A successful succession plan is a safety net and a blueprint for continued prosperity. Yet, the complexity of human dynamics and the unpredictability of the future make it challenging to navigate. Without it, a company’s profitability, vision and legacy can falter. With this in mind, succession planning is a pivotal process for businesses aiming to secure a smooth leadership transition and maintain operational continuity.
Avoiding a legacy of chaos
Any of these examples (and others) can cause disruptions, impair the company’s operations, and compromise its vision. Awareness of these pitfalls is the first step in avoiding them:
- Lack of a formal plan
An alarming 58% of privately held companies operate without a formal succession plan. This common mistake arises from various factors, including a perceived lack of resources, the small size of the business, or the informal nature of family-owned company operations. Without a succession plan, businesses lack preparedness for unexpected events, miss opportunities to boost cross-departmental communication and forego stability during critical transitions.
- Failure to identify critical roles
Successful succession planning is contingent upon recognizing and preparing for transitions in crucial roles. Many companies make the error of not assessing their organizational structure for essential positions. Failure to map out these roles can lead to chaos, infighting, and operational disruptions during a leadership change.
- Ignoring potential successors within the organization
Overlooking an organization’s talent reservoir can severely hamper a successful transition. Companies may gravitate toward external candidates, believing they bring fresh perspectives, when a more seasoned, knowledgeable internal candidate could provide stability and continuity. It is a common mistake not to help existing employees develop the leadership skills to steer the company forward.
- Not considering external candidates
Just as the above point is valid, so is the converse. Astute organizational leadership recognizes the potential of external candidates to enrich the talent pool, especially if there is a clear need. A balanced approach, blending internal growth with external input, offers a diverse and robust portfolio of leadership capabilities ready to steer the business into the future.
- Not allocating sufficient time for the planning process
Procrastination is a significant obstacle in the world of succession planning. Delaying the creation and execution of a succession plan can result in hasty decisions, inadequate preparation for potential successors, and ultimately lead valuable employees to seek opportunities elsewhere.
- Overlooking the impact of financial issues
The financial ramifications of succession are considerable and can sway the course of a transition. Business valuation, tax consequences, and ensuring sufficient liquidity for buy-outs are financial issues that need meticulous planning and foresight. A strategic misstep many businesses make is underestimating these complexities and failing to incorporate financial planning into the overall succession strategy.
Chaos leads to disputes
The essence of succession planning lies in a carefully crafted action plan, formed in concert with the business’s overarching objectives and receiving the formal endorsement of ownership, management or corporate leadership. Whether it is a family business, a privately held partnership or a publicly traded company, a chaotic transition often leads to disputes and possibly litigation involving the new generation on how to move forward best.