“The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let the successor run the company.” – Peter Drucker

 

Introduction

Have you ever wondered what would happen to your business if you suddenly weren’t there to lead it? Or if your star salesperson – the one responsible for a quarter of your company’s revenue – accepted a job elsewhere? The harsh truth is that for many businesses, the sudden departure of key individuals can lead to chaos or, worse, collapse.

According to the Young Presidents’ Organization, some 75% of businesses fail to survive past the first generation of owners, and the numbers only worsen for subsequent generations. Succession issues often lie at the heart of these failures. Shockingly, two-thirds of small businesses lack a documented succession plan, despite more than two-thirds of small business owners in the US planning to retire in the next two years.

Without a plan, how can they expect to receive full value for their businesses?

Succession planning is more than just preparing for leadership transitions; it’s about ensuring that your business remains resilient, operationally sound, and ready for future challenges. It involves strategic foresight, talent development, and a commitment to securing your organisation’s future. Without it, growth may stagnate, and opportunities could be lost.

This article explores how to build and maintain your organisation’s bench strength, reduce over-reliance on key individuals, and ensure it is prepared for sale or exit when the time comes. Along the way, we’ll share practical steps, real-world examples, and proven strategies to ensure your business thrives for years to come.

As Peter Drucker said, “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let the successor run the company.” Let’s make sure you are one of the great CEOs and ensure your business is on the road to long-term success.

 

The Importance of Succession Planning

Defining Succession Planning

Succession planning is a strategic process where organisations identify and develop future leaders at all levels to ensure business continuity and stability. It involves more than just replacing senior leaders; it’s about having a plan in place for key positions throughout the organisation. This approach is crucial for maintaining operational efficiency and ensuring that the company can withstand unexpected changes.

Succession planning is not just about filling positions when they become vacant. It’s about preparing the organisation for the future by developing a pipeline of talented individuals who are ready to step into critical roles. This preparation is essential for all levels, from top leadership to mid-management and crucial functional roles; it’s a proactive strategy for sustainable growth and resilience.

Benefits of Succession Planning

The benefits of having a robust succession plan are numerous:

• Ensuring Continuity: Succession planning reduces the impact of staff turnover, ensuring your business keeps running smoothly when key individuals leave. It provides a clear roadmap for leadership transitions and prevents costly gaps in knowledge or capability.
• Reducing Over-Reliance on Key Individuals: Succession planning helps mitigate the risks associated with over-reliance on a few key people.
• Preparing for Growth or Sale: A well-prepared team and leadership pipeline make your business more attractive to buyers and other investors. Prospective investors and buyers value stability and continuity, which a succession plan provides.
• Building Bench Strength: Developing a robust team ensures you’re ready for future challenges and opportunities. A well-rounded bench allows businesses to innovate, adapt, and scale effectively.
• Minimising Staff Turnover Impact: Having replacements ready reduces the disruption caused by staff turnover.
• Enhancing Employee Retention: Succession planning demonstrates a commitment to employee growth and career development, increasing engagement and loyalty among your team.

For more detailed insights on ensuring continuity and reducing reliance on key individuals, see some of our earlier articles, including, What Happens to My Business IF…?, Going from Good to Great – How Companies Achieve Greatness, and Navigating Economic Uncertainty: Strategies for Resilient Business Growth.

A CEO’s Role in Succession Planning

Many CEOs focus too much on the present, building teams that fit the business they have now rather than the one they want to grow into. This short-term approach can trap CEOs in day-to-day operations, leaving little time for strategic leadership. Effective succession planning helps shift this mindset, enabling CEOs to work on the business instead of constantly being in it.

The CEO must ensure that the succession plan aligns with the company’s long-term goals. This involves identifying future challenges and opportunities, defining the skills and competencies required to meet them, and building a team capable of driving the business forward.

For more on this, refer to: Does Your Business Strategy Match Your Company Culture? The Risks of a Mismatch,  Are You Running Your Business or Leading It? and Why Am I So Busy But Can’t Seem to Get Anything Done?.

