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Common mistakes businesses make when succession planning
January 27, 2020
Authored by RSM Canada LLP
Edwin P. Reilly, CPA, CA shared this article
INSIGHT ARTICLE |
Are you concerned about the future of your business after you’re no longer running it? Do you want to build a secure foundation for the next stage of your life? Do you want a good future for your family, your employees and your customers?
Here are three common mistakes business owners make in planning for future leadership:
“It’s all about the taxes”: When it comes to succession planning, many owners focus on minimizing the tax bite. Yes, tax planning matters, but tax matters are not the only consideration when thinking about the future leadership of your business.
“The anointed one”: Some leaders make the mistake of designating one individual as their intended successor, so they can start preparing this person for that role. This can often be a recipe for disaster. It usually means that other interested candidates, with their way to the top blocked, will find more promising places to work. And if your anointed successor doesn’t work out, or decides to take another offer, you’re stuck with no successor and few alternatives. Even if there is a smooth transition to your designated successor, that person’s colleagues may not find it easy to start taking directives from that person too often before “the anointed one” actually gets promoted into the role.
“Take emergency measures, get a 911 candidate”: Of course, you do need to have a plan in place in the event that you’re suddenly incapacitated, just as you have a plan for any emergency, such as a ransomware attack or a fire. So, you need someone able to step into your role on short notice – a “911 candidate.” This is someone who takes over while you recover from a catastrophic injury or other medical emergency – someone to “hold the fort”, as part of your risk management strategy. But just as good business practice means having data backed up and installing a fire alarm system, you need to be sure that even an emergency change in leadership happens smoothly.
It’s not about succession planning. It’s talent planning.
Taking the talent planning approach
This is a key distinction used as best practice by many Fortune 500 companies where one of the keys to success is for business leadership to develop their talent pool, so that as leaders move on and up, others can smoothly step into their shoes.
And that talent planning approach goes deep – it’s standard practice to work with even junior employees to help them grow as leaders. This continues as they move up, with a big objective being retention of as many employees as possible, particularly the most promising.
Many of these practices can be adapted for use by middle market organizations, too.
Retention is key: Focus on creating a culture where people will feel challenged but also supported, where they feel valued. Be sure they feel that if they stay around, they will be given opportunities to grow and move up. Providing opportunities to grow, and investing in mentoring and training, are key drivers of employee engagement. Highly engaged employees are not likely to resign.
Part of retention is making sure that the growth opportunities you offer are suited to the employee. Some will be best suited to becoming a technical leader with deep expertise in their subject matter, while others are better suited to become more people-oriented “team leaders.”
Without that focus on retention, you will have turnover, and will be scrambling to fill holes in your company’s skill-sets. And, you’ll lose people who would otherwise be able to move up and become leaders, maybe even your successor.
The consultative approach: Rather than company management just deciding who will be promoted into leadership roles, it’s important for conversations around career plans to be two-way. If you think that an employee would be strengthened by a posting to another location, don’t just tell them what will happen – get an idea if they agree the transfer is important to their career development.
Think in depth: Large companies, with many layers of management, know that when they move one person up, they need to backfill the lower positions, adjusting roles and responsibilities accordingly. So, meeting the ongoing needs of your company in a sustainable way requires a talent planning process that goes deep and beyond just the upper layers of management.
Use the available science: Many business owners take pride in making decisions based on instinct and personal knowledge – and this includes how to hire, promote and mentor employees. This approach has some value, but it’s also a good idea to gain access to the best that behavioural science provides, through evidence-based tools including psychometrics.
Focusing on the performance development process
In helping employees develop into who they can be, it’s best to think holistically – think of all aspects of their performance that can be developed. In this, midsize companies can adapt the tools being used in the Fortune 500.
If a company wants to develop its marketing capacity, for example, it might look for people wanting to develop their capacity in that field. Their development plan might include having them spend some time in customer service so they will learn about the needs of customers. That understanding of customer needs can, in turn, be a springboard to another move, this time into Sales. Armed with knowledge gained through face-to-face meetings with their customers, they can help develop marketing programs that actually speak to the needs of the people your company most wants to serve.
Part of the performance development process is determining what an employee needs in order to succeed in their current job – but with an eye to what they need to succeed in their next position, too. This only works if you have consulted with the employee to get an idea of what their aspirations are.
One characteristic of an organizational pyramid is that it is a pyramid, with fewer roles in the upper layers. This is becoming even more the case, as it is more common now to have organizational structures where the leaders’ spans of control are wider, and the structure has fewer layers to enhance the proximity to the action and speed of execution.
This means that not everyone can move up, and that when there is a leadership vacancy, there will be people who get told, “No, not you.” While this is not pleasant to hear, or to say, it is possible to make this a teachable moment. By taking time to review the unsuccessful candidates’ performance with them, you can explain why the choice was made the way it was, and what they can do to develop themselves to improve their chances for next time.
A key component of talent planning is to have every role well defined in terms of competencies and accountabilities so that employees can better understand the development they need to become a candidate. The development programs, either internal or external, should also be connected to these accountabilities and competencies.
Of course, the passed-over person may decide that they need to seek opportunities elsewhere. A company that recognizes and respects that choice, and even helps that person move on to a new opportunity, shows other employees that their interests will be considered. And your company will have a friend at the new employer. Ideally, that person can be hired back when ready, or there is a need.
Talent planning isn’t something you can accomplish in a year, or even two years. It needs to be an ongoing part of your business. But the upside is that far from needing a “911 candidate” to step into the leadership role if there’s a sudden need, you have confidence that your company is going to be in safe hands.
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This article was written by Mario Patenaude and originally appeared on 2020-01-27 RSM Canada, and is available online at https://rsmcanada.com/our-insights/consulting-insights/common-mistakes-businesses-make-when-succession-planning.html.
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