Succession planning is an important step in financial and operations planning for businesses of all sizes. Choosing the path for the business to follow is much more complicated and comprehensive than simply naming a sole successor. Using proven succession planning tools can help your business to multigenerational success.
The most important and useful succession planning tool businesses have is an experienced, fully qualified succession planner. The best succession planners will have a number of tools at their disposal to help you create then execute the perfect succession plan for your business.
Succession Planning Basics
Simply put, succession planning is the process of identifying individuals within the company that can be mentored, groomed and developed into leaders of the company.
By actively planning for openings within the company, organizations are better prepared to immediately react when the need arises.
In order to be successful, it is important not to limit succession planning to those in the highest leadership positions within the company. Instead, building a pipeline of individuals in all levels has the largest impact and best prepares an organization for growth.
In order to be successful and to best prepare the business for forward movement, all succession plans should accomplish the following:
- Identify individuals within the organization who have the potential to take on greater leadership roles within the company.
- Specify training and development opportunities that can help build existing employees into preparedness for increased responsibilities and accepting new roles.
- Get the buy-in of senior leadership and incorporate into their incentive compensation so that they support the ongoing mentoring and development of existing employees.
Succession Planning Tools
When evaluating professionals for creation and implementation of your company’s succession plan, be sure to look at a team of experts that utilize proven succession planning tools that are able to accomplish the following:
- Create a strategic direction. The first step in creating a succession plan is not finding the right candidate. Before building or developing anything else, the company must have an agreed upon strategic vision and a vision for the company’s future. If stakeholders each have a different vision of the future, it can be nearly impossible to come to agreement on a succession plan. The right person for the job will have the skill set to bring a number of different people together and assist them to come to a common vision for the future.
- Define positions. If there is no framework, succession planning will fail. The first step is to define what the business is looking for in both internal and external candidates. Some roles may need to be thoroughly defined, particularly those at a senior level. This process is truly a continuation of defining the strategic vision for the company. By defining how each role impacts the strategic vision, the business is better prepared to find or promote individuals who have the ability to meet those objectives.
- Evaluate risk. The amount of risk of losing an employee can dramatically change the approach to succession planning. Each key position should be evaluated to determine the risk of individuals leaving their current roles. This includes individuals retiring, moving on outside of the company or being promoted to other internal positions.
- Evaluate talent. It is important to evaluate talent at all levels of the corporation. By looking at the strengths, performance and potential of employees, it is possible to identify those individuals who are most likely to succeed in a position of growth. This information is critical to have when evaluating if the organization should go outside to hire. Additionally, regularly evaluating talent allows business owners to get to know the skills and weaknesses of their employees.
- Establish a pipeline. Maximizing the potential of current employees is one of the best ways to create a successful succession plan. The pipeline must include employee evaluations, ongoing training and development opportunities, and coaching, mentoring and ongoing feedback. Promoting from within increases morale and enables a company to retain knowledge about the company and industry in order to continue to improve.
- Create a leadership plan. Loss of a senior leader can significantly impact a company’s ability to do business and to be competitive in the marketplace. This negative impact can be exacerbated if the wrong individual is chosen to fill the role. By creating, and regularly updating a succession plan, a company is prepared for the worst and prepared to fill the opening with the best candidate.
Succession Planning Needs by Business Size
The size of a business significantly impacts the type of succession plan that is necessary. An expert will rely upon their experience and succession planning tools in order to create plans for businesses of any size.
Small Businesses
Many small businesses are owner dependent. Once the owner retires or dies, the business often ceases to exist. The majority of existing, profitable small businesses have the ability to be turned into multi-generational businesses with succession planning. Small business owners have few options for succession planning - either groom a successor or exit the business by liquidating the company.
Medium Businesses
Medium businesses, particularly those with multiple owners, need to take several steps to ensure the business and the business partners are provided for. In some instances that means outlining the requirements for replacing each individual in the event of a departure. In other instances, it means putting together a formalized agreement where each party agrees to purchase the other’s stake in the business.
Large Businesses
Most large businesses have incorporated succession planning into their normal operating plan. But some of the largest companies have a very thin succession plan, or none at all. This has the potential to harm revenue, stakeholder engagement and public perception. For large companies, updating and executing on the succession plan ensures that the plan is in tune with the ever-changing needs of the business. Additionally, verifying that the plan is thorough and addresses the needs of movement at every level is key.