Succession Planning for the Board

Boards play a crucial role in overseeing the implementation of succession plans, as a part of their governance responsibilities. These plans include not just the key executives and roles, but the board itself. They ensure that the plan is not just a document but a living strategy which prepares the organisation for the departure of anyone in leadership or in a key role, is regularly reviewed and updated to reflect changes in the organisation and its environment.

For more on the role and responsibilities of the company board, see The Role & Responsibilities of the Company Board.

 

Building and Maintaining Your ‘A-Team’

Identifying Key Roles

The first step in building a robust succession plan is recognising which roles are critical to your organisation’s success. Ask yourself: If this role became vacant tomorrow, what would be the impact on the business? This exercise helps pinpoint the positions that require succession planning.

Critical roles are not always the most senior ones. Sometimes, the linchpins of an organisation – like a technical expert or a client-facing leader – can be found in middle management or below. Identifying these roles early is essential for effective succession planning, with each level of management identifying the key roles within their team.

Internal vs. External Candidates

When it comes to succession planning, one of the significant decisions is whether to promote from within or hire externally. Each approach has its benefits and challenges.

Promoting from Within:

• Pros: It boosts employee morale, as team members see a clear path for career advancement. It also helps retain institutional knowledge and maintain company culture.
• Cons: It may lead to a lack of fresh perspectives if the organisation becomes too insular.

Hiring Externally:

• Pros: Bringing in external candidates can infuse new ideas and approaches into the organisation. It can also fill skill gaps that may not exist within the current team.
• Cons: It may take longer for external hires to acclimate to the company culture and processes.

To ensure a balanced approach, keep external candidates ‘warm’ – engage with them periodically to maintain interest and readiness for potential opportunities. Additionally, consider backup strategies for urgent hires, such as interim executives and an ‘unretirement’ policy, allowing experienced, often older, people to fill gaps temporarily. These strategies provide flexibility and ensure continuity during transitional periods while a permanent solution is found. For more insights, see How an Unretirement Policy will Improve Your Business and An Interim CEO Could Save Your Business.

Developing Bench Strength

Building a strong pipeline of talent requires intentional effort. Here are some strategies:

• Hire for Character, Train for Skill: Focus on hiring individuals who fit well with your company culture and have the right attitude. Skills can be taught, but attitude and character are intrinsic. This aligns with Peter Schutz’s philosophy: “Hire Character. Train Skill.”
• Invest in Training and Mentoring: Create programmes that help employees develop the skills needed for future roles, keeping them engaged and motivated. Mentorship, in particular, allows for the transfer of knowledge and experience from seasoned leaders to emerging talent.
• Avoid Being Penny-Wise, Pound-Foolish: Cutting corners when hiring for critical roles can lead to significant long-term costs. While it might save money in the short term, hiring less qualified or less compatible individuals can result in decreased productivity, higher turnover, and compromised growth. Investing in quality talent pays off through improved performance and sustainable growth. See: Should You Increase Pay to Help Your Business Thrive?
• Create a Culture of Collaboration: Encourage teamwork and collaboration to ensure that knowledge and skills are shared across the organisation. This helps prevent key knowledge from being siloed and ensures that multiple team members are prepared to step into critical roles.
• Encourage Cross-Functional Learning: Rotating employees through different roles helps them develop a broader understanding of the business and prepares them for leadership positions.

Real-World Example

A mid-sized technology firm struggled after its CTO resigned abruptly. With no internal candidate ready to step in, projects stalled, and clients lost confidence. By contrast, a competitor with a strong succession plan promoted a well-trained internal candidate seamlessly, retaining clients and maintaining growth. The competitor’s foresight saved time and preserved relationships, underscoring the value of succession planning.

