Succession planning and management is a strategy for passing on leadership roles—often the ownership of a business/profession—to an employee or group of employees. It is a systematic process of recognizing and creating future leaders who are able to take the position of the old ones when they leave the organization due to retirement, resignation, termination, transfer, promotion or death. It is a modern technique ensures that businesses continue to run smoothly after a company’s most important people move on to new opportunities, retire, or pass away.

1. Need of Succession Planning: When the owner of a business becomes incapacitated or passes away, it is often necessary to shut down an otherwise healthy business. Succession planning keeps your business moving forward as a going concern during the inevitable changes that come with running a business. Proper planning helps avoid many of the problems associated with succession and transfer of ownership.

Small businesses specially family businesses on the whole often fail after the departure of their initial leadership team, succession planning can result in significantly improved chances for a business’s continuation. Small business succession tends to focus on how a business will continue to operate once its founder or initial leadership team retires or otherwise leaves the business.

No matter how good the organization and its staff are at revenue projections or economic predictions. No one can truly plan for the disaster whether it’s an unforeseen illness, a natural disaster or a management’s decision to suddenly retire. By failing to create an orderly plan for succession, your business or company may not get a second chance if it doesn’t adapt immediately after a founder/ key managerial person leaves the company or passes away.

The reasons for having the succession planning in place before it is needed are endless. So one cannot plan for disaster, but can put into place a series of contingencies. Therefore, Succession Planning is all about developing a substitute, for a perpetual succession of the organization without any kind of disturbance, when there are changes in the founder or leadership team.

2. Advantages of Succession Planning: Many business owners get so busy with the day-to-day operations of their businesses or company that they fail to make succession planning a priority. These leaders may think they’re too young to be hit with a serious illness or they forget that a key player could be lured away by another company that needs their skills and is willing to pay top rupees for them. Any of these scenarios can leave a business uniquely vulnerable. Succession planning is one of those initiatives that many companies don’t find the time to start until it’s too late — if you don’t address succession planning now your organization may end up facing the burden in the middle of a crisis. Succession planning is another step to protect the businesses or company – whether you are physically there for its long-term success or not. The benefits of succession planning are numerous, but not always well recognized.

> Succession planning can cultivate a new generation of leaders, thereby providing an exit strategy for existing business owners/ team leaders.

> Aligning strategic goals and human resources to enable the “right people in the right place at the right time” to achieve desired business results.

> The development of qualified pools of candidates ready to fill critical or key positions.

> The opportunity for timely business skills/knowledge transfer.

> Helps the businesses or company plan and grow for the long-term.

> Setting realistic goals for growth and planning for future talent needs that may result from that growth.

> Succession by people from within provides opportunities to employees for progress in their careers.

3. The Succession Planning Process : While planning a successful succession plan, keep in mind that implementing that plan doesn’t happen overnight. The whole process is a cycle that will need to be repeated and improved upon in order to really be effective. Succession planning is a proactive rather than reactive process. The process of succession planning includes the following steps:

i. Planning : The first and foremost step is to develop a strategic plan that will provide a blueprint of how the succession plan is to be implemented. For a succession plan to be successful, it is vital to integrate the plan with the interests and aspirations of the leadership team who are being groomed for succession.

ii. Analysis : In this step, the various challenges the organisation is likely to face in the future and the skills and competencies the successor would need to meet them are analyzed. Efforts should be made to determine the knowledge, talents, skills and capabilities that would be required in the organization in the future. It is necessary to identify the overall long term talent needs of the organization and not just of a particular position.

iii. Identification of Talent Pools : After competency is analysed, the next step is to identify among various employees working in the organization, who are interested as well as they have the capability to fill key business areas and positions. The competencies and skill levels of the current workers need to be assessed in order to identify the available pool of talent. Factors like the employee’s educational background, time spent with the company, his behaviour and attitude should also be taken into account. The skill sets of the employees should be compared with the skills needed for the key leadership roles and any gaps between the two should be identified.

iv. Development Planning : After the gaps have been identified, the next step involves creating development plans. The development plan includes the formal development procedures, coaching and mentoring, special job assignments, learning projects, etc. which will help the employees to gain the necessary skills and experiences. The employee’s progress will be monitored against the plan. The duration of the development plan would depend upon the succession plan strategy of the organization.

v. Documentation and Implementation : Once strategies have been identified, the next step is to document the strategies in an action plan. The succession plan should be linked to the HR processes like compensation, recruitment, performance planning, workforce planning, etc. It is a long-term plan, and sometimes the succession planning process is started from the time a brilliantly outstanding employee begins his career. Strategies for learning, training, development, knowledge transfer, experience sharing is developed and implemented for potential successors.

