Succession Planning Requires Leadership Development

Let’s be real—most small businesses don’t do succession planning; of those that do, most do it poorly.

The likelihood is that you started your own business because you were really good at something or had a great idea for a marketable product. Unless you’re an entrepreneur that specializes in human resource planning, the chances are good that managing people, developing leaders, and planning for your eventual exit are not your forte. Even if you plan to sell your business eventually, a new owner will want to know that you have the necessary people in place to keep the organization running effectively in your absence.

A 2018 survey by the Canadian Federation of Independent Business found that 72% of business owners intended to exit their business in the next ten years. However, only 49% of the small and medium enterprises (SMEs) surveyed had a succession plan in place. Those with a formalized written succession plan—a measly 8%.  

“A leader's lasting value is measured by succession.” — John C. Maxwell

What is succession planning?

Succession planning is the process of identifying individuals within your organization who can be developed to replace existing leaders when they leave, retire, or die. It increases the availability of qualified employees who are prepared to assume leadership roles as they become available and can be a key differentiating factor for your business.

Succession planning exists on a continuum between replacement planning and succession management and focuses on identifying and developing individuals to fill future vacancies at the senior leadership level only. Given the rapidly changing environment in which most businesses operate, the mass exodus of baby boomers from the available labour pool in the next decade, and the lack of organizational loyalty that exists among today’s workforce, succession planning is a crucial process that you’d be well advised to implement now.

Succession planning for small business

Small businesses may not benefit from the large human resource planning budgets afforded to larger organizations; however, with some forethought and planning, they can still implement rigorous succession plans that will contribute to the organization’s long-term survival and prosperity.

SMEs are generally more agile than larger organizations and can adapt their systems and plans more quickly, given fewer levels of hierarchy and bureaucracy. Owners are much more likely to personally know their employees’ strengths and weaknesses and be actively involved in employees’ development plans. Additionally, the opportunity for growth and promotion can be a selling point when recruiting and retaining new talent. However, family-owned SMEs may encounter internal resistance to non-family successors. In extremely small organizations, there may not be enough internal bench strength to train successors, thus necessitating outsourced training and increased investment.

While the number of potential successors will vary based on the size of your company and senior leadership team, it’s advisable to develop a pool of potential successors across several generations throughout the organization. That way, if one of your potential successors leaves the organization, you have other qualified candidates ready to go.

Succession planning should be an ongoing process of detailing the knowledge, skills, and experience a successor will need to fill a leadership role both now and in the future. While it may not be possible to predict future business needs with 100% accuracy, developing a leadership profile that includes transferable leadership competencies, such as innovation, integrity, strategic thinking, and relationship building, is a great place to start.

Successor evaluation using personality type assessments

There are a variety of methods for identifying high potential employees suitable for future leadership positions, ranging from cost-effective evaluation by senior leadership to higher cost measures like personality assessments (e.g. Myers-Briggs Type Indicator, Neo Pi-R, Minnesota Multiphasic Personality Inventory, DiSC Assessment,  Eysenck Personality Questionnaire), and 360-degree feedback assessments.

If you’re an astute business owner, you should be able to identify individuals within your organization who have strong communication skills, emotional intelligence, problem-solving skills, self-motivation, the ability to work well with others, a growth mindset, and the desire and ability to become leaders. If people development isn’t your forte, or your management team has been promoted based on their skill at a technical level rather than their proficiency at leading others (which is the case in the majority of organizations), then investing in additional assessment methods may assist with the selection of succession candidates.While employers can gain insight from many of these assessments, personality tests should be used to augment other selection criteria—like performance history, working relationships, and the ability to remain calm in high-stress situations. Research has shown that the predictive validity of personality assessments for hiring and promotion decisions is marginal at best, as most personality tests are self-reporting tools, meaning that the results are only as accurate as the honesty of the answers.

