is about ensuring that you can identify successors for key staff roles and that the organization can continue to function effectively even if a key staff member departs.
Also, it focuses on identifying and preparing potential candidates for key non-leadership roles within the organization. These roles may be highly specialized or critical for the company’s daily operations. Also, staff succession planning is very closely connected to your performance evaluations, so it is important to do regular performance evaluations.
What are the Two Types of Succession Plans?
There are two main types of succession planning: long-term and emergency.
#1. Long-term Succession Planning
This type of succession planning is focused on identifying and grooming potential candidates to take over key positions in the organization over time. It is a continuous process that involves evaluating employees for their leadership qualities, providing necessary training, and preparing them for more challenging roles. Also, it can be reevaluated and updated as the company grows and evolves.
Pros:
- Ensures a smooth transition for key positions.
- Helps to identify and develop internal talent.
- Can adapt to the changing needs of the organization.
Cons:
- Requires ongoing effort and resources to maintain and update the plan.
- It may not account for unforeseen circumstances or emergencies.
#2. Emergency Succession Planning
This type of succession plan is intended to be deployed in the event of an emergency or the unexpected departure of key personnel. It may involve temporary measures and require other senior staff members to take on additional responsibilities while a suitable replacement is sought.
Pros:
- Provides a backup plan for unforeseen circumstances.
- Helps maintain business continuity during emergencies.
Cons:
- It may not offer a long-term solution for filling key roles.
- It could place additional strain on existing staff members.
What is a Good Example of Succession?
The succession planning process is vital to ensuring a smooth organizational leadership transition. It helps maintain business continuity and keeps employees and shareholders confident during leadership changes. Here are some examples of the succession planning process:
- PepsiCo: PepsiCo is among the examples of a company with successful succession planning. In 2006, Indra Nooyi was appointed CEO, succeeding Steven Reinemund. Nooyi had been with PepsiCo for over a decade and held various leadership roles, making her a strong internal candidate. The succession plan ensured a smooth leadership transition and continued company growth.
- Ford Motor Company: Ford Motor Company’s succession plan played a significant role in the appointment of Alan Mulally as CEO in 2006. Mulally, an external candidate from Boeing, was identified and groomed for the position by Ford’s board of directors. His appointment helped turn around the company’s fortunes during a challenging period for the automobile industry.
- Walmart: One of the examples of successful succession planning in a family-owned business is Walmart. The company’s founder, Sam Walton, passed on the leadership to his children, who have continued to grow the business since his passing. Walmart’s succession plan ensures that the company remains under the family’s control while maintaining its success in the retail industry.
- Estée Lauder Companies: Estée Lauder Companies, a family-owned business, has successfully transitioned leadership across generations. The company’s founder, Estée Lauder, passed on the leadership to her son, Leonard Lauder, who later handed it over to his son, William Lauder. Estée Lauder’s succession plan is one of the examples of how succession planning helped the company to maintain family control while continuing to grow in the cosmetics industry.
These examples demonstrate the importance of succession planning, ensuring a smooth leadership transition and continued success for the organization.
Succession Planning Framework
A succession planning framework or model is a plan that has already been made and helps to contextualize succession planning plans. A succession planning framework or model is like a well-written plan companies use to start the succession planning process.
A clear and transparent succession planning framework highlights the necessary present and future personality traits, cognitive abilities, behavioral preferences, and also leadership skills to carry out a role.
When developing a succession planning framework, consider the organization’s best interests. It is essential to a company’s success because a carefully thought out and implemented succession planning framework reduces the risk of a sudden skills shortage for a company.
- Family Business Succession Planning: Creation, Template, Model, and Sustainability
- 5 Top Management Consulting Services in High Demand (Updated)
- Talent Management: Meaning, Systems & Basic Processes
References
