Succession planning is a vital element of success for any organization or company. Every business owner must plan in advance exactly who will take over when he or she leaves office. Simply put, it’s important to not only create a successful team but to ensure its development (for at least 10 to 15 years).
This is especially important for family businesses because the key to the long-term life cycle of the company is a business plan. The one that includes not only business goals but also the core positions that will require a replacement.
It’s great if your junior relatives have all the necessary professional skills, knowledge, and experience for a particular role in the company. If not, then experienced professionals who are not related to the business owner should become heads of certain divisions.
Why Succession Management (SM) Is Important
Even if you or the head of your company’s division does not plan to leave the office yet, making a list of leaders who are capable of continuing to manage the business is still a good idea. This is how you will be able to successfully address the following tasks:
- Identifying important positions for which you need to prepare replacements in the future;
- Identifying the most important competencies, skills, knowledge, and abilities for each leadership position;
- Finding and training employees who have the necessary competencies for each position on the list.
Simply put, your succession plan must contain:
- The company’s staffing needs. These are the vacancies that exist in the company now, as well as what staffing resources will be needed in the future;
- A list of employees with all the necessary skills and potential for each of the roles.
When it comes to SM at the business owner level, it also implies a multi-year strategy that involves the transfer of ownership. Note that the effectiveness of the company’s tax planning directly depends on the latter.
Also, during the process, the older generation of owners must determine whether they will retain voting rights during company meetings.
Succession Planning (SP) as a Process
SP is a complex process that consists of a large number of interrelated elements. Conventionally they can be divided into the following five groups:
- A strategic business plan. Like any other plan, it should contain an analysis of potential risks, including financial, human, and other resources that are necessary for successful development;
- Individual financial plan for the owner. It should include information on the owner’s financial assets and goals, as well as a forecast of investment returns;
- An ownership transition strategy. This should include detailed information on business interest transfer procedures, shareholder voting rights, and tax planning strategies;
- Change of ownership strategy. If the current business owner considers it necessary to transfer the role to a family member, the main criteria for selection should be the availability of all necessary competencies and experience;
- Company management strategy. If it’s a family business, management can involve two forms of making business decisions. These are a family council, which should ensure consensus in making vital decisions, or a board of directors whose members are not related to the owner. Therefore, such members can be impartial in making key decisions, including the selection of candidates for team managers and heads of departments.
Additionally, the succession planning process for family businesses includes an important nuance. For the future of the company to be successful, the strategic plan must place equal emphasis on business continuity and maintaining harmonious family relationships.
The process can be divided into 2 key stages: evaluation and development. These are two large-scale processes, each consisting of a large number of stages.
The Assessment Stage
The assessment stage implies an analysis of all resources available to the company, as well as a full audit of its business activities. The stage includes the following activities:
- Identification of the most important goals and business objectives for a minimum period of 1 to 5 years;
- Making a list of crucial jobs for the successful development of the company;
- Creation of a “success profile” for each position, which includes a list of all the necessary competencies, skills, knowledge, and abilities that the company needs to achieve success;
- Identification of employees with high potential who can become team leaders in the future (or already are). These are exactly those human resources that will ensure the successful development of the company and a long period of its existence;
- Analysis of the competencies of each high-potential employee, which are necessary for the successful resolution of each task and goal outlined in the business plan.
Once the assessment stage is complete, you can begin to develop a strategy.
The Development Stage
Creating a succession strategy involves individual work with each employee who has high potential and pronounced leadership qualities. This entire development stage can be divided into the following process:
- Making a list of competencies, knowledge, and skills for each promising employee. Further, the owner of the company should define the role in which each employee will be effective. This should be done together with heads of departments and HR specialists;
- Leadership pool formation. Such a pool should include all talented employees who will be useful in various positions in the company. It should be the basis for creating a career development strategy for each of these employees.
The result should be the development of training and support programs for talented employees, which will help each team member develop leadership skills.
Conclusion
A business succession strategy involves identifying the personnel needs for each leadership position. To do this, the company should have a strategy for identifying and developing employees with high potential. This is especially important for family businesses, where succession is one of the key ingredients for success.
