Succession planning

Succession planning is the process of identifying the critical positions within your organization and developing action plans for individuals to assume those positions. Taking a holistic view of current and future goals, this type of preparation ensures that you have the right people in the right jobs today and in the years to come.

In the long term, succession planning strengthens the overall capability of the organization by:

  • Identifying critical positions and highlighting potential vacancies;
  • Selecting key competencies and skills necessary for business continuity;
  • Focusing development of individuals to meet future business needs.

A succession plan identifies future staffing needs and the people with the skills and potential to perform in these future roles. Professional & Organizational Development’s Succession Planning Toolkit will help guide you, though we strongly suggest you involve your assigned HR consultant and/or HR administrator in this process as well.

succession planning

What Is Succession Planning?

The term succession planning refers to a business strategy companies use to pass leadership roles down to another employee or group of employees. Succession planning ensures that businesses continue to run smoothly and without interruption, after important people move on to new opportunities, retire, or pass away. It can also provide a liquidity event, which enables the transfer of ownership in a going concern to rising employees. Succession planning is a good way for companies to ensure that businesses are fully prepared to promote and advance all employees—not just those who are at the management or executive levels.

Succession planning is a contingency plan. It is not a one-time event. Rather, it should be reevaluated and updated each year or as changes dictate within the company. As such, it evaluates each leader’s skills, identifying potential replacements within and outside the company and, in the case of internal replacements, training those employees so they’re prepared to assume control.In large companies, the board of directors typically oversees succession planning in addition to the chief executive officer (CEO), and it affects owners, employees, as well as shareholders. A larger business may train mid-level employees to one day take over higher-level positions. For small businesses and family-owned companies, succession planning often means training the next generation to take over the business.

The process takes a lot of time and effort.

  • Recruitment or Proper Hiring: The goal is to choose candidates who are capable of rising through the ranks in the future. For example, an experienced person from another company might be courted and groomed for a higher position.
  • Training: This includes the development of skills, company knowledge, and certifications. The training might include having employees cross-train and shadow various positions or jobs in all the major departments. This process can help the person become well-rounded and understand the business on a granular level. Also, the cross-training process can help identify the employees that are not up to the task of developing multiple skill sets needed to run the company.  
  • Businesses may want to create more than one type of succession plan. An emergency succession plan is put in place when a key leader needs to be replaced unexpectedly. A long-term succession plan, on the other hand, helps the company account for anticipated changes in leadership.

    According to human resources (HR) experts, succession planning involves preparation rather than pre-selection. This means that those responsible must identify the skills, practices, and knowledge. Although it may seem like a complex process, it doesn’t have to be, especially if businesses and leaders are able to organize and plan ahead of time. The whole process can take anywhere between 12 to 36 months

Benefits of Succession Planning

  • Employees know that there is a chance for advancement and possibly ownership, which can lead to more empowerment and higher job satisfaction.
  • Knowing there is a plan for future opportunities reinforces employees’ career development.
  • Management’s commitment to succession planning means that supervisors will mentor employees to transfer knowledge and expertise.
  • Management keeps better track of the value of employees so positions can be filled internally when opportunities arise.
  • Leadership and employees are better able to share company values and vision.
  • A new generation of leaders is needed when there’s a mass exodus of people from the workforce into retirement.
  • Proper succession planning benefits shareholders of public companies, especially when the next candidate for CEO is involved in business operations and is well respected years before the current CEO retires. Also, if investors observe a well-communicated succession plan, they won’t sell the company’s stock when the CEO retires.

FAQs

How Does Succession Planning Work?

Succession planning is used by businesses to streamline the process involving a change of leadership or ownership. It involves recognizing internal employees who merit career advancement and training them to assume new roles within the company. These plans only work if companies take the steps necessary to prepare. Plans are often long-term to prepare for inevitable changes in the future. Emergency plans can be set in place to account for unexpected changes.

What Is Succession Planning in Business?

Succession planning is an important part of any business to help it run smoothly and without interruption whenever there needs to be a change in leadership. Changes can be the result of people leaving the workforce (changing companies, switching careers, or retiring) or if there are unexpected circumstances, such as the death or displacement of a team member.

What Are Some of the Common Mistakes Companies Make During Succession Planning?

Succession planning requires careful organization and (as the name suggests) planning. Companies may miss opportunities or make missteps if they can’t communicate their vision with employees, don’t adopt a formal agreement or plan (including a shortlist of candidates and conducting regular reviews of positions and employees), assume their talent has the skills and knowledge to advance and succeed, fail to use succession plans for all employees, and ignore the need to diversify their talent pool.

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Practice area's of B K Goyal & Co LLP

Company Registration Services in major cities of India

Complete CA Services

RERA Services

Most read resources