Succession planning

/ April 2nd, 2012 / Comments Off on Succession planning

Succession Planning

What is succession planning?

There are two types of succession planning:

  1. Owners transferring ownership to a new owner; or
  2. Identifying and developing employees so that they can groomed to be future leaders, managers or other critical post holders.

Some organisations, especially smaller ones, ignore succession planning. Succession planning should not be underestimated as it can be critical for the future success of the organisation. It takes a lot of time and planning to do correctly and therefore it should be considered as early as possible, some would even recommend that it is given some thought at the very start of the business.

Transferring ownership

This type of succession planning is usually considered by smaller businesses and involves transferring control of a business to new management, usually to: family, internal members, or third parties. However, it could also mean liquidating the business.

Transferring ownership is never easy for business owners, particularly if they have been in business for a long time because they become too attached. However, succession planning is a complicated procedure and requires careful thought and planning. It should be a decision made with your business strategy in mind instead of your heart. For example, if the business is expanding abroad, you need to pass the reins on to someone who will be able handle such responsibility.

Choosing the correct successor at the correct time is the best way for the business to succeed. When choosing who to transfer the business to you should begin by considering the obvious choices such as a family member or someone who has worked for the organisation and knows it well. If you choose to transfer your business to someone internal then you should begin training them as soon as possible. If they do not possess the required skills or if this is not possible for any other reason then consider external options, particularly if you are in immediate need of the proceeds of sale or want to exit immediately i.e. to start a new business or to retire. In order to sell a business to a third party you have to make sure that the business is an attractive option to any potential suitor, not only so that the business can succeed but also that you can get the best value for it.

Ultimately it may not be possible to sell your business or you may not want to, in which case you are probably going to consider voluntary liquidation, which basically means shutting the company down. Although bear in mind this is likely to be one of the least profitable options for a business owner.

Identifying and developing employees

In larger businesses, succession planning is the process by which employees are considered for key jobs. The idea is to identify short term targets who can take over posts almost immediately or long term targets that can be trained for future roles within the company.

Succession planning is usually undertaken by line managers, who will identify employees within their teams. These employees are then further evaluated by Human Resources (HR) and more senior managers. Employees are also be given the opportunity to have their input about their own career aspirations and employers should work with them to identify their development needs; this is usually done through appraisals.

The advantages of succession planning for larger organisations is that it means the company is able to manage transition periods in a much more smoother and more efficient manner. This is because appointing new managers will be a quicker process and the new managers will be familiar with the workings of the organisation. It also boosts employee morale as it portrays the company as one that recruits from within. This is better for employee retention and productivity.

Of course, there is no guarantee that the employers identified early in their careers will remain with the organisation or that they will be able to fulfil their potential, in which case external appointments may have to be made. Nevertheless, the idea is that the company develops a talent pool from which it can appoint successors whenever possible.

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