 

Ensuring Continuity and Reducing Over-Reliance

The Risk of Over-Reliance

Over-reliance on key individuals can be a significant risk to any organisation. When critical knowledge, skills, and relationships are concentrated in a few individuals, the entire business becomes vulnerable to their departure. If these key players leave – whether due to retirement, illness, or moving to another job – the impact on the business can be severe, leading to operational disruptions and loss of strategic direction. To mitigate this risk:

• Identify roles where knowledge is concentrated.
• Create redundancy through cross-training and shared responsibilities.
• Regularly evaluate roles and responsibilities to ensure no single person is indispensable.

Promoting Knowledge Sharing

To mitigate the risks of over-reliance on key individuals, ensuring a culture of knowledge sharing is essential. Encourage employees at all levels to share their expertise and document critical processes. A culture of transparency ensures that knowledge isn’t lost when employees depart. Tools like shared knowledge bases, workflow management systems, and structured documentation processes add to the culture of collaboration to make knowledge transfer seamless.

Developing Contingency Plans

Contingency planning is a proactive approach to address potential gaps in leadership or key roles. Having a well-thought-out contingency plan ensures that the business can continue to operate smoothly even if key individuals leave unexpectedly.

Steps for Creating Contingency Plans:

• Identify Critical Roles: Determine which positions are vital for the smooth operation of the business.
• Develop Action Plans: For each critical role, outline the steps to be taken if the current occupant leaves. This includes identifying potential successors and ensuring they are prepared to step in.
• Regular Updates: Review and update contingency plans regularly to ensure they remain relevant as the business evolves.
• Simulate Scenarios: Conduct simulations to test the effectiveness of contingency plans. This helps identify any gaps or weaknesses and provides an opportunity to refine the plans.

 

Succession Planning for the Business You Want

Being Your Future CEO

Succession planning is as much about vision as it is about preparation. CEOs must ask themselves: What kind of business do I want to lead in five years? Building a team for that future vision ensures your organisation is ready to scale.

Key Aspects of the CEO’s Role in Succession Planning:

• Visionary Leadership: The CEO must think ahead and anticipate the future needs of the business. This involves identifying emerging trends, market opportunities, and potential challenges.
• Strategic Planning: Focus on building a team that is capable of achieving the long-term goals of the organisation. This requires investing in talent development and creating a pipeline of future leaders.
• Delegating Operational Tasks: To stay focused on strategic initiatives, the CEO should delegate day-to-day operations to trusted team members. This not only empowers the team but also allows the CEO to concentrate on leading the business forward.

Real-World Example

A retail business owner built a team suited for their small operation but struggled to scale when demand surged. By contrast, a competitor hired for future growth, assembling a team capable of managing the complexities of a larger organisation. The forward-thinking approach paid off with a seamless expansion.

 

Preparing the Business for Sale or Exit

Importance of Succession Planning for Exit Strategies:

A well-crafted succession plan is crucial when preparing your business for sale or exit. Potential buyers or investors are looking for businesses that can operate smoothly without the current owners. A robust succession plan demonstrates that the business is sustainable and has a solid leadership pipeline, making it more attractive and valuable.

Key Points:

1. Increased Business Value: A documented succession plan reassures potential buyers that the business can continue to thrive even after the current owner exits, thereby increasing the business’s market value.
2. Operational Continuity: Ensuring that there are capable leaders ready to take over key roles reduces the risk of disruption during the transition period.

Steps to Prepare for Exit:

Even if an exit is not on the immediate horizon, it’s essential to prepare. Here’s a step-by-step guide to align succession planning with long-term business goals:

1. Evaluate Current Leadership: Assess the strengths and weaknesses of your current leadership team and identify potential successors for key roles.
2. Develop Leadership Skills: Invest in leadership development programs to prepare your potential successors. This includes mentoring, training, and providing them with opportunities to take on more responsibilities.
3. Create a Transition Plan: Outline the steps required for a smooth transition. This includes timelines, responsibilities, and contingency plans for unexpected developments.
4. Document Processes: Ensure that all critical processes are documented and accessible. This includes operational procedures, financial records, and strategic plans.
5. Communicate with Stakeholders: Keep all stakeholders informed about your succession and exit plans. Transparency helps build trust and ensures that everyone is aligned with the company’s future direction.

