Succession Planning: Ensuring a Smooth Transition of Leadership

Business succession is inevitable. This is why you must prepare for it as early as possible to save your business the cost of recuperating from events such as dismissal, stepping down, death, or retirement of a senior executive or employee.

It’s shocking that 60% of executives fail within the first 18 months of their promotion. What’s more, replacing a failed CEO costs 10 times their salary. Effective business succession planning helps avoid these pitfalls, ensuring a smooth transition in leadership or senior positions in your business, which can save you money and improve productivity after unforeseen events occur. But what is succession planning, exactly? What does it look like practically?

Succession planning and exit strategies for business owners go hand in hand. So, when preparing an exit strategy, you should prioritize succession planning. Let’s look at what succession planning means and actionable steps to achieve it effectively.

What Is Succession Planning in Leadership?

Succession planning is how you identify and prepare potential leaders to fill critical vacant positions in your company. It’s also one of the exit strategies for business owners that prepares them to transfer company ownership to their successor(s).

What Are Some Exit Strategies for Small Business Owners?

Some exit strategies for small business owners include mergers and acquisitions, liquidation or selling off business assets, family succession, and management buyouts. A family succession exit strategy is the most common for small business owners.

Steps for Effective Succession Planning

1. Understand How Succession Planning Can Benefit Your Organization

Understanding the implications of not having a succession plan should encourage you to develop your exit strategies and succession early. Without succession planning, your business leadership and finances could suffer.

For instance, a study showed that Fortune 500 companies that dismissed their executives could have generated over $112 billion in revenue the year after the leadership change if the succession had been properly planned. This proves the economic disadvantage that transitioning could bring to a company.

Perhaps you’re very optimistic about your future and that of your company. However, you must understand that nothing is predictable in life. According to a study on CEO success, about 20% of CEOs are dismissed or forced out for ethical reasons rather than for financial performance or conflicts with their boards.

This means that with growing attention to moral issues like sexual harassment in the workplace and unexpected market volatility, executive or employee turnover will be on the rise. Without a succession plan, unforeseen events will affect your business revenue index and your productivity due to the conflict or negative reputation they may leave on employees and customers.

2. Identify Key Roles and Responsibilities

Succession planning and exit strategies for business owners usually involve senior positions critical to the company. So, before making your plans, you must understand the key roles these individuals play in the company and how they can affect your business should they suddenly quit or retire. This will help you to know the qualities to expect from a potential candidate from within or outside the company.

Here are some strategic ways to identify key roles and responsibilities to be filled during a transition:

• Understand your organizational needs; look at the metrics to know where your business is performing well or underperforming. That way, you can spot areas that need a change in leadership.

• Assess senior individuals and departments and how their roles affect your business.

• After that, try to understand the skills, experience, and knowledge required for the role so you can determine qualified individuals within or outside your company.

• If you cannot count on skills and experience, watch out for exceptional talent or work ethic from employees.

• Talk to your employees or senior execs about your succession planning so those interested can stand up.

3. Develop a Training Program for Potential Leaders

In a leadership study, 74% of the respondents said they weren’t prepared for the challenges they faced in senior leadership positions after transitioning. As a result, over 46% of leaders underperform after transitioning to new roles. It may take several months for many others to adapt or become effective in their new roles. This is why you need to develop a training program in your succession planning.

A training program prepares the next individual to occupy critical positions in your company, ensuring your company always has the right leaders or executives ready should there be a sudden vacancy in critical positions.

To do this, you must identify potential candidates for each role and develop their skills accordingly. A good start is to evaluate key roles and responsibilities that need to be filled within your organization. Look out for underperforming departments, and try to be as close as possible to your employees. That way, you can spot the talent, experience, and skills you may need for the leadership position to be filled.

4. Create a Timeline for When the Transition Should Take Place

After you’ve identified key roles that need to be filled within your organization and established a relationship with potential targets, you may create a timeline for the transition.

Actually, you should create two timelines in which you expect the transition to take place. Timeline A should focus on voluntary transitions like offboarding, while Timeline B should focus on involuntary transitions like resignations, expulsion, or forceful turnovers.

Creating two timelines prevents you from promoting an unqualified candidate due to poorly thought-out succession planning, especially when unforeseen turnovers happen. If you’re lucky and everything goes as planned, then you can also worry less when plan A takes effect.

According to Harvard statistics, the median tenure for C-level executives is five years—you must keep that in mind when creating a timeline for your company’s transition.

Having a timeline in your succession planning sets an example for subsequent transitions after your exit. Your successors will most likely follow the template you’ve created in your succession planning.

5. Develop a Plan to Support the New Leaders

Assuming a new position is like buying a new tech product; you need some time to adjust to the specs, especially if it’s something you’re not familiar with. The same applies to assuming a new role or position in a company. After the handover, it might take a while before the new leaders find their feet. They might struggle to make critical decisions and circumvent tight situations independently.

The simple solution is to ensure that you support the new leaders by assigning business coaches or mentors to them. This will give them pointers on navigating and solving the challenges they will likely face in their new departments.

There are thousands of business coaches in the world. Finding one shouldn’t be a tough task. However, it may be difficult to find the right business coach due to the increasing supply of business coaches. Therefore, do thorough research when choosing a business coach for new leaders. Alternatively, you can get expert mentorship and business coaching from us, as it’s one of the primary services at Foreword Companies.

6. Develop a Plan to Ensure Continuity of Operations During the Transition

In a survey, it was reported that 40% of companies do not have an internal candidate to replace their leader should they exit. So, you’ll need to hire an external candidate to run your operations. This period of finding and installing a new leader could affect business operations.

At this stage, employees might want to slow down on their tasks as they prepare for the changes. While you find a qualified candidate to handle leadership, you can prevent this by preparing temporary leadership solutions such as interim leaders or hiring consultants to fill the roles.

Recall why we recommended that you create two timelines in your business succession planning. This is a typical case study of why you should do so. In involuntary events like this, a plan that ensures continuity of operation during a transition will likely save the day.

Ensuring a Smooth Transition of Leadership

One thing to keep in mind is that business succession planning is a continuous process. So, it’s okay to update your succession plan as you learn new things and observe new market ideologies or trends that suit your business.

Nonetheless, you need to carefully prepare your succession planning. The future of your company depends on it. With our expert guidance at Foreword Companies, you can prepare an effective succession plan that meets your business aspirations. Schedule a call with us to learn more about how we help prepare your business for a smooth and profitable succession.