Chapter 9
Succession Planning
Objectives:
Understand the concept of succession planning
Know the time framework applied in succession planning
Comprehensively understand the elements
Explore the issues and generalize solutions
Introduction
Survival, growth and efficient continuous existence of an organization require a
succession of people to fill various important jobs. The purpose of succession
planning is to identify, develop and make the people ready to occupy higher-level
jobs as and when they fall vacant. Higher-level jobs fall vacant due to various
reasons like retirement, resignation, promotion, death, creation of new position and new
assignments.
Succession may be from internal employees or external people. Succession from
internal employees is advantageous to the organization as well as to the internal
employees. Organization can buy the employees loyalty and commitment,
belongingness, shared feeling of development along with the organization by promoting
the internal employees. Employees get the benefits of growth in the organization. The
organization mostly prefers to encourage the growth and development of its employees
and as such tends to prefer succession from within. Organizations, appraise employee’s
potentialities, identify training gaps for future vacancies, and develop them for higher
and varied jobs. The scope of succession plan would be more when the organization
grows steadily and employees have potentialities to take up higher responsibilities.
Professionally run organizations ask their managers to identify the internal
employees having potentialities and develop them in order to occupy their positions as
and when they fall vacant However, it is necessary to allow the inflow of new blood also.
Hence, organizations should also search for outside talent in certain cases like when
competent internal people are not available, when major expansion, diversification and
growth plans are in offing, complete dependence on either internal source or external
source is not advisable to any organization. Hence, a judicial balance between these
two sources should be maintained.
MEANING AND PURPOSE OF SUCCESSION PLANNING
Succession Planning is the process of ensuring a suitable supply of successors
for current and future senior or key jobs arising from business strategy, so that the
careers of individuals can be planned and managed to optimize the organizations needs
and the individual’s aspirations.
PURPOSE OF SUCCESSION PLANNING
Its primary purpose is to identify and develop people to replace current
jobholders in key positions. Through Succession Planning, companies assure a steady
flow of internal talent to fill important vacancies. Succession Planning encourages hiring
from within’ and creates a healthy environment where employees have careers and not
merely jobs. It helps in identifying human resources shortages and skill shortages
before openings occur. Thereafter, it becomes easy to groom qualified candidates for
future vacancies.
The organization is thus assured of continuity of operations and better-qualified
incumbents. The absence of a Succession Plan can seriously hamper the growth
prospects of an organization. Imagine the disastrous consequences when there is a
sudden vacuum at the top level.
There is no one to see the ship. Critical plans needing immediate action get
postponed. The organization remains headless and directionless for a while. Suitable
candidates may not be available internally, as no one has been groomed in the past,
keeping such an eventuality in mind. Bringing in outsiders may mitigate the crisis
temporarily but the long-term impact is bound to be negative. Internal forces may start a
rebellion and creating of war situations with frustrating regularity.
Preparing a schedule for Succession is critical to the success of a company,
especially at the top level when the baton changes over a period of time, disruption and
dislocation are minimized. Indeed when a new CEO is meant to consolidate on past
successes, a slow shift is ideal. If qualified candidates are not available within the
company, outsiders can be considered readily for possible openings. Complete
dependence on Succession from within or from outside is not desirable. Internal
candidates require a ‘pat on the back’ when they do well. External candidates are
needed for injecting fresh blood into the company
REPLACEMENT CHARTS
A Succession Plan is a plan for identifying who is currently in post and who is
available and qualified to take over in the event of retirement, voluntary retirement,
dismissal or sickness. A typical Succession Chart shows details of key positions of
executives and brief references to their possible successors. The replacement chart is a
visual representation of who will replace whom if there is a job opening.
TIME FRAME
Right person for the right job, at the right place and right time implies the time
frame of succession planning. Time frame is applied for mentoring, training and job
rotation. As the process of succession planning is to find right person within the internal
framework, there are possibilities when no internal candidate is available, so here the
management uses succession planning to recruit a person from outside. Within the
organization the top-level authorities keep supervising and training their subordinates
for promoting them to higher post applying succession planning effectively.
