Typically, when starting a business, it is very uncommon for the entrepreneurial mind to see itself not being part of that business in the future. As companies endure through time, it becomes essential to the sustainability of the firm and/or its stakeholders to effectively plan for a change in leadership. Most successful businesses understand the importance of succession planning; however, research shows that even in large corporations and their boards, about 46% of them are not grooming a specific successor, and 39% had no immediate candidate if they needed to replace their CEO, therefore, recognizing its importance is not enough.
If large Corporation’s struggle to effectively plan for succession, what can we expect for Medium and Small Business?
The challenge of succession planning when it comes to medium and small businesses it is even more daunting. Some small business owners struggle to know when and where to start. The involvement in the everyday operation of the business or simply not accounting for costs associated with not planning for succession prevents owners/stakeholders to actively and timely prepare for the inevitable, stepping down. This could easily be the best-case scenario; taken into consideration any type of misfortune that can hinder the ability to lead; health issues, family situation, or simply new opportunities that arouse, preparing for their absence is crucial not only for owners and stakeholders but also for key roles and positions in the business.
The generational change that companies are facing today is revolutionizing leadership lines and succession plans between senior management and the second and third management levels. The entry into the labor market of Millennials and the rise of start-ups has resulted in a change of mentality on the traditional leadership models and begins to establish new rules of the game, establishing the need to adapt quickly to the generational change in top management.
In this new business environment, companies must establish a succession plan that allows them to prepare the best talent so that in the future, they can occupy positions that are fundamental for the permanence, development, and profitability of the organization. Additionally, succession planning is a central axis to achieve the vision of organic growth within a company since it allows to develop, retain, and educate key talent so that business objectives are met.
The best approach that companies should take in facing these new challenges is to implement a strategy of succession for key roles throughout the company. This allows them to recognize the vital or critical positions throughout their different leadership levels and thus prepare for changes in the structures as a result of attrition, resignations or dismissals.
Creating an effective succession plan in 7 steps:
1. Define the context:
For the succession plan to have a positive impact on the company, it is vitally important to evaluate the potential and performance of each of the employees, considering their personal and professional context. On one hand, knowing what motivates them will give the company insight to encourage growth that benefits both. On the other hand, collaborators must be defined in terms of the type of industry, the economy, level of experience, and autonomy, among other things.
2. Definition of concepts and potential:
Establishing who within the company has the potential to assume leadership positions is a job that must be done in conjunction with Human Resources and the first line of command, because not only will the level of experience be evaluated but the soft skills that are fundamental to occupying, for example, a C-Level position. Potential is what determines a professional’s ability to do more.
3. Define performance criteria:
Performance must be measured objectively and under criteria that allow for an evolution within the organization and a positive level of performance to be established from the different performance indicators in each specific position. Having a qualitative and quantitative performance structure allows us to identify strengths and areas for improvement that will have an impact in one way or another on the decision of the ideal person to take over as a leader.
4. Have clarity in the strategy and vision of the future:
Companies must establish a clear strategy that allows them to follow a path that leads them to meet the objectives that have been proposed and, in addition, gives them the opportunity to promote the development and growth of the organization.
5. Build a talent matrix where potential vs. performance intersect (Nine Box):
This is a tool that allows evaluating the potential and performance of each of the employees in order to make decisions about the people who should be kept, those who are in the process of growth, and the actions that should be taken with the people who are underperforming.
6. Know the type of position and the associated risks for the person who occupies it:
Thoroughly investigating the position to be replaced and knowing what the risks are for those who occupy it makes the search for a candidate’s desired profile easier since it allows to have knowledge of skills that the person who is going to occupy this position must have to succeed.
7. Recognize the experience that potential candidates must have for each position:
Immersing yourself in the professional life experience of those who apply to be part of the company is especially important. Ideally, the candidate who is chosen to fill the position must have all the necessary skills and share the values of the company.
Having a succession plan in any size company allows businesses to have employees more aligned and aware of the organizational needs that exist, therefore, it is easier for them to understand and grasp the changes that are necessary to achieving continued growth of the company.
1 Harvard Business Review: Research by Heidrick & Struggles and the Rock Center for Corporate Governance