Real-World Examples: Lessons Learned

Success Stories

A manufacturing company seamlessly transitioned leadership after its CEO retired, thanks to a well-executed succession plan. The incoming leader’s familiarity with operations ensured minimal disruption.

Cautionary Tales

In contrast, a family-owned business collapsed when the founder unexpectedly stepped down. With no plan in place, internal conflicts arose, leading to a breakdown in operations and a rapid decline in revenue. The lack of foresight proved catastrophic.

 

Practical Steps to Create a Succession Plan

Creating an effective succession plan requires a strategic approach and a commitment to developing talent within the organisation. Here are the practical steps to guide you through the process:

1. Conduct a Skills Gap Analysis:

• Assess the current skills and capabilities of your team. Identify gaps that need to be filled to ensure that future leaders are well-prepared.
• Use this analysis to inform your leadership development programs and training initiatives.

2. Establish a Talent Pipeline:

• Develop a structured process for identifying and nurturing potential leaders. This includes implementing leadership development programs and mentorship initiatives.
• Encourage high-potential employees to take on challenging projects and new responsibilities to build their skills and experience.

3. Use Organisational Charts and Succession Planning Templates:

• Create detailed organisational charts that outline the reporting structure and key roles within the company. This helps visualise the leadership pipeline and identify succession planning needs.
• Utilise succession planning templates to document potential successors and their development plans.

4. Reduce Dependency on Key Individuals:

• Create a culture of knowledge sharing and cross-functional learning. Encourage employees to collaborate and share their expertise with others.
• Implement job rotation programs to provide team members with diverse experiences and ensure that multiple individuals are capable of handling critical tasks. For more on creating a learning culture, see Why a Learning Culture is Essential to Future-Proof Your Business and Thrive in a VUCA World.

5. Create a Culture of Growth:

• Promote continuous professional development by providing access to training programs, workshops, and other learning opportunities.
• Recognise and reward employees who actively pursue personal and professional growth.

6. Regularly Review and Update the Plan:

• As the business evolves, so should your succession plan. Regularly review and update the plan to ensure it remains relevant and effective.
• Include succession plan reviews in your quarterly reviews and make necessary adjustments. See Tracking and Updating Your Plan – Ensuring Your Business’s Agility in an Ever-Changing World and The Quarterly Review: Course Correction or Carry On? Maximising Growth and Profits in Your Business.

7. Include Succession Plans in Managerial KPIs:

• Make succession planning a part of your managers’ key performance indicators (KPIs). This ensures that leadership development and talent management are prioritised across the organisation.

8. Utilise Technology:

• Use technology tools such as succession planning software and leadership assessment platforms to streamline and enhance the process.

 

Common Pitfalls and How to Avoid Them

Even with the best intentions, succession planning can encounter several common pitfalls. Being aware of these challenges and proactively addressing them can significantly increase the chances of success.

Overlooking Succession Planning Until It’s Too Late: One of the most common mistakes is delaying succession planning until it’s too late. Waiting until a key individual announces their departure can lead to rushed decisions and inadequate preparation. Proactively creating a succession plan ensures that the business is ready for any eventuality.

Focusing Solely on Internal or External Candidates: While promoting from within maintains continuity and morale, it can sometimes result in a lack of fresh ideas. Conversely, relying solely on external candidates can disrupt organisational culture. A balanced approach, considering both internal and external candidates, is essential.

Difficulties Identifying Suitable Candidates: Identifying the right candidates for key roles can be challenging, especially if there are no clear criteria or structured processes. Conducting a skills gap analysis and establishing a talent pipeline can help in this regard.