Implementing the succession plan includes the retention strategies like retention bonuses, promotions, challenging work, etc. It is essential to compare the progress of the succession plan with the upcoming personnel requirements of the organization so that a capable employee is available to fill a prestigious post should it fall vacant either expectedly (due to planned retirement), or unexpectedly (due to death, disability, illness, etc. of the position holder).

vi. Evaluate Effectiveness : The last step to the succession planning process is to evaluate the succession planning and management, to ensure that all the key business areas and positions are covered under the succession planning. To ensure that the succession planning efforts are successful, it is important to systematically monitor workforce data, evaluate activities and make necessary adjustments. Further, it also ensures that in case of any sudden vacancies in future, key positions can be filled as soon as possible and the successors perform effectively when they hold the position.

4. Challenges faced by succession planning : Many a times, challenges become barriers and control the entire process of succession planning and management. Challenges could be:

i. Size of the Organization : Some organizations have so few positions that they may not have the ability to offer opportunities for advancement; employees with the potential and the desire to advance their careers may move to larger organizations.

ii. Lack of Financial Resources : Employees may leave for better salaries and benefits offered in other workplaces.

iii. Absence of Young Talent : In some cases, senior managers are staying on in their positions, despite the fact that the skills needed for the job may have changed or they are no longer making a meaningful and productive contribution to the organization.

iv. Bad Succession Plan : Indiscriminate inclusion of employees in the succession plan including those who are disinterested, demotivated or lack capacity to advance in their skills.

v. Inadequate Training and Development : This results in an employee getting promoted but is not prepared for a higher job.

vi. Essence of Time and Organisational Needs : Potential candidates for promotion cannot be guaranteed that they will be promoted; a lot depends on timing and need of the organization.

5. Problems faced when implementing a succession planning in an Organisation : The businesses or company face numerous obstacles when attempting to implement a succession planning.

i. Succession planning allows leaders to focus on potential new managers who are employed by the organization but does not allow for candidates outside the company. In some situations it is better to replace a manager with an external candidate to bring new skills to the team. Other times there simply may not be a suitable candidate within the organization.

ii. Overlooked Skills of Employees:  rather than looking at a wider array of individual employees and their capabilities, upper management focuses only on one person – the crowned prince. There are often employees throughout the organisation who are capable of and interested in promotion who may be overlooked because of the more visible and obvious ‘crowned prince’, who is likely to be promoted even if these other employees are available.

iii. Negative effects on employees: Talent drain and lack of motivation is also one of the problems of succession planning. Because upper management identifies small group of managers to receive training and development for promotion. In some cases there may be two or more strong candidates for the role. Thus not all employees can be identified as successors. Consequently, there is the potential for some employees to feel left out, passed over and underappreciated.

6. Conclusion: No matter what your size, you can’t run a business without talented people ready to move into key positions when the current occupants leave. Even the most successful organizations can run off a cliff if they don’t have a solid succession plan in place. It helps your business prepare for all contingencies by preparing high-potential workers for advancement. Succession Planning is all about developing a leadership substitute, for a perpetual succession of the organization without any kind of disturbance, when there are changes in the top management.

Author Details:- 

1. CA Deepak Khandelwal (FCA, M.Com, CCCA, FAFD)

2. CA Shilvi Khandelwal (DISA, LLB, FCA, B.Com)

Author Bio

Qualification: CA in Practice
Location: JAIPUR, Rajasthan, India
Member Since: 22 Jun 2017 | Total Posts: 8
I am Shilvi Khandelwal. I am a practising chartered accountant by profession engaged in Internal Control, Tax Planning, GST Implementation and Business Consultancy for various hotels like Radisson, Marriott, Royal Orchid etc & automobile dealers like BMW, VW and Hyundai etc having more than 8 ye View Full Profile

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June 2021