Succession plans come in a variety of shapes and sizes. When it comes to identifying potential successors, companies may choose from their current employee base or hire someone new. Where you source future leaders will depend on a number of factors, including the number of high performers in your workforce and the skills needed to thrive in critical roles.
Hiring internally allows an organization to groom future leaders over time. It also allows for a more seamless transition in the event of a departure. Internal hiring boosts morale, provides employees with an incentive to perform at their best, and encourages them to seek promotions.
If there are no viable successors inside the organization, it may be necessary to seek out external talent. While they may not be as familiar with the organization as internal candidates, they may be better suited for the role from a skills standpoint, leading to better business continuity and less operational risk.
In a family business, succession planning may include passing on leadership roles to heirs. For example, the owner of an organization may choose one of their children to take over when they retire. In this scenario, there may be unique legal elements and more sensitive communication planning involved.
This strategy is greatly beneficial in preserving generational wealth and brand identity. However, it's extra-important to handle these types of succession plans with care. Any snafus in the process could cause significant family and organizational conflict.
Key Benefits of Succession Planning
Succession planning offers an organization several key benefits, such as:
- Promoting smooth transitions and business continuity through critical leadership changes
- Equipping employees with the skills and tools needed for future roles
- Boosting employee retention and engagement through the promotion of upward mobility inside the organization
- Mitigating organizational risks like talent gaps, loss of revenue, and loss of productivity
- Cutting recruitment costs through the identification of high potential internal candidates
- Ensuring critical knowledge and skills are passed along to the next generation of leaders
- Preserving an organization's brand and values through choosing internal successors
Although developing the right succession plan requires considerable time and resources, it is well worth it. Let's now explore a high-level overview of how to put it all together.
5 Steps to Create a Succession Plan
To begin formulating your organization's succession plan, consider these five key steps:
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Evaluate and Assess Needs: Conduct a thorough analysis of organizational needs and identify critical leadership roles. Determine the impact of key roles on overall business goals and operations. Perform a cost analysis of the impact of leaving critical leadership roles vacant
- Identify Successors and Key Competencies: Conduct a workforce assessment to identify top talent across departments. Create a talent management map and determine which critical roles best suit each individual. Identify the key skills and competencies for each leadership position. Create a development roadmap to ensure successors are prepared for the future
- Develop Talent: Create custom development plans for each identified successor. Include a mix of formal and informal on-the-job training. Use case studies to ensure proper knowledge transfer and leverage mentorship from current leaders. Schedule routine check-in sessions to measure progress
- Implement the Succession Plan: Develop a communication plan to roll out the succession plan to the broader organization. Begin talent development activities and knowledge transfer processes. Obtain feedback from current leaders and successors throughout the program's progression
- Evaluate and Measure Success: Identify key performance indicators (KPIs) and metrics. Review the succession plan regularly and refine it as needed. Update the plan whenever there are significant changes to organizational structure or strategy
The unique needs and goals of your business will ultimately determine the structure and details of your succession plan. Keep your plan relevant and up to date through active maintenance and routine assessment of effectiveness.
Succession Plan Key Performance Indicators
When it comes to succession planning KPIs, there are two main categories: objective and subjective. Objective metrics are comprised of hard data and numbers, like turnover rate of key employees and percentage of leadership positions filled internally. Subjective metrics include "softer" indicators of success, like job satisfaction and employee engagement.
Here are some common succession planning KPIs:
- Bench strength (the ratio of high performing employees/identified future leaders compared to the overall workforce)
- High potential turnover rate (the rate at which identified successors leave the organization)
- Number of high potentials identified for each critical role
- Completion rates of successor-based training and development programs
- Percentage of promotions within a particular time frame
- Critical roles with three or more successors
Both objective and subjective KPIs are essential in measuring the effectiveness of your succession plan. Whichever metrics you choose, it's important to collect baseline data to serve as a benchmark.
Common Challenges of Succession Planning
While no two succession strategies are exactly alike, businesses do tend to face similar challenges when planning. Here are some of the common obstacles encountered:
- Lack of Buy-In: Without the input and buy-in of senior leadership, the board of directors, and other key stakeholders, succession plans run the risk of becoming ineffective. Consequences include identifying or hiring the wrong successors and misalignment with the company's long-term strategies
- Emergency-Based Planning: Failure to develop a succession plan leaves a company open to massive operational risk in the event of an unexpected departure. Without a robust pipeline of successors, emergency vacancies can negatively impact productivity and the bottom line
- Failure to Support Successors: Identifying successors with potential doesn't mean they're naturally equipped to take on their future role. Without the proper training and mentorship, successors may struggle in their leadership roles and impact continuity
- Relying On One Successor for Each Role: Choosing only one successor per leadership position is like putting all of your eggs in one basket. If the identified successor leaves the company or declines the opportunity, it could result in an inconvenient vacancy
- Outdated Plans: A succession plan should be updated regularly to reflect the current state of the organization. Failure to update your plan may result in part or all of it becoming irrelevant and unhelpful
Getting Started
The first step in crafting your succession plan is to identify your organization's key leadership roles and the skills and knowledge required for each role.
Here are some helpful first action steps:
- Analyze your organizational structure to identify mission-critical roles. Focus on roles that directly impact revenue generation and those with the most leadership responsibilities
- Create long term "success profiles" or detailed job descriptions for each role. This will help you better identify and develop successors
- Assess your current workforce to find the best successors for each role. Leverage performance review data and seek recommendations from current leadership
- Gain buy-in from senior leaders and key stakeholders. Help them understand the importance of succession planning and the consequences of not having one in place
These first steps are a great way to establish the foundation of your succession plan. Once you've established a strong foundation, you can move on to formally identifying successors, developing training and mentorship programs, and choosing the most relevant KPIs to track.
Unleashing the Potential of Your Organization
The sooner you start developing your organization's succession plan, the better prepared you'll be for expected and unexpected leadership departures. The time and resources dedicated to creating and maintaining a comprehensive strategy are well spent. With the right succession plan in place, you'll mitigate operational risk, prevent lost revenue, and boost morale.
If you’d like to learn more about what succession planning involves and identifying future leaders, connect with us or consider attending one of our upcoming leadership events.