Guide to Succession Planning

What happens when key employees decide to leave your business? Will you be able to replace them? Changes to your organizational structure or employee turnover can have an enduring impact on your firm if you can’t.

This is where succession planning comes in. A succession plan helps companies identify successors and develop their skills to ensure business continuity when incumbent leaders move on, retire, or pass away. It also supports a smooth knowledge transfer from one generation of leaders to the next.

In this guide, we’ll look at the succession planning process in detail, its benefits, and best practices for creating your own.

The Importance of Succession Planning

Succession planning is a proactive way of ensuring your organization is always ready to meet its current and future needs. It’s a business strategy that involves identifying potential successors to fill key positions and training them in advance so they are prepared to take over when the time comes. An effective succession plan also ensures critical institutional knowledge gets passed down to the next generation of leaders.

In short, succession planning plays a vital role in the long-term success of your organization. It affects you and everyone involved in your business, from your senior leaders and stakeholders to your employees and even your customers or clients. Thus, the importance of succession planning for your company’s future cannot be overstated, especially when you have a multigenerational workforce with leaders nearing retirement.

The Succession Planning Process

Developing a contingency plan for replacing leaders in critical positions at your firm is a complex process that requires careful thought and consideration. It can be overwhelming and you may not know where to start as a result.

To assist you, we’ve broken the succession planning process down into seven easy-to-follow steps.

1. Assess Your Organization’s Current and Future Needs

First, you need to evaluate the current state of your business and its future needs. This involves defining your company’s short- and long-term goals and envisioning how it might expand or change over time. You’ll also need a thorough understanding of your company’s culture and the forces that drive it. This will help you predict the impact different successors will have and allow you to make an informed decision.

2. Set Your Goals, Timeline, and Key Performance Indicators (KPIs)

Using the insights gleaned during the previous step, outline the goals of your succession plan. These goals will become the roadmap that guides your plan, so ensure they are measurable and realistic.

You’ll also need to determine the urgency of your succession plan and set a timeline. Most succession plans accommodate two types of departure; planned and unplanned. Planned successions occur when a person in a key position retires, whereas unplanned successions account for unexpected departures, like when a leader passes away suddenly or is incapacitated due to accident or illness.

Finally, you need to select KPIs to measure the success of your plan. Some common succession planning KPIs include:

• Employee retention: One of the goals of succession planning is retaining talent. If your company has a high turnover, identify the underlying cause and what can be done to address it.
• High-potential (HiPo) candidates: This refers to your firm’s internal talent with the highest leadership potential. These employees possess the perfect blend of attributes for critical roles at your organization. In an ideal world, you’ll have a minimum of two HiPo candidates for each of these roles.
• Career path ratio: Tracking the number of career growth opportunities your company provides helps inform succession planning by identifying potential leaders and employees who may be ready for a different role. It can also shed light on performance management issues and your level of employee development, engagement, and retention.
• Bench strength: Succession planning requires having a strong bench of candidates who can step into key roles when you need them to. This involves identifying your top performers and those with the potential to level up.

3. Identify At-Risk Positions

Refer back to your findings from step one and identify your firm’s critical positions. Identifying critical roles for succession is important because these are the ones that have the most profound impact on your organization. A disorderly transition here could tarnish your reputation, or worse, devalue your company.

Next, determine which of your firm’s critical roles have no successors and a higher risk of turnover. Analyze these positions’ influence on business operations and goals, including factors like decision-making authority and revenue impact. Also, calculate the potential costs of having these positions vacant. This evaluation helps you identify the positions that are the most at risk and, therefore, should be prioritized in your succession plan.

4. Establish the Key Competencies for Each Role

After identifying your at-risk positions, you’ll need to determine the core competencies for each one. This means documenting the unique knowledge and skills that people need to thrive in these roles. They include soft skills like communication, teamwork, and time management, as well as hard skills like technical proficiency (i.e., skills in data analysis or programming).

Additionally, you’ll need to anticipate how each role might change in the future due to new technologies and techniques that may emerge. Think about what competencies successors might need to respond to these changes to keep your firm agile and competitive.

5. Identify Potential Successors

The next step is to identify successors for every role. Ideally, you should try to identify more than one successor for each position so you have a contingency plan in case your first choice isn’t available.

When selecting internal candidates as future leaders, it can be helpful to sort them according to their current performance and future potential. The 9-box grid is a common talent management tool that you can use to spot high-potential leaders and guide your employee development efforts.

You can find free templates for the 9-box method online, providing you with a fairly simple and straightforward way of evaluating employee performance. When deciding which box to put someone in, consider their strengths and weaknesses, how they are currently performing compared to when they first joined your company, the length of their tenure, if they are due to leave or retire soon, and their impact on your firm.