ELEMENTS OF SUCCESSION PLANNING
1. Management Succession Planning
In organizational development, succession planning is the process of
identifying and preparing suitable employees through mentoring, training and job
rotation, to replace key players such as the chief executive officer (CEO) within
and as their terms expire. From the risk management aspect, provisions are
made in case no suitable internal candidates are available to replace the loss of
any key person. It is usual for an organization to insure the key person so that
funds are available if she or he dies and these funds can be used by the
business to cope with the problems before a suitable replacement is found or
developed. Succession Planning involves having senior executives periodically
review their top executives and those in the next lower level to determine several
backups for each senior position. This is important because it often takes years
of grooming to develop effective senior managers. There is a critical shortage in
companies of middle and top leaders for the next five years. Organizations will
need to create pools of candidates with high leadership potential. A careful and
considered plan of action ensures the least possible disruption to the person‘s
responsibilities and therefore the organization‘s effectiveness. Examples include
such a person who is: suddenly and unexpectedly unable or unwilling to
continue their role within the organization; accepting an approach from another
organization or external opportunity which will terminate or lessen their value to
the current organization; indicating the conclusion of a contract or time-limited
project; or moving to another position and different set of responsibilities within
the organization. A succession plan clearly sets out the factors to be taken into
account and the process to be followed in relation to retaining or replacing the
person.
2. Business Succession Planning
Business succession planning involves planning for the smooth
continuation and success of a business which depends greatly on the availability
of competent people. Be it profit or non-profit organization, one of the concerns is
there may be no successor to drive it once the leader or key person leaves –
either by choice or by circumstances. This concern has been repeatedly
expressed in the papers by leaders from the private and government sector. It is
people, or more aptly, the right people, that make things happen. But the music
will stop one day! If the leader or key person does not retire (whether by old age,
disability or choice) he will end his time of service when he dies. And when they
do, problems often set in. The day after is often filled with chaos and uncertainty.
What is likely to happen to the organization when a key leader is eliminated
without succession planning in place? Here are some things to expect. First,
there would be either no able successor or where there is, the successor is often
either unprepared to handle the heavy responsibilities placed upon them or
he/she simply does not have the ability to manage the organization in the way it
used to be. Whatever the case may turn out to be, the situation can be dire for
the organization. Profit may be lost. Business can become untenable to continue.
In the case of the unplanned death of an owner, the remaining co-owners and
the heirs may be embroiled in a relationship crisis that threatens to wreck the
business. In an unplanned situation, ineffective quick-fixed solutions are the only
answers left. If no able successor can be found, a temporary replacement is
often the only choice left, and the ultimate result may still be the downfall of the
organization. It is difficult enough to run an organization with experience and
ability. Without the requisite qualities in the new leader, the rot of the organization
is almost likely to set in immediately; unless it is lucky to have a replacement who
happens to be suitable and motivated. If not, an unmotivated successor is
equally bad news for the set-up. Without the drive, the organization will stay
stagnant and more than likely, to slide. Without succession planning, a business
that has become successful can just as easily fall. The business grows because
there is a leader (probably the owner) with experience, drive and ability. Without
proper succession planning, the future success of the business is left to chance
once that leader is gone. Under such a circumstance, if it succeeds at all, it is by
default rather than planned. That is not all. The passing of the baton from one
generation to the next is often clouded by the stakeholders‘differing views and
agendas. Without proper planning, the clashes of views and agendas can pull the
business in several directions and this may wreck an otherwise viable business.
With so much at stake, business succession planning has to be a priority and
should be part of every business planning. There are two main options available
to business succession planning, which are: 1. Retention Planning: Retention of
the business within the family circle; and 2. Buy-sell Planning: Selling of the
establishment to other business owners or key employees or interested
outsiders. It is a norm in many parts of Asia that succession planning is a
sensitive issue to discuss amongst partners or shareholders. This is despite the
fact that a successful transition minimizes disruption, ensures continuous
profitability and guarantee satisfactory returns to the partners and shareholders.
TODAY. Good joint management and effort among business shareholders
have built a successful and profitable business. The business shareholder and
his family enjoy a comfortable livelihood and good lifestyle.
TOMORROW. Suddenly, unexpectedly, a key shareholder dies and the
business is disrupted instantly. What will be the outcome of the shareholders'
business interest and his family's livelihood and lifestyle?
