Succession planning is a crucial aspect of business management that involves preparing potential successors for key roles. Whether you’re a small family business owner or the CEO of a multinational corporation, having a well-thought-out succession plan in place is essential for the long-term success and sustainability of your company.
Most business owners will have come across the term ‘succession planning’ before. Skills shortages and shrinking talent pools, particularly during periods of macroeconomic uncertainty, often exacerbate the need for robust workforce planning, and succession planning is an important part of the process. And yet, 46% of company board members claim they don’t have an effective CEO succession plan in place.
Effective succession plans take time to develop and often involve multiple stakeholders, including Human Resources (HR), Talent Management or People teams.
Read on to learn how to carry out the succession planning process, why it’s important for growing businesses, and where to access additional support.
What is succession planning?
Succession planning is an ongoing process to identify and fill critical roles in a business, most commonly referring to senior leadership positions.
Succession planning vs succession management
Both succession planning and succession management can be central to the long-term success of a business. While succession planning focuses on identifying potential successors for specific key roles, succession management is a broader de-risking strategy for talent pipelines across an organisation.
Succession management can involve everything from workforce restructuring and performance management to employee retention and recruitment strategies. It also typically takes into account wider business objectives, such as international expansion plans.
What is the purpose of succession planning?
Succession plans enable organisations to remain agile and react quickly to unexpected changes in management teams or critical business functions. Long-term succession planning can also be used to implement more gradual change, such as a shift in company strategy or product offering, or preparation for an exit event.
Different approaches to succession planning
The succession process will vary depending on the size and type of organisation, and on individual business goals. For family-run businesses, for instance, succession planning often involves preparing the next generation of the family members to take the reins.
An effective succession planning strategy will also differ between critical roles. Succession plans for senior leaders will look different to those for key employees in specialist technical roles. Meanwhile, some succession plans may focus on individuals, while others will look at whole functions or talent pools.
Why is business succession planning important?
Lacking a strong succession plan can have a detrimental effect on business performance — more than half of executives reportedly fail within 18 months of being placed in new leadership positions due to lack of preparation. Similarly, McKinsey found that four in five global leaders believe they’re unprepared for their new roles.
Developing potential successors over time, through structured training and mentoring opportunities, should lead to better outcomes. But the benefits of succession planning aren’t limited to executive performance.
Benefits of succession planning
For businesses of all sizes, from early-stage startups to multinational firms, there are numerous advantages of effective succession planning for leadership roles and critical positions. These include:
Risk management
Succession planning can help your business mitigate risks associated with the departure of key leaders. In case of sudden, unforeseen events such as illness or dismissal, an effective succession plan can help minimise business disruption, customer dissatisfaction and potential financial losses.
Strengthen talent benches
Long-term workforce planning can be a great support to your human resources (HR) team. It can help avoid talent shortages and fill vacancies for business-critical roles faster, by preparing potential candidates in advance. This minimises any impact on product delivery or customer service, without rushing the hiring process, so that you can appoint the best people for the job.
Build stakeholder trust
Business continuity planning can help make your business more agile during uncertain times. Increasing stability will build trust between business owners and shareholders, senior management, your board of directors, and current employees.
Exit planning
Effective succession planning signals to potential buyers that your business is well-prepared for the future, with a strong pipeline of leadership. This can increase your company’s valuation, and also reduce some of the stress and uncertainty associated with an exit event, by ensuring a smooth transition or handover.
Achieve EDI goals
Succession planning also provides an opportunity to incorporate your equality, diversity and inclusion (EDI) strategy into your hiring processes. It may help you improve diversity among c-suite and senior leaders, and in other key positions across the business.
Create costs efficiencies
Succession planning gives you the opportunity to streamline your talent development process, and reduce recruitment, onboarding and training costs, by sourcing internal candidates for key roles.
Increase employee engagement
Having clearly defined career development plans, goals and incentives for high-potential employees helps motivate them in their day-to-day tasks. Investing in their progression also helps them to feel valued by the company, increasing overall job satisfaction.
Foster strong working relationships
Including your team in strategic planning and being transparent throughout the succession planning process can increase trust within your team. Certain stages of the process, such as training and mentorship, will also help build stronger relationships between senior executives and key employees.
Build confidence
By giving team members sufficient time to prepare, learn from mistakes, and take part in leadership development programmes, they will feel more confident and perform better in their future roles. They’re also more likely to bring fresh perspectives and ideas, fostering a culture of innovation and growth.
And of course, any benefits to employees will also have a knock-on effect for the business; for instance, increasing productivity, reducing staff turnover, and improving wider company culture and morale.
Succession planning for startups
The cost savings associated with effective succession planning will be an attractive proposition for entrepreneurs just starting out. On top of this, small businesses will also benefit from:
Recruiting and retaining top talent
Most startups won’t be able to compete with the salaries and employee benefits offered by larger organisations. But fast progression and strong career development plans can help SMEs attract ambitious and high-performing applicants. It will also help nurture their talent pools and improve retention, which is particularly important for those with relatively young teams (that typically have higher churn rates).
Improving internal processes
Succession planning provides a good opportunity for startups to formalise their hiring and onboarding processes, and to improve any existing talent management strategies. Developing a succession planning strategy will also provide the chance to review your business objectives and determine the roles you see as being critical to future operations.
Skills development
By focusing professional development programmes on multidisciplinary training and your long-term business objectives, future leaders can broaden their skill sets and competencies. This again reduces business risk, by making your startup more agile.
Succession planning for family-owned businesses
In 2018, it was reported that more than half of family-run businesses in the UK had no kind of succession plan in place.
Whilst many owners of family businesses have informal plans to pass their companies onto their children, it’s important to establish a clear process for doing so. A lack of preparedness when leadership changes arise won’t just affect family members, but also your employees, customers, and other key stakeholders.
Why is succession planning important for family-run businesses in particular? Having a formal succession plan enables current leaders to retire or take a step back one day, without the uncertainty of what will happen to the business.
It’s also a good opportunity to resolve any conflict around who will take over, and gives the next generation time to learn and determine whether it’s the right career path for them.
Meanwhile, a tax-efficient succession plan that takes inheritance tax and capital gains tax into consideration can help to protect family wealth.