6. Design a Program to Develop Potential Successors

An important part of the succession process is developing talent to prepare them for their future roles. A good place to start is by addressing any knowledge or skill gaps they might have through formal training programs or self-guided learning, mentorship from senior employees, on-the-job training, and coaching.

At this stage, you also need to make sure your incumbent leaders record their knowledge in a document they can hand over to their successors to ensure a smooth transition. This helps ensure valuable knowledge is not lost when old leaders depart your company.

7. Monitor Your Succession Plan

After completing your succession plan, you’ll need to assess it regularly to ensure it remains effective and relevant to your business objectives.

A sign of an effective succession plan is when it continues to align with the KPIs you set in step two. However, that doesn’t mean there isn’t room for improvement—the best succession plans will evolve over time as you discover what works and what doesn’t.

The Benefits of Succession Planning

Succession planning offers a myriad of benefits to organizations, such as:

1. Improves Employee Retention

One of the top reasons employees leave their jobs is because they find better opportunities for career development and advancement elsewhere. Succession planning helps retain employees by providing them with transparent pathways to grow, demonstrating that you care about them and their professional development.

2. Identifies Skill Gaps

Succession planning can help you identify skill gaps and inefficient workflows in your workforce through regular talent reviews. You can then develop a plan to address these gaps and align it with your organization’s roadmap so your employees can see how it contributes to your business goals.

3. Fosters Talent Development and Growth

Succession planning involves developing talent to prepare them to confidently take on new roles. It equips them with the necessary skills and provides them with a clear career path that can boost their engagement and satisfaction.

4. Promotes Diversity

Adding more diversity to senior leadership roles is often challenging for organizations because underrepresented groups are frequently excluded from succession planning. However, integrating your diversity and inclusivity goals into your succession planning efforts can help eliminate any biases that may be preventing diverse talent growth.

5. Enhances Agility

Planning ahead is vital for ensuring your company remains agile in today’s turbulent market conditions. Succession planning ensures you have a pipeline of talented individuals who are capable of navigating future business challenges and capitalizing on opportunities, allowing your company to respond quickly to shifting circumstances.

6. Preserves Knowledge and Skills

Succession planning promotes knowledge sharing, ensuring important company information gets passed down when incumbent leaders move on. This knowledge transfer can happen through coaching and mentorship programs between current leaders and their potential successors.

7. Protects Leadership Continuity

When those in leadership roles at your company get promoted, retire, or depart on short notice, succession planning ensures you have others who can take their place. This helps minimize disruptions to employee workflows, maintaining stability and stakeholder confidence.

Best Practices for Creating a Succession Plan

While succession planning can be complicated, there are several best practices you can follow to simplify the process. We’ve outlined these in more detail below.

Leadership Involvement

The most effective succession plans are created in collaboration with a company’s leadership team. This means asking your leaders for their input on what they think potential successors might need. This will also give you insights into what your leaders envision for your organization and help you plan accordingly.

Take Things Slow

Business succession planning can be daunting. Breaking the process up into smaller steps, like we’ve done above, can make it feel more manageable. It can also be beneficial to start with a trial program for one or two roles if succession planning is new to you. This allows you to test out your processes and refine them with a smaller group of employees.

Transparency

You should openly communicate with your employees when they have been chosen as potential successors. This improves the engagement of these future leaders in the succession process and prevents confusion later on.

Follow Through

Not seeing your succession plan through to fruition creates uncertainty, which can damage morale. You also risk losing talent that’s poised to take on a new role.

In other words, ensure you set realistic goals for your succession plan that you are capable of delivering on.

Choose the Right Format

A succession plan can take the form of a simple table or chart or a multi-page document. The format you use is determined by factors such as personal preference, the number of positions you’re considering, and the size and complexity of your organization.

When deciding on a format, review the plans of other companies with a similar organizational structure. Then, consider how you can adapt these references to suit your company’s purposes.

Employ a Combination of Development Methods

Make your development plan as accessible as you can by catering to a variety of learning preferences and styles.

You can do this by diversifying the way you deliver training to your employees. This means using a variety of mediums, such as workshops, webinars, one-on-one coaching sessions, and microlearning courses. Additionally, create a learning management system to store your training materials, ensuring everyone can access them when they need to.

Final Thoughts

Succession planning is a vital business strategy, and not just for large companies. Organizations of all sizes need a succession plan in place to ensure operations continue to run smoothly during leadership changeovers.

Essentially, succession planning prepares candidates to take over when current leaders leave, retire, or are otherwise unable to continue working, and ensures important company knowledge isn’t lost in the process.

Identifying suitable successors is no small feat and requires a thorough understanding of your organization’s long- and short-term strategic goals, plus a solid development plan for training them. While developing a plan can seem like a monumental task, the benefits of having one far outweigh the risks of leaving things to chance.

Frequently Asked Questions (FAQs)