Whether it is a multi-generational family business, an SME, or a large corporate, succession planning is absolutely essential to ensure the profitability and longevity of any business. Beyond simply finding the next leader to run an organisation, succession planning involves so much more.
Firstly, lets clarify one very important thing. Succession planning is not just determining who will lead or takeover a business when the current leader steps down. When done effectively, the benefits of succession planning are far reaching and can have a major impact on the success of a business.
- Builds stronger teams
When you develop and manage your succession plan in a structured and proactive way, the whole organisation benefits. The success of an organisation is not dependent solely on the leader – without teams actively supporting that leader, success is jeopardised. Effective and well-thought-out succession planning is an equally important consideration in the parallel worlds of sport and business. Much like a coach does not win games on their own, a business leader cannot drive the organisation forward on their own. If a leader is not prepared and competent enough to manage the culture and people of an organisation, failure is likely to be the only result.
Succession planning applies not just to the top job, but to all leadership levels throughout the business. By identifying leadership talent early and developing those leaders throughout their careers, they will be ready to step into leadership roles well prepared when the time comes.
- Prevents disruptive leadership change
When there is a clear path set out for leadership, disruption caused by leadership change is minimised. With a plan in place, even if the leadership changes at very short notice, staff and potential leaders will be prepared.
Building a sustainable leadership pipeline readies executives and potential executives to advance at all levels of the organisation. By developing and training potential leaders, they can acquire an extensive knowledge of the business, teams, customers, and culture, and coupled with self-awareness, they are more able to make a smooth and effective transition to leadership and minimise negative impacts on the business.
- The new leader is more likely to succeed
According to an article published by McKinsey, when leaders struggle through a transition the impacts are far reaching. The performance of direct reports under an under-performing leader falls by 15% compared to those who are led by a high performing leader. They are also 20% more likely to be disengaged or leave the organisation. This translates to cultural and financial implications.
Having practised and been mentored, trained and developed throughout their career under a succession plan, the new leader will be better prepared to lead and manage the challenges leadership brings. They will have developed skills in self-awareness and empathy with the competencies and ability to motivate, challenge and lead effective teams to drive operational performance.
- Reduce the likelihood of hiring the ‘wrong’ leader
In its 2019 study “Succeeding the long-serving legend in the corner office”, PWC found that the overall rate of forced turnovers was in line with recent trends, at 20%. But for the first time in the study’s history, more CEOs were dismissed for ethical lapses than for financial performance or board struggles. This highlights the importance of cultural synthesis between leadership and the organisation - hiring from within ensures this.
No matter how much a board learns about an outside candidate, executive stakeholders simply have a better understanding of an internal contender’s cultural fit, beliefs, strengths and weaknesses, especially as they relate to the specifics of the current business landscape and strategic objectives. As a result of the inherent information misalignment, the chance of making a mistake is much higher for a CEO hired from outside the company.
- Separates the players from the stayers
By ignoring organisational politics and devoting adequate time and resources to assessing ‘hidden potential’, true leaders can be identified and developed. Often the individuals earmarked for leadership are socially skilled, confident and interested in influencing others and moving up the corporate ladder, however they may lack the requisite skills for effective leadership.
Evaluating potential based on objective data-driven metrics will help overcome the ultimate challenge: keeping the pipeline from entry level all the way to the CEO flush with options for filling vacancies.
- Instils shareholder confidence
The Board is required to assess an organisation’s strategic direction and determine if it has the appropriate management team in place to achieve its goals. Shareholders are increasingly raising issues such as succession planning with their boards.
The fact that shareholders are directly asking executives about succession planning is drawing further attention to the importance of this governance issue.
Regardless of the structure of your business and whether or not it is looking for investors, succession planning should be a crucial ongoing consideration. It is not enough to bask in the glory of today's successes – to remain competitive in the future, you need to focus on finding and developing those that demonstrate high potential in leadership.
For over 30 years, Peter Berry Consultancy (PBC) has been using an evidence-based approach to leadership assessment and development to ensure future leaders drive strategic and sustainable success in their organisations. Our team of qualified organisation psychologists work with businesses large and small to develop succession planning and leader development programs tailored to each organisation. To learn more, download our complimentary ebook ‘How to ensure your star employees become your superstar leaders.’
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