Without a clear plan in place, a leader’s departure can cause chaos and pose a serious threat to the stability of an organization. Succession plans must be made well in advance of when they are to be implemented if they are to be effective.
There are numerous advantages to having a clear strategy, but there are main reasons to start developing your succession plan right away. Your business can give itself the time and preparation needed to ensure a seamless leadership transfer by developing a succession plan.
What is succession planning?
The process of identifying key positions across a firm, identifying potential successors for those positions, and preparing those successors to assume leadership roles as necessary through training and experience is known as succession planning. Planning for succession is a continuous activity that enables all businesses large and small to guarantee the continuity of top leadership and knowledge retention.
Related: Succession planning: The ultimate guide
Importance of succession planning
Considering the scarcity of succession plans, you might conclude it’s better to hire from outside; but in fact, internal hires outperform external candidates in significant areas like time-to-contribution, length of service, and more. Many organizations prefer to promote from within, and some even make it part of their stated culture. These organizations and their employees benefit greatly from succession planning.
1. Reduces the negative impact of sudden leadership changes
An article by McKinsey & Company titled Successfully Transitioning to New Leadership Roles says “when leaders struggle through a transition, the performance of their direct reports is 15 percent lower than it would be with high-performing leaders. The direct reports are also 20 percent more likely to disengage or leave the organization.” Further research says, “40% of new CEOs fail to meet performance expectations in the first 18 months”.
Either of these scenarios can spell a death sentence for an organization. If it manages to survive as an unsuitable leader, it will still take the company years to find its footing, streamline the business, create a positive work environment, and rebuild market value.
2. Provides an opportunity to identify potential leaders
A succession plan identifies employees who can be promoted to leadership positions when the requirement arises. This information can help understand each candidate’s strengths, weaknesses, and leadership style. It also provides an opportunity to train the chosen employees on different aspects of the business and allows them the time to build leadership ability.
Additionally, the buffer period gives the management the time to assess which person is suited for which role in the future and it provides the employees with a chance to understand the role and do a skill-gap analysis and get the required knowledge if they want to pursue the opportunity.
3. It is simpler to win over the board and shareholders
It is crucial to have the backing of the board of directors and the shareholders’ consent for the company to run smoothly. It is especially important when top leadership positions are changing.
It will be simpler to secure the board and shareholders’ permission for the new hire if they are aware that the organization has a robust succession plan in place for crucial jobs and that it has their approval. This will facilitate the transition to the new CEO and guarantee that crucial actions receive timely board approval.
On the other side, if there isn’t a succession plan in place or they don’t believe the recruit will be able to run the business successfully, it could sour their relationship with management and cause them to put off important choices. Additionally, a negative influence may be felt on the company’s market and brand value.
Related: Steps in the succession planning process
4. Reduces confusion and disorder
When it’s time to implement the succession plan, there won’t be any opportunity for uncertainty, miscommunication, or unneeded upheaval thanks to a well-formulated succession plan that specifies who will succeed if the CEO or senior leader steps down or a senior post becomes vacant.
A succession plan, if the management is watchful, also aids in addressing disruptive office politics well in advance of a new leader taking the helm. Additionally, it ensures that the organization’s culture and atmosphere are not negatively damaged by the new leader’s presence and helps the new leader function more efficiently.
5. Assists in maintaining knowledge and expertise
Employees that have grown and learned are a gold mine of information. They are very knowledgeable about the organization’s internal operations, procedures, and systems. These staff members have developed an understanding of the business of the company’s rivals and the industry over time. This information is priceless.
When these workers aren’t offered more chances to advance, they often look outside the company for alternative employment. If it does, the company loses a prospective leader as well as information and experience that may be used to develop and train a younger workforce. These arguments demonstrate the necessity of a succession strategy. It makes the business more appealing, helps the organization plan, lowers the cost of acquiring outside talent, and makes the company attractive to potential hires as well.
6. Clear communication and alignment are the results of succession planning
For family businesses, succession planning is essential because it helps prevent the strained relationships and harsh feelings that often arise during a change in leadership. For instance, all family members should be informed fully if the founder of a company has named an apparent heir. By the time a transition is required, everyone in the family ought to understand what will transpire. A leader or owner who conceals his or her intentions creates a climate of mistrust, discord, and failure for everyone.
To work as a team and avoid undermining one another’s efforts, key leaders must agree on the path forward. A succession plan should ideally align with a more comprehensive strategic vision created by company leadership. By definition, developing a succession plan requires company leadership to anticipate the future and make predictions about the direction of their organization. Your firm may establish what its leadership will need to look like in 5, 10, and 15 years by taking into account aspects like your industry and your competitors.
7. Planning for continuity promotes shareholder and board trust
The success of your business depends on your ability to keep the confidence of your Board and shareholders, whether it is privately held or publicly traded. A succession plan that is properly established and disclosed shows interested parties that you are proactive in managing your current workforce and making plans for the future.
A CEO may be required by some Boards to select a successor, but what about other important leadership roles? A power vacuum and perplexing turmoil may result from the departure of other decision-makers like vice presidents, directors, senior division leaders, and department heads. Unexpected vacancies in any of these positions can cause costly strife that makes it difficult for a company to concentrate on growth.