As the founder you have done a good job growing the company you built and making sure it thrives. But what measures are you putting in place to ensure the company survives and business flourishes long after you are gone. Do you have a successor?
Leadership transition is a pivotal point in the life of a company that can sometimes make or break it. Continuing a business beyond one generation of leaders requires planning. "When times are good we don't seem to have time for it and when times are bad we say we don't have money for it. The result is that we don't do it," says William J. Rothwell, Ph.D., SPHR, a management consultant and author of Effective Succession Planning: Ensuring Leadership Continuity and Building Talent from Within.
Career planning is bottom up, Rothwell says; succession management is top down where management decides who the future leaders will be. Companies well known for their succession and executive talent development practices are GE, PepsiCo, and P&G.
P&G is a 173-year old company that hasn't survived by accident or thrived without carefully implementing the right expansion and succession plans. Preparation for A.G. Lafley's successor was several years in the making. Lafley took over as P&G's CEO in 2000 with Robert A. McDonald working side by side before he assumed the helm in 2009.
In P&G's 2009 annual report Lafley speaks about how methodical the company is in identifying multiple success candidates for a position and ensuring each person gets the experience to be ready for the job. P&G has a General Manager Performance Scorecard that is reviewed every six months and a running chart of potential candidates for various jobs. These potentials are put on different assignments to help groom them.
Small to mid-size companies as well as family-owned businesses can learn from corporate giants like P&G. However, successful succession is more than selecting someone with an appropriate skill set. It's also about finding people who share the vision or the original cause around which the company was built. This especially holds true when the CEO has his fingerprints all over the company. Otherwise the result can be the return of a chief executive. Star visionary leaders that come to mind are Dell founder Michael Dell: retired 2004, returned 2007; Apple's Steve Jobs: resigned in 1985, returned in 1996; and Starbucks CEO Howard Shultz: retired in 2000, returned in 2008.
It is strategically important to plan ahead for leadership departures because it often takes an unanticipated amount of time to find and establish a new person to take on such an important role, says Richard M. Vosburgh, PhD, chief development officer for HRPS, a global association of strategic HR professionals. Failing to do so can have detrimental results such as a disruption in services, production or productivity as well as decreased employee morale, unclear organizational direction and loss of critical knowledge.
Succession planning smoothes the way for continued business success. Here are some critical factors and best practices.
Analysis: This involves developing a solid understanding of the most significant challenges that company and its industry are likely to face over the next four to six years, and the skills and experiences the CEO will need to lead the company past those hurdles. Craft a multi-year plan and process to support not only the leadership succession but the movement and placement of high potential employees throughout the organization.
Discipline: "You need to have a disciplined approach. Often it starts with the founder or CEO and top management, but then it often stops there," says Vosburgh. "To be successful you have to think about succession and talent management down through all levels." Think lattice not ladder career development. This enables employees to move in several directions rather than just upward one level and to explore new areas of the company and add more diversified tools to their toolbox.
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Commitment: Make it clear that strong commitment to talent development and succession is at the very core of the company's culture and that everyone is expected to contribute their utmost effort. "There is a tendency to dump everything on the HR department," says Rothwell. "The CEO has to be the leader and major customer for the succession plan program. But there should be written role descriptions of what each manager and worker is supposed to do as part of the succession plan."
Identification: You need to identify high potentials within the organization. That is where the company needs to be clear about what is the criterion by which you are going to judge people and make comparisons, says Vosburgh. What does the job itself require and what it the culture of the organization? Make an assessment of the person against the criteria of the position's requirement. How will you grade and measure people's current performance and potential performance? There also needs to be a disciplined calibration discussion prior to any decision making. Build a database that can be used to make better staffing decisions for key jobs.
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Development: Develop employees to be ready for advancements into key roles through the right set of experiences. Use assignments to grow and test people. Give identified potentials actual job assignments and special tasks to see how they do and test their capabilities. If you want to see how well a person operates across boundaries, for example, then give an assignment that tests his or her collaboration skills. Stretch and grow your best people. Put them on projects and teams that force them to perform outside of their comfort zones.
Capacity Building: Determine if there is a developmental gap between where people are now and where they need to be in the future. "The first thing managers think of is to send everyone off to training," says Rothwell. "About 90 percent of all development occurs on the job based on the kind of work you've had to perform. Give people assignments that will develop those areas that are needed to be promotable," he adds. If budgeting is part of your job as boss, instead of sending a high potential employee to a course on budgeting, have her or him oversee the budget for a year and coach that individual through it. That will build the capacity.
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Sponsorship/Mentorship: Engage leadership in supporting the development of high potentials. Executives, managers and even your board of directors or advisory board members should do hands on coaching. Let your best employees know that you care about them, because these are the very same people who will be highly sought after by other companies, including competitors.
Accountability: The CEO must hold everyone accountable for achieving measurable goals. About 70 percent of all succession plans fail because there is no accountability, says Rothwell. What consequences are there if you fail to develop people? What incentives and rewards are there for retaining high potentials?
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Game Planning: This approach explores various scenarios rather than a stagnant organization chart review. This is where company annual reviews are supplemented with an ongoing series of discussions among senior leaders about who is ready to assume larger roles. Anticipate vacancies and slates of names are prepared based on highest potential and readiness for job moves.
Transition: Leadership should agree on a succession plan that includes measurable metrics and milestones, says Rothwell. Also establish a timetable for shifting control of the company. But preparation for a suitable leader is not about management finding a younger version of the incumbent CEO.
"A model that I find to be very useful is can do, will do, and potential. Pay attention to all three of these components. Some companies just pay attention to the first one," Vosburgh says. Can do is about aptitude. Will do is about attitude. And potential is about openness to learning, growing, and fitting in with company culture. "You don't want a potential successor as CEO whose ego may get in the way of working well with others. That is where leaders derail."
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