The Role of Succession Planning in a Family or Management-Owned Business

Succession planning is one of the most important strategic initiatives that Human Resources can bring to family and management-owned companies.  They can benefit from the principles of identifying crucial job skills, knowledge, relationships, and organizational practices that need to be passed on to prepare the next generation of managers and employees.

Some key reasons for engaging in succession planning include:

  • Identifying skill gaps and training needs
  • Retaining institutional knowledge
  • Boosting morale and retention

Generally, a succession plan consists of a “talent map”, a progression document that identifies employees to be in a position to potentially take over or move into key roles in the future and development plans for such employees.

Talent Map (sometimes called a “Nine Box”) – this is a 3×3 grid plotting employees by current performance (high, medium, low) versus future potential (high, medium, low).  It is used to identify “High Potential” employees into which the company should invest in their career progression.  Organizations generally benefit from “mid level” employees.  They are categorized as achieving goals and take pride in producing results for the organization.  The succession planning process will also identify low performance employees, this will usually lead to a performance improvement plan or discussion around an exit strategy for those individuals.  []

Progression Document – The progression document identifies the person who would replace or succeed the current employee in each key role within the company. The talent map will have identified high performing individuals and should be considered as employees are positioned for greater roles in the organization. Typically, for each person identified, they would fall into one of three categories:

  • Ready Now
  • Ready in 1-3 Years
  • “On the Radar Screen”

Larger corporations expect to have “ready now” candidates for most key roles.  This can be more difficult for smaller, leaner family and management-owned organizations.  Employee potential is not necessarily time bound and the chance to slot employees that would be ready in 1-3 years or on the radar screen is an important consideration for the long-term viability of the organization.  It should be viewed as the pipeline of talent for the future growth of the company.

Identifying the right people to include in a succession planning program is as much an art as a science. However, considering positions with the following characteristics may be helpful in the process:

  • Leadership or managerial roles (e.g., CEO, CFO, COO, VP Sales, HR, plant management)
  • Key functional roles (e.g., procurement/purchasing, IT, warehouse or logistics)
  • Roles central to strategic goals of the company or to sustaining a competitive advantage (e.g., customer relations, new product development, production and/or process know-how)
  • Jobs with long learning curves or that require an “apprenticeship” approach

Development Plans – Having established a talent map and progression document, robust development plans are the “call to action” to ensure this process is accomplished.  A detailed development plan should be created for all employees identified in the progression document to chart their development to the next roles.  These plans should be “SMART” (Specific, Measurable, Achievable, Realistic and Timebound) and assigned to leaders to monitor progress and evaluate performance.  They will also address skill gaps discussed for each employee in the succession planning discussions and will be frequently reviewed between employee and manager.[

Organizations should review its succession plan on a bi-annual basis to measure and chart progress and to assess changes that may need to be made.

Additional benefits of a successful succession planning process can include:

Retaining valuable institutional knowledge – The entire concept of knowledge management focuses on identifying, harvesting, archiving, and retrieving organizational knowledge. Research on preparing for an aging workforce has found that less than 40% of HR professionals said their employers were analyzing the impact of workers over the age of 55 leaving their organizations in the next 10 years. 

Boosting morale and retention – An organization’s visible investment in its human capital can be a tremendous boost to employee engagement and morale.

Replacing highly specialized competencies – Although the conventional wisdom is that no one is indispensable, replacing a leader or contributor with highly specialized knowledge or competencies is costly and time-consuming. Succession planning mitigates the effects of a sudden or unanticipated vacancy in a principal position.

Succession planning cannot be accomplished as a stand-alone process. The principles that support succession planning must also influence the selection process and performance management. Identifying roles eligible for succession planning requires forethought during the selection phase to ensure that the right person, with development potential, is chosen. Future-focused performance management practices that highlight personal initiative, skill acquisition, and development are most suitable.

Addressing Organizational Silos – One way to address silos in the context of succession planning is to start with a function that is partially shared among one or more business units. Find leaders who believe in knocking down silos to see if they have jobs that could be feeders into another area. Explore the possibility of temporary assignments in other areas that could be used to develop employees for future roles.

Promote a long-term view – Succession planning is a 12- to 36-month process. Encourage team members and leaders to think long-term and with the big-picture in mind during the program development. Reinforce the concept of preparation, not pre-selection.

Generally, Human Resources will own and facilitate Succession Planning process.  They will prepare leaders to participate and align the program with business objectives and strategy.

Succession Planning is a critical initiative for Private Equity and their portfolio companies.  A potential buyer will want to see that the target company has a strong succession plan in place and that the long-term viability of the organization is clearly defined.  Here at Heartwood Partners, our Human Resources Value Partner works with portfolio HR departments to implement such succession plans or works with them to enhance existing ones.