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What happens if you, as a company owner, decide it’s time to retire or you’re ready to move on to another venture? Or the executive team member who was envisioned as the company’s next leader decides to go another direction?
Frenzy? Disruption that destabilizes your staff and makes it hard to deliver on promises to customers?
There’s no need for a mad scramble if you have a well-thought-out management succession plan in place. If you don’t, the impact on the business you’ve built can be costly.
According to Harvard Business Review, badly managed CEO transitions wipe out nearly $1 trillion in market value each year for S&P 1500 companies alone. Smaller businesses suffer financial impacts, too, along with loss of historical knowledge and uncertainty among employees and customers about how the company will operate going forward.
Business succession planning, on the other hand, brings organizational stability when critical roles are vacated.
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Think of the succession planning process as a proactive strategy for identifying and nurturing high-potential future company leaders. This approach will enable you to act quickly and confidently when a top position opens – whether it’s yours or another senior leader’s – and help ensure a smooth transition. Having that talent pipeline in place maintains company-wide strength and stability when leadership roles change.
Here are the nine best practices for succession planning:
The foundation of a successful company succession plan is identifying what roles are crucial to the company – those without which the company would face disruptions or perhaps outright viability threats.
Usually these are positions that directly affect operational performance, customer relationships, employee relationships, strategic direction and the bottom line, with titles like CEO, COO, sales and marketing director, human resources director and information technology director.
Whatever your company calls them, these are the kinds of leadership roles your succession plan should cover.
Take time to think through what your business needs in the people who would step in if the critical roles became vacant. Considering your organization’s goals and the competitive landscape, do any positions need to look different in the future than they do now? What knowledge, skills and abilities would the right people need to maintain leadership continuity and move the business forward?
This thought process can produce leadership competency models, updated job descriptions, and a list of the criteria that must be met to evaluate successor candidates.
This is a gut-check moment to impartially evaluate what the next leaders must bring to the table to achieve success within the constructs of the company.
Sometimes, this clear-eyed appraisal shows that a person who seems like the obvious next leader won’t be the right fit. An independent thought process helps ensure that the criteria for each role are on target without being influenced by partiality toward any one individual who might seem like the natural choice.
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Engaging stakeholders creates a more deliberate process and assures all vital considerations are examined. Depending on your business, stakeholders could include:
Finance/accounting and human resources representatives should always take part in succession planning discussions. If your company doesn’t have in-house HR staff, an outsourced partner like Axcet HR Solutions can help with planning and processes.
Invite stakeholders to provide input through focus groups, surveys and planning meetings. Their buy-in, ideas and perspectives will improve the transition process by ensuring all aspects of the change are considered and addressed.
This strategic best practice will lead to the creation of a thorough, formal, actionable succession plan that details the procedures, timelines and responsibilities involved in leadership changes.
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Employees don’t need to know every detail of the decision-making process, but they should be made aware that the company is undertaking succession planning. Transparency and openness build trust and give employees confidence that any major leadership change, when it does come, has been thoughtfully considered.
Let employees know, generally, what the planning process entails, where they can have input and what the succession plan will mean for the company and for their roles.
Often, succession planning presents an opening to talk with employees about their own career goals and to share career path opportunities.
Look for your next leaders among your existing talent first. This evaluation is a delicate balancing act that will determine how well potential leaders within your organization meet the criteria identified for each role. This assessment needs to be as objective as possible to make sure the “diamonds in the rough” aren’t overlooked.
Beyond experience, pedigree and personality, look for people who have the right mix of skill, vision, leadership and drive. Be open to considering people who may want to step outside the status quo to pursue fresh approaches that could infuse innovation and boost growth.
Next, talk with your strongest incumbents, being as inclusive as possible, to make sure their career goals align with the roles you envision for them.
If there isn’t a good internal fit for a given position, external succession involves bringing in a qualified individual from outside the company. This is not an uncommon approach when an owner wants to sell.
It can be effective, but outside candidates must be vetted thoroughly to make sure they will provide stability, quickly build strong relationships with staff and continue carrying out the owner’s original vision for the company.
A formal plan should establish clear succession criteria, identify potential leaders and outline the paths necessary for readiness. The plan’s purpose is to:
Provide targeted development opportunities, including training, workshops, conferences, education and mentoring/coaching to prepare identified successors for their future roles.
Work with them to review their existing networks and identify where they may need to establish and build relationships with customers, suppliers, vendors, community influencers and industry partners; then help by making introductions or providing opportunities for these interactions.
Allow future leaders to be taught by the people who are now in the positions they will fill. Provide chances for them to learn how the whole company operates and how departments interrelate.
Tailor developmental plans to the individual needs of the identified successors to maximize effectiveness.
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Outline how you will promptly address unexpected vacancies. If a leader leaves suddenly, a clear action plan for immediate succession will minimize downtime and maintain stability, and essential functions will continue without significant interruption.
An annual review of your plan will keep it relevant and actionable, so that you can confidently implement it at a moment’s notice, if necessary.
In your review, assess how your organization has evolved. Individuals who have newly emerged as leaders might need to be developed, people who were identified as successors might have left and marketplace shifts might mean that job responsibilities – and the people who can best fill them – are different than they were a year ago.
Reviewing and updating your plan allows your team to make relevant changes.
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Succession planning isn’t just about who’s next—it’s about what’s next for your business. When you follow best practices, you position your company for sustained growth, inspire emerging leaders to stay and grow with you, and reduce disruption when transitions occur.
Axcet supports small and mid-sized businesses with organizational development strategies that include leadership identification and succession planning. We’ll help you build a clear path for future leaders to grow and thrive within your organization.
Schedule a consultation today to start building your leadership pipeline.
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