Successor evaluation using 360-degree feedback

Alternatively, 360-degree feedback incorporates feedback on an employee from their superiors, subordinates, peers, themselves, and possibly even individuals external to the organization, like customers and suppliers. While it may provide a more well-rounded picture of an individual’s competencies, the results should still be taken with a grain of salt, as the feedback is typically anonymous and is likely to contain some degree of rater bias. This type of feedback is often coupled with executive coaching so that the participant has guidance for interpreting the results and creating meaningful development goals for themselves.

“One of the things we often miss in succession planning is that is should be gradual and thoughtful, with lots of sharing information and knowledge and perspective, so that it's almost a non-event when it happens.” — Anne M. Mulcahy

Leadership development

Leadership development refers to the process of enhancing individuals’ leadership skills and abilities within an organization. It requires the participation of senior leadership to identify, assess, and develop potential successors and expand their capacity to be effective in leadership roles within the organization. It also requires ensuring that successor candidates are interested in and demonstrate the potential for succession into key positions and that they will have appropriate learning, development, and training opportunities to fulfill their potential.

How to develop leadership skills

It is estimated that experience accounts for as much as 80 percent of the learning and development of those who eventually move into senior management positions, while classroom education and coaching each only account for 10 percent. While classroom programs form the backbone of a majority of leadership development programs, it stands to reason that SMEs can benefit greatly by focusing on in-house experiential learning opportunities for future successors, rather than pouring money into professional conferences, learning management systems, executive MBAs, or outsourced coaching. That’s not to say that external training isn’t beneficial, just that as a small business owner with a limited budget, your money is likely better spent on providing on-the-job learning opportunities for your employees. When you don’t have the internal resources needed to design and deliver your own in-house leadership development initiatives or create a corporate university, experiential learning opportunities can be invaluable, as they bridge the gap between theory and practice and provide a safe space for employees to make mistakes.

Action learning and stretch assignments for leadership development

Action learning, an approach to problem-solving that involves taking action and reflecting upon the results, is one of the most effective components of a leadership development program, as it allows individuals to learn while working on organizational problems in real-time. It frequently involves project teams composed of people from different functional areas working together to solve an organizational issue over a period of months (for example, Six Sigma initiatives, CRM or ERP implementations).

In determining appropriate job assignments for leadership candidates, care must be taken to ensure that the employee is ready for such an assignment and that the assignment takes into consideration the employee’s career goals, potential career paths, and developmental readiness. On-the-job experiential leadership assignments are often referred to as stretch assignments as they are intended to stretch the individual out of their comfort zone by tackling a project that is beyond their current skill or knowledge level.

Job rotation for leadership development

Job rotation is another method of challenging the leadership ability of successor candidates. It involves exposing employees to different job functions for pre-determined amounts of time so that they understand all the different verticals within an organization. Job rotation has a multitude of benefits for both employees and organizations. Among them are reducing monotony, developing a wider range of work experience, testing employees’ skills and competence, motivating employees to deal with new challenges, decreasing attrition, and increasing job satisfaction, loyalty, and employee engagement.  

Employees need ongoing feedback and support

It’s not enough to identify potential future leaders, give them some stretch assignments, and call it a day. Effective leadership development for succession requires more than just an annual performance assessment with a manager. Leadership candidates require regular feedback and support to help them understand what they’re doing well and where they need to make improvements.
 
Pairing high potential employees with an internal mentor or coach can provide employees with guidance and support to develop the personal and professional skills necessary to be successful in your organization. By allowing experienced employees to pass on their knowledge before they leave the organization, you reduce the panic and scrambling that is often associated with an unexpected resignation or sick leave notice.

Whichever leadership development method you choose, it should be a logical extension of your succession planning based on organizational strategy and appropriate to the size and resources of your organization.

Employees in today’s knowledge economy want to feel valued and have opportunities to learn and grow. Succession planning and leadership development are sound investments for your business that can provide you with a competitive advantage in terms of recruitment, retention, and unexpected turnover. If you haven’t done so already, consider investing some time in succession planning and leadership development for your team today.

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