Neglecting Cultural Fit in Favour of Technical Skills: While technical skills are crucial, cultural fit is equally important. Hiring individuals who align with the company’s values and culture ensures smoother integration and long-term success. For more on this, see Why CEO Successions Fail and How to Avoid This, “Attitude, not Aptitude, Determines Altitude.” – Zig Ziglar, and Top 10 Things Your Business Culture Needs to Focus On for Success.

 

 

Conclusion

Succession planning is not a luxury but a necessity for sustainable growth and long-term success. By investing in your team’s development, reducing over-reliance on key individuals, and preparing for future opportunities, you’re planting the seeds for your business to thrive beyond your leadership.

Imagine your business thriving 10 years from now, even in your absence. Is your organisation ready to endure and succeed beyond your leadership, or will it become just another statistic among the 75% of businesses that did not survive past the first generation of owners?

 

So, think about this: If you stepped away from your business today, would it thrive, merely survive, or fail?

Your journey to an even more sustainable future starts today. What steps will you take to secure your business’s future? Share your thoughts or challenges below to inspire others.
———-

This month we’re focussing on Planning for the Future, with this being the third article in this series. The previous two, in case you want to review them, were:

Vision 2030: Crafting a Long-Term Strategy for Unstoppable Business Growth

Mastering Scenario Planning: Navigating the Future for Your Business in a VUCA World

Stay tuned for further insights on the theme in this month’s series of business tips or, better still, subscribe to my blog and receive the latest articles automatically, simply by clicking here.

———–

Working together to take your business to new heights!

With over 50 years of experience in the technology industry, spanning three continents, and three decades in CxO roles driving exceptional growth in revenue and profitability, I now work with and coach other business owners and CxOs to reach even greater heights.

Let’s talk about your business goals and challenges, strategy, culture, leadership, board dynamics, emerging trends, joining a peer advisory group and anything else that can accelerate your business growth. Book a complimentary 30-minute call with me today!

Unlock the full potential of your business – and schedule your call now!

 

P.S. If you’ve enjoyed this post and would like to subscribe to my blog simply enter your details here or drop me a note by clicking here.

———–

Related Posts

If you’d like to learn more about planning for the future and the areas we’ve covered here, the following articles and posts might also be of interest:

• What Happens to My Business IF…?
• Going from Good to Great – How Companies Achieve Greatness
• Navigating Economic Uncertainty: Strategies for Resilient Business Growth.
• Does Your Business Strategy Match Your Company Culture? The Risks of a Mismatch
• Are You Running Your Business or Leading It?
• Why Am I So Busy But Can’t Seem to Get Anything Done?
• The Role & Responsibilities of the Company Board
• How an Unretirement Policy will Improve Your Business
• An Interim CEO Could Save Your Business
• “Hire Character. Train Skill.” – Peter Schutz
• Should You Increase Pay to Help Your Business Thrive?
• Why a Learning Culture is Essential to Future-Proof Your Business and Thrive in a VUCA World
• Tracking and Updating Your Plan – Ensuring Your Business’s Agility in an Ever-Changing World
• The Quarterly Review: Course Correction or Carry On? Maximising Growth and Profits in Your Business
• Why CEO Successions Fail and How to Avoid This
• “Attitude, not Aptitude, Determines Altitude.” – Zig Ziglar
• Top 10 Things Your Business Culture Needs to Focus On for Success

Backgrounders

HBR – The High Cost of Poor Succession Planning

Developing Your Leadership Pipeline

Fast Company – It’s time we change the culture around succession planning

Forbes – The Importance Of Succession Planning, Now More Than Ever

YPO – Why Business Succession Plans Fail and How to Beat the Odds

Teamshares – Succession planning statistics in 2024: preserving a legacy

 

#BusinessFitness #Accountability #BusinessImprovement #BusinessStrategy #CompetitiveAdvantage #Culture #Disruption #Governance #Growth #Leadership #Resilience #SuccessionPlanning #Strategy #Vision2030 #VUCA #QOTW