In business, having the right people in leadership roles is arguably the most important factor for success. That means that when a top executive or star employee retires or leaves for another role, there needs to be a contingency plan in place to replace her quickly and seamlessly. This is akin to having a support network for your small business. Ideally, you’ll be able to replace the departing employee with another employee who has the experience and institutional knowledge to step into the role. This process is known as succession planning.
The term succession planning is fairly broad, encompassing all the steps you can take to prepare yourself for high-impact personnel changes. Succession planning for your own position is also important, and should be part of any estate planning strategy. We’ll tackle how to start a succession planning process for your business in this step-by-step guide.
Step 1: Find Your Development Team
The first step in your succession planning strategy will be to assemble a team of company leaders who will assist you. Typically, this team will include HR staff, fellow company executives and members of your board. You should, of course, include anyone else you think could be helpful in identifying or nurturing potential.
Step 2: Start with the Most Important Roles
Eventually, you’ll want to establish pipelines and strategies for any role in your company that would cause significant strife were it to sit vacant for any extended period of time. To start, though, focus on your most important positions. Typically, this will be C-suite executives and presidents, as well as any vice presidents in roles critical to the company’s revenue stream and day-to-day operation. After you’ve successfully developed pipelines for these positions, you can expand with a better idea of how to go through the process.
Step 3: Be Clear About What You’re Looking For
The best succession plans are specific and targeted. Once you’ve established which roles you want to include in your succession planning strategy, your next task is to establish the criteria you would want potential development candidates to meet.
What skills and qualities would be essential to you in candidates for each role? It’s important to be specific here. If your methodology for spotting employees with potential is based on vaguely positive characteristics, then your plan will be rocky from the start.
Step 4: Communicate Openly
Now that you’ve established which positions are in your succession plan and what you’re looking for in potential candidates, you’re ready to start tapping employees and beginning their development. It’s best to communicate openly with the employees you’re developing about timelines, future promotions and any other aspects of the plan.
If you foresee the development process stretching over several years, make that clear to the employee. That way, she isn’t expecting a promotion in a matter of months.
Step 5: Plan Realistically
It’s also important to be realistic when determining what kinds of work and activities will make up the development process itself. Many succession plans include lateral moves. These involve transferring an employee to the equivalent job in a different department so she can broaden her skill set for an eventual promotion. Lateral moves can be a great way to prepare successors for different kinds of responsibilities. That said, you don’t want to prioritize broadening one employee’s skill set over the proper functioning of the company.
For example, you may want an employee who’s currently in the sales department to experience different parts of the business. That way, she can be better prepared for an executive role down the line. A lateral move could be the way to do it, but not if it’s to a role that requires a very different skill set – for instance, moving someone from sales to software engineering.
Step 6: Review Frequently
Now that you’re actively developing employees, it’s crucial to check in on the process at regular intervals. That way you can see early on if any tweaks are necessary. A good default is to sit down with each employee quarterly, but you can decide for yourself what works best for your business.
Ask the other members of your development team for their thoughts on the process, and check in with your employees to see if there’s anything they would change. By continuing to shape the process as you go, you’ll hopefully be more and more pleased with the results.
Step 7: Look Externally
The last step of a successful succession planning strategy is to conduct a review of all the successful internal candidates you have developed. Then, ask yourself if there are any important skill sets or backgrounds still missing in your internal candidates. In that case, you may be better off making an external hire.
Obviously, the purpose of succession planning is to ensure you’re not caught flat-footed by an unexpected vacancy. However, you most likely won’t be able to fill every role in your company with an internal hire. This is especially true if you’re trying to fill a higher-level executive role.
Even if you do wind up going with an external candidate, though, your internally developed management talent can still fill those vacancies on an interim basis. And by using succession planning as a jumping off point, you can identify the core competencies required for that role. Doing so should help you better target your search.
Planning Your Own Succession
If you’re the founder or CEO of your own business, having a plan in place for your own succession should be a part of your retirement and estate plans. Just as a solid estate plan seeks to ensure that the people you love are taken care of after you’re gone, a transition/succession plan helps to ensure the future of the business you’ve built.
When planning your own succession, the process will be very similar to the normal succession planning process. As you probably have a decent idea of your departure date, you can plan ahead and start cultivating a replacement with plenty of lead time.
If you’re the owner of the business in question, then it’s critical to include your business in your estate plans. That might mean selling your stake or bequeathing ownership to an heir. It’s a good idea to work with an estate-planning attorney who can build an estate plan that transfers ownership in accordance with your wishes. It’s also a good idea to establish power of attorney to handle your business affairs in case you’re unable.
Tips for a Successful Financial Life
- If you’re an owner or top executive of a business, you might have a complex financial situation. Whether you’re trying to grow your assets or pass them on to your loved ones, it’s a good idea to work with a financial advisor. SmartAsset’s free advisor matching tool can help you find an advisor in just a few minutes. Just answer some questions about your financial situation and the tool will match you with up to three advisors in your area. Then you can interview them, in person or over the phone, to decide which one you’d like to work with.
- If you’re involved in the succession plan for your own retirement, then make sure you’ve actually got enough saved to retire. SmartAsset’s retirement calculator can help you determine if you’re on pace to maintain your lifestyle in retirement.
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