Why Succession Planning is the Biggest Issue Facing Companies and 3 Critical Components to a Viable Plan

Posted by Joseph Sherren on July 14, 2015

This past week I spoke with Dave Duffy, general manager of Atlantic Adjusters. I asked him: “What do you feel is the biggest issue facing companies over the next five years?” His answer: “Succession planning”.

He said: “We are at a stage where many Baby Boomers are preparing for retirement and there is a shortage of individuals who are ready and able to take on the reins of accountability”. He went on to explain: “A large part of the problem is our fault. Most business owners and managers have not taken the time to think through their recruiting, hiring, training, and mentoring processes to ensure the right people are prepared to take on positions of management and ownership. We are just hoping they will show up when needed – all trained and ready.”

He‘s right. In the US alone there were 76 million people born between the years 1946 and 1963, which is the window for the Baby Boom generation. That means they will probably retire over the same 17-year period.Simple math (not accounting for deaths and immigration) shows that approximately 10,000 people every day reach retirement age. Many of them are business owners or senior level managers.

Because this was followed by a long period of reduced fertility levels in the next generation, there is now a shortage of individuals prepared to fill those positions.Adding to the uncertainty, according to a survey done by PWC,approximately 80 percent of Canadian companies do not have a documented succession plan.

Sharon Duguid, who is the director of PWC’s Centre for Entrepreneurs and Family Enterprise, says: “Companies that transition to the next generation or a new management team without a succession plan experience a 29 percent to 32 percent drop in business in the three years after handing over the reins”.When this happens, it causes stress and confusion for staff, which in turn affects customers and causes uncertainty. Losing the expertise of experienced employees could significantly reduce efficiency, resulting in costly mistakes, unexpected quality problems, or significant disruptions in services and performance.  Having a succession plan already in place will mitigate most negative effects and minimize disruption to staff and to customers.A good succession plan includes a strategic approach that ensures the necessary talent and skills will be available when needed, and that essential knowledge and abilities will be maintained when employees in critical positions leave.So, how do you prepare your organization for the changes in human capital that are coming? A viable succession plan starts right at the hiring stage and has three critical components:

  1. No matter what position you are hiring for, evaluate the person’s potential to ultimately take on more senior positions in the future.
  2. Do an appraisal of all your current staff and identify through work performance and using (scientifically validated) assessments your most talented, high-potentials who have a humanistic and collaborative mindset.
  3. Once identified, provide (pragmatic) leadership development and management training where they can develop a strategic mindset and the skills of operational oversight, critical thinking, people management, and communication skills.

My question for managers this week: “Do you have a documented plan to develop a competent successor when the time comes that you decide to move on?”

 

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