Succession planning has become a key planning strategy in many successful businesses. It involves passing on key roles, such as in leadership, to capable and promising employees.
For most businesses, identifying a potential successor is quite challenging. After all, consider the traditional way of finding a CEO: candidate hunts. Searching for your next leader does not have to mean searching nationwide.
In fact, many future leaders could be in your current workforce. It is immensely less time consuming and cost efficient to look to current employees to fulfill key positions after your current executives leave.
In this article, we will provide you with the ultimate guide to succession planning and address all of the most commonly asked questions about this topic.
What is Succession Planning? Definition & Meaning
To properly implement this strategy, you must first understand the meaning of succession planning. Succession plans create a system of passing power down from prior leaders to new individuals.
Specifically, it involves leaders passing down ownership to their employees. This establishes a smooth system for fulfilling leadership positions, as businesses have to spend less time searching for new business leaders.
Instead, executives are able to comfortably retire while junior employees gain more promotional job opportunities. Often, succession planning makes employees feel more connected at work. When they see and acknowledge their future opportunities within an organization, individuals are more likely to stay at that company.
The main goal of succession, however, is tied to long-term efficiency: it is about ensuring the business is not overly reliant on a single individual to succeed, and ensuring the company continues to thrive long after initial leaders leave the team.
How Succession Planning Works
The succession planning process is usually not extremely complicated. At first, you should identify your company’s current leaders.
Understand which soft skills and experience make this individual a strong leader. Then, begin looking at other individuals in your company with similar traits and the potential to take on challenging roles.
Once you identify these employees, train them so they gain experience, strengthen their existing abilities, and understand the organization’s long-term goals. However, plans should not be set in stone.
Sometimes, key employees begin to lose motivation, which makes them poorer candidates for higher-level positions. In cases like these, you would need to remain flexible and consider new candidates for succession.
Expect to reevaluate your plans at least yearly, or whenever major team changes occur. Maintain an emergency succession plan in case unexpected changes occur in your leadership roles. Also, establish a more in-depth long-term succession plan with input from your leaders.
A larger business typically approaches succession differently from any regular business. They may have entire boards or committees dedicated to succession planning, while in small companies, succession decisions could be made by the owner alone.
Typically, larger companies prepare mid-level employees to climb the corporate ladder. For family-owned companies, training the next generation of leaders is a common form of succession.
Succession Planning – Why is Important & List of 8 Benefits
Succession planning helps businesses ensure their critical roles are fulfilled by competent individuals. If a key employee leaves, businesses who use succession planning feel secure in their future.
They already understand who will fulfill that role, often giving them a competitive advantage over their peers. However, there are even more crucial reasons to begin succession planning in your business.
Succession Planning – List of 8 Benefits
- Employees are more motivated, as they understand maximal effort and productivity could result in receiving senior management roles over time.
- Employee retention rate increases significantly.
- Managers better understand the type of employees they require for certain roles.
- When employees understand their employer plans for the future, their career goals tend to become more ambitious.
- Company values are better understood among workers.
- With generations currently retiring, hiring qualified leaders is crucial. It is best done with a combination of succession planning and relationship building between past and future leaders.
- Mentors and prior leaders are encouraged to transfer their knowledge to the next company leader.
- Creates an exit strategy for leaders wishing to sell their stake in the business.
Succession Plan Processes and Framework
Clearly, succession planning has its benefits. But you may be wondering: are there any real-world examples of this process helping companies? How did they implement a successful succession plan? In fact, a large number of entrepreneurs have found this strategy to be efficient for identifying new potential business leaders and making leadership changes more smooth.
One tactic that makes a succession planning strategy successful is establishing a talent pipeline. This can be challenging, as 74% of public company CEOs stated it was the toughest part of executing a solid succession plan.
However, the time and effort of establishing a pipeline are worth it in the long run. Nationwide executive searches are costly, and if you do not have a talent pipeline, you will likely be forced to perform such a search.
Instead, identify your current high-performing employees who are best suitable for a leadership role. Consistently reevaluate this list and add new candidates when necessary.
Identifying your high-performing employees and potential leaders is not enough, though. You need to actively invest in their skill and experience development.
Align them with your company’s value, ensure they are actively building a positive company culture, find motivation sources, and expose them to possible leadership responsibilities.
A great way to do this is by assigning mentors to engaged employees and leadership candidates. This way, they have someone motivating them and assisting them to work their best/reach their full potential so you can prepare them to be quality leaders.
One company that was able to use the previously described techniques effectively is luxury retailer Barney’s of New York. In 2017, a key leadership change was made: Daniella Vitale took on the CEO position, replacing her mentor Mark Lee.
Barney’s took Vitale’s record under the microscope and discovered she was uniquely qualified to run the company due to her extensive experience in the high-end fashion industry.