FUTURE. The surviving shareholder and the deceased shareholder‘s
family face a critical decision. What are the options available to the surviving
shareholders and the deceased shareholder‘s family? What are the options
available after the event has happened? • The heirs become active in the
business. Do they have the experience, skills and expertise to manage the
business and be an asset to the company? The deceased‘s share is sold to an
outsider. The heirs keep their share as inactive shareholders - Can the surviving
shareholders accept this arrangement with the extra input of effort and yet share
equally in the profits? • The deceased shareholder‘s share is sold to surviving
shareholders - Will the surviving shareholders be able to raise the necessary
cash for this transaction? An Ideal solution for all concerned could be...(action
plan) Proper business continuation and succession planning can help prevent a
business from being frozen and discontinued. It also helps avoid conflict among
family member and between heirs and surviving owners.
Family Business Succession Planning
Due to the complexities surrounding the transfer of ownership of family
businesses from one generation to another, specific resources have been developed for
family business owners planning for this transition. Among these resources is the
McCabe Arch, which is a visualization and planning tool for the American business
owner. It offers practical solutions for planning the orderly consumption and distribution
of financial and emotional wealth. The process, like the construction of an arch, begins
with two solid cornerstones, the business owner who is willing to plan for his or her
eventual departure from the business, and the willing successor. However, the unique
aspect of an arch was that we continually build it from two sides. For a succession-
planning model to work, we needed commitment from the owner and the protégé. It was
imperative that both sides complete their assignments with the ultimate goal of the
finding—and resolving—the key issues that were represented by the various blocks.
-Harry McCabe (Author of Pass It On: The Entrepreneur's Succession Planning book)
Each building block on each side of the arch represents a step in the 7 Steps to
Succession, which provides a timetable and road map for Family Business Succession
Plans.
ISSUES IN SUCCESSION PLANNING AND SOLUTIONS
1. There is a compelling argument that gifting family businesses to the next
generation destroys businesses and family relationships. When family members
purchase shares in a family business they are required to assess their own skills
and ability to generate wealth from the business. Families that skip this step,
families that gift ownership encourage children to work in and often lead family
businesses for all the wrong reasons.
2. If the employees retire or exit for other reasons, the ethos and dynamics of the
business will inevitably change. If the value of the business is to be maintained or
enhanced, it is imperative that these changes are carefully controlled. The first
step is to formally decide precisely what difference their departure will make. If
the retiring directors/managers were responsible for sales dynamism, strict
financial control, key account customer loyalty or engineering innovation, for
example, these are the critical skill gaps, which will need to be seamlessly filled.
3. The assumption is companies will need to recruit externally to fill operational
gaps arising as they undergo change. This is not necessarily the case.
4. External HR professionals can be brought in to work as change managers. They
can identify current or anticipated gaps in managers' range of skills and
employees' competencies and then develop the most cost efficient ways to fill
these gaps. But there is more to succession planning. Rather than just being a
way of averting the dangers of a foreseeable motivational and management
vacuum, it can be an opportunity to refresh, revitalise or reposition a staid
enterprise in a rapidly changing world.
5. Businesses can move forward by optimising the contribution of their existing
management, staff and workforce. It is highly likely existing personnel will have
undiscovered capabilities and talents. But the fact these attributes have not
become apparent in their existing roles is probably more to do with habit and
complacency than a failure to invest in employee development. It might be the
case they have simply not been invited to extend them in an unfamiliar direction
or take on wider responsibilities. It is definitely the case that uncovering unsung
talent in existing staff is less costly than recruiting and introducing new
personnel.
6. Job rotations can sometimes reveal these hidden reservoirs of ability. Perhaps
someone on your sales force has the potential to become an outstanding
marketer perhaps someone from your shop floor or office has the potential to be
an outstanding sales generator. An operative might have innate interpersonal
skills that earmark him or her for development into line management.
7. In some instances, the skills shortfalls can be filled by job rotation. Skills
shortfalls in one department can be overcome by importing them from another
where a competent individual's ability is being under-utilised. There are huge
savings to be made by offering coaching, mentoring or further job training to
existing staff.
Seatwork Chapter 9
1. What is Succession Planning? How do the organizations plan for the succession
of the employees?
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
2. Explain the issues involved in the implementation of Succession Planning? Can
they be resolved? Give Examples.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
3. Discuss the various elements of succession planning? Is there any mechanism of
justifying the elements applied in the process of succession planning?
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
4. Do the Indian Business Houses apply succession planning as the core system to
achieve the target of growth, expansion and diversification? Explain giving
examples.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_______________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
