If you're unprepared, an unexpected departure of a key member of your leadership team could spell disaster. From operational interruptions to the high cost of recruiting a replacement, losing an executive without a backup plan causes major headaches.
However, with a robust succession plan in place, disruption is greatly minimized. An identified future leader could move swiftly into the open role.
It’s never too early to start thinking about business owner succession. As business leaders, we should always be grooming the next person to take our role. Succession planning doesn’t mean we are ready to retire. It can open opportunities to do other things and operate more strategically.
In this guide, we'll define business succession planning, discuss its importance, and provide actionable tips to implement a strategy.
What is Succession Planning?
Succession planning is a business strategy organizations use to pass leadership roles from one employee to another. A succession plan allows a company to continue to run smoothly when key leaders move on to other opportunities, retire, or leave unexpectedly.
Many succession plans focus on executive positions, but they're appropriate for all levels of an organization. Having a company-wide succession plan in place allows for the promotion and advancement of all employees, from managers down to individual contributors.
Succession planning starts with being willing to give up control. It's crucial to let other people take on greater responsibilities even though they might not do as good a job initially as the incumbent.
With the right strategy in place, a succession plan grooms future leaders over time. The goal is to get them as prepared as possible for when it's time to step up.
Top 5 Reasons to Create a Succession Plan
There are several reasons why an organization needs a formal succession plan. Here are five key points to consider:
1. Identify and prepare future leaders
A main component of the succession planning process is identifying future leaders for key organizational roles. By assessing your current employees, you'll learn who has the potential to grow and take on more responsibility. You'll also get to understand what drives and motivates your top performers, a key element of long-term retention.
2. Reduce employee turnover
When a succession plan is in place within an organization, employees know the company is committed to its future success. It also demonstrates a commitment to learning and development within an organization, which boosts morale and encourages internal promotions. Knowing there's a plan for the long haul also provides employees with a sense of stability in the workplace.
3. Protect against risk
From poorly timed resignations to sudden illness, there are several ways a top position becomes unexpectedly vacant. Although you can't plan for unforeseen events, you can prepare to replace a key leader through a solid succession plan. When future leaders have already been identified, unexpected vacancies are far less disruptive.
4. Save money
Replacing an executive is costly and time-consuming, especially if you're starting from scratch. Hiring a new leader externally often means high recruitment costs and a lengthy time to fill. When you've groomed a leader from within, moving them into their new role costs significantly less than bringing someone in from the outside. You'll also eliminate the risk of a bad hire, as your new leader was vetted through the succession plan process.
5. Plan for the future
By its nature, succession planning forces you to consider the long-term future of your company. The process requires you to take an honest assessment of your teams and whether you have the right talent in place.
You may realize that some areas of your organization need additional training and development. You might also uncover staffing issues that require correction, like poor performance or inefficient management. A solid succession plan helps you plan for future leaders and the future of the company overall.
Succession Planning Strategy Tips
Now that you understand the importance of creating a formal succession plan, let's take a look at some implementation tips:
- Start early, review regularly: Begin your succession planning process well before it’s needed. Don't wait for an unexpected vacancy.
Review your plan on a regular basis. Make updates to reflect new business strategies, market demands, and talent changes.
- Assess current talent: Implement a regular talent review process to identify employees with leadership potential. Conduct talent reviews at least annually to capture new achievements, manager feedback, and improved skills.
Leverage a talent mapping strategy to review succession plans across the entire business.
- Invest in professional development: Offer development opportunities to prepare identified leadership talent for future roles. Customize professional development to each specific employee's needs and skills.
Include internal on-the job training and external conferences, courses, and networking events to provide a variety of experiences.
- Provide mentoring and coaching: A mentoring and coaching program allows for the valuable knowledge transfer from current leaders to identified successors.
Take time to pair mentors and mentees based on career goals and developmental needs. Don't forget to provide training for mentors so they can best support their mentees.
- Create a communication plan: Communicate your succession plan and expectations to the members of your organization. Employees appreciate transparency and clear communication fosters a positive company culture.
Include timelines and milestones to keep everyone on the same page. Keep the lines of communication open by providing constructive feedback to help future leaders meet their goals.
Family Business Succession Planning: Navigating Unique Challenges
Family businesses face unique complexities when it comes to succession planning. In addition to the typical considerations of leadership transitions, family dynamics and long-standing relationships often play a significant role in determining the future of the business. Effective business succession planning for family businesses must account for these challenges while ensuring the continued success of the company.
One of the primary considerations in family business succession planning is ensuring that leadership transitions happen smoothly, without creating tension among family members. When the next generation is involved, there can be heightened emotional stakes, especially when decisions about ownership and control are in play. It's crucial to have a clear plan that outlines the steps for succession and addresses any potential areas of conflict. This minimizes misunderstandings and promotes long-term stability for both the family and the business.
Another challenge family businesses face is balancing tradition with innovation. Succession planning provides an opportunity to bring fresh ideas to the table while maintaining the values that have made the company successful over time. For many businesses, the goal is to create a leadership structure that honors the legacy of the family while preparing for future growth. This requires open conversations about the direction of the company and the skills needed to achieve its goals.
In terms of implementation, a strong family business and succession planning strategy should include detailed training and mentorship for the next generation. Often, family members are expected to step into leadership roles without the necessary preparation, which can lead to challenges in decision-making and business operations. By grooming future leaders early on through professional development programs, mentorship, and increased responsibilities, you can set them up for success.
Lastly, clear communication is essential in the succession planning process. In family businesses, where personal and professional relationships are intertwined, transparency helps mitigate the risk of conflicts. A well-structured communication plan ensures that all family members are on the same page regarding the future of the business and their roles within it.
By proactively addressing these issues through a robust family business succession planning strategy, you can safeguard the future of both the business and the family relationships that support it.
Unleashing the Potential of Your Organization
Growing successors requires training, coaching, and opportunities to take on greater responsibilities. The more you build these elements into your overall organizational management strategy, the more organic your succession planning process becomes.
Eager to learn more about creating a winning succession plan? Connect with us or consider attending one of our upcoming leadership events.