7 years earlier, Vitale joined Barney’s as Chief Merchant and was a well-known candidate to the board. Barney’s ensured Vitale was given prior leadership experience, as she ran virtually every part of the company prior to becoming CEO officially.
Additionally, using Lee as a mentor dramatically increased her odds of success. He was the one who developed a detailed five-year succession plan and invested many hours into Vitale’s executive development.
Types of Succession Planning
There are many ways to use succession planning in a business. For instance, the approach of a multinational organization is going to drastically differ from a local, family-owned company’s succession plan.
Here are a few different types of succession planning used by businesses globally:
Emergency Succession Planning
These plans are created quickly and address unexpected changes within an organization’s leadership. Usually, it is an unanticipated departure of a key executive which requires the use of an emergency plan. It is created a few days in advance of the departure.
The plan ensures essential executive functions do not falter as a result of the change. It highlights a temporary replacement for the executive but is not focused on the company’s long-term success.
Strategic Leadership Development
This process is ongoing and involves constantly identifying skills, strengths, and experiences needed for a team’s success.
It usually centers around a company’s medium-term goals (around 5 years in the future) and helps current leaders develop talent in current employees as well as outlines practices for effective employee onboarding.
Departure Defined Transition Planning
Succession Planning Tools
A few technologies make succession planning significantly more manageable. When beginning a plan, consider using the following software/assessments:
Personality assessments, such as the MBTI
Such tools can give current leaders an insight into a candidate’s personality and how well they could perform with certain leadership tasks. It gives potential reactions one may have to specific events, which could make them more or less likely to be thoughtful and successful leaders.
These tools reveal if a candidate has any hidden traits that could make them more or less capable of leading others.
Cognitive assessments and IQ tests
Organizing, thinking critically, solving problems, and so on are crucial elements of being a leader. Such traits are measured well in cognitive assessments. In fact, cognitive abilities are the most important element of predicting a good leader. They are 2x more accurate than interviews, 3x than experience, and 4x greater than education.
Technical and hard skill analysis
This is more crucial in tech companies where the leader must also understand intricate product design or technical issues. There is a large number of online tests that can help you test a candidate’s knowledge on specific engineering or technical terms and problem-solving.
SIGMA specializes in providing companies with short quizzes and templates which help current leaders evaluate their succession planning strategies. Their offerings range from succession planning vs replacement hiring checklists to candidate succession plan templates.
How to Measure & Improve Succession Planning
The success of a succession plan can be easily evaluated with a variety of metrics. These include turnover rates, succession candidate retention rate (retaining potential leaders), percent of position filled by succession candidates vs outsiders, position filling times, and recruitment costs.
Also consider having employees take surveys in their morale, engagement, and satisfaction at work.
How to Improve Succession Planning
There are quite a few strategies you can use to improve your succession planning experience. Firstly, identify your current employees who could make great leaders.
Ask yourself: which skills are required to succeed in this leadership position? Which employees have the same skills (or could gain these skills) as our current leader? Next, ensure you provide these same employees with opportunities to grow as leaders.
You do not want someone’s responsibility level to go from near zero to being responsible for the entire company’s success. So, train employees by exposing them to the best ways to lead a team.
Start incrementally increasing their responsibility and workload over time, not immediately. Also, ensure you use technology to keep track of your progress. Many applications allow you to measure employee productivity under new leadership.
Ensure that over time, efficiency among a newly elected leader’s team increases. Offer them mentorship and support throughout the leadership change process.
Frequently Asked Questions About Succession Planning
What Does Every Manager Need to Know About Succession Planning?
All managers should understand that succession planning should not be rushed. It truly takes time to identify possible leaders, cultivate new strengths in them, get them qualified enough to take responsibility for teams, and have a transfer of power.
Do not rush this process, as it could result in inadequately trained leaders holding your company back.
How is Succession Planning Different From Replacement Planning?
Replacement planning is used when there is an immediate need to fill a position. There is no transition period or mentoring involved. However, succession planning helps teams create long-term pools of qualified candidates.
Also, replacement planning ensures teams get a leader similar to their prior CEO, but that could potentially limit growth. Succession planning can be used to motivate employees to work harder (in hopes of becoming a manager through exceptional work ethic), but replacement planning cannot be used in this way.
Why Should I Communicate Our Succession Planning Strategy?
Communicating your succession planning strategy ensures you and your team are on the same page, eliminating any possible confusion.
This way, everyone is aware of possible leadership changes and employees would be more prepared for different leadership approaches; the task delegation changes would not be so drastic if they are informed about the succession plan ahead of time. Plus, team members can properly acknowledge the prior leader’s departure if they are aware of it ahead of time.