What is business succession planning?
Business succession planning is an essential process of identifying and preparing future leaders or owners of a business to ensure a smooth transition when current owners or top management exit for any reason.
Summary
Business succession planning involves training and preparing up-and-coming leaders for future management roles in the business.
It ensures business continuity and prevents talent loss.
A SHRM survey discovered that 56% of US organizations had no succession plans in place.
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What is a succession plan in business?
A business succession plan involves identifying the critical positions in the business and crafting plans for high-potential staff members to fill those roles in the future.
It is necessary when key roles, such as senior leadership or ownership, are likely to change.
A typical business succession plan consists of the following:
Recruitment and hiring: Before the recruitment process, it's important to identify the necessary skills and qualifications for the position. This makes it possible to hire the correct person and groom them for the position long before it becomes vacant.
Training: Succession planning training is a long-term endeavor that includes internal workshops and courses, working on challenging assignments, executive coaching, and job shadowing.
Why is succession planning important for business owners?
Business succession planning is imperative for long-term success and stability.
When critical positions become vacant, and no plan is in place, companies can face uncertainty, loss of valuable knowledge, and operational disruptions.
An effective business succession plan has several benefits, such as:
Helping identify critical positions.
Identifying candidates for each position, resulting in vacancies being filled by the best person instead of only one.
Ensuring successors are adequately prepared for the new position.
Helping to develop strong leaders who add value to the business on a daily basis long before taking on their new roles.
Minimizing the onboarding times of candidates into their new positions.
Ensuring business continuity and stability.
Helping to retain key staff members.
Reducing training and recruitment costs in the future.
What are some common issues businesses encounter during succession planning?
Not having any business succession planning in place is ill advised. However, even those companies that plan ahead may encounter several challenges and make critical errors in the process.
A common issue during succession planning occurs when employees or leadership are resistant to change.
Owners or C-suite leaders may not trust successors to carry out the role properly, or they may not want to relinquish control.
Some typical mistakes that happen during the succession planning execution include:
Only creating succession plans for executive-level staff: This can cause gaps in other essential sections of the business when critical roles suddenly become vacant.
Using a universal competency framework to evaluate candidates: Using a one-size-fits-all competency framework can cause leadership to overlook the unique skills necessary for their organization’s key roles.
Not focusing on how the focal role may change: It’s essential to consider all technological and other changes that may occur in the time it takes for the successor to take over the role.
Lack of transparency concerning the succession plan: Key employees may leave the company if they aren’t aware of their advancement opportunities.
Only allowing one successor per role: A pool of talented candidates will enable the business to choose the most suitable person. It will also ensure the role is not left unfilled without a competent person.
Making succession planning the sole responsibility of HR: Succession planning often fails because of a lack of support from management. All the key players should be involved.
Failing to update the business succession plan: Companies should update their plans every six months or whenever significant changes occur.
Inefficient documentation process: There may be no follow-through when companies fail to document the plan.
What happens if you don’t carry out succession planning?
Without a succession plan, businesses can face significant disadvantages, which may include the following:
Increase in recruitment and training costs: When people in critical roles leave the company, the company may have extensive outlays to replace them. There may be a severance package for the exiting staff member, recruiting firm expenses, travel costs for unexpected meetings, high salaries for external hires, and fees for lawyers or other consultants.
Uncertainty for employees: It may create a perceived instability in the business, resulting in a higher staff turnover and lower morale.
Operational disruptions: Critical roles may remain vacant for extended periods, which could affect productivity.
What should be taken into consideration when business succession planning?
Alongside planning for when company leaders move on or retire, there are some other key considerations when implementing a business succession plan.
One is a cross-purchase (buy/sell) agreement, which can protect business partners should one of them pass away.
Partners in a business can set up life insurance policies that name the other partner as the beneficiary. This allows the other partner to continue operating the company in the event of an owner’s death.
Business owners should also consider legal and financial planning when transferring ownership. Succession plans should also be flexible enough to adapt to unforeseen changes or delays.
How to create a business succession plan
Creating a business succession plan requires a comprehensive approach covering leadership and ownership transitions. It also requires more than simply nominating staff to take over the critical roles.
Key steps in the succession planning process include the following:
Identify challenges that may arise in the business within the next five years.
Consider the critical positions necessary for business continuity.
Decide on the essential competencies, knowledge, and skills for success in these roles.
Evaluate several employees with high potential for each critical position. A helpful tool in creating a talent pipeline for your business is the 9-box grid.
Consider the skills and competencies these individuals will need to fulfill the critical roles.
Ensure that people in current positions pass on their knowledge before leaving.
Allow potential successors to practice the role they may fill in the future.
Introduce potential successors to current leadership’s peers and bosses to facilitate acceptance into the role at a later date.
Give individuals the opportunity to make decisions they would have to make in the critical role.
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Creating a business succession plan is essential for maintaining a company's stability and continuity in the event significant employees or leadership exit the business for any reason.
The process includes identifying the critical roles, essential skills, and high-potential employees who could fill these roles and developing their talent to facilitate their success.
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