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Business succession planning protects what you’ve worked so hard to build. Without it, business success can start to crumble following a sudden departure. Hard-earned knowledge erodes, recruitment and training costs build, and panic starts to influence strategic decisions.
Yet on the ‘before’ side of things, business succession planning tends to be one of those secondary priorities to get to one day, much like updating the business plan or running security audits. The process gets kicked down the road until the very moment it’s needed.
Effective succession planning can bring compounding benefits for a business, so let’s look at the key elements and strategies to get it off your one-day list.
What is Succession Planning?
Succession planning is a proactive process that helps you identify and develop future leaders to fill key roles in your organisation as they become vacant. The keyword here is proactive, in contrast to replacement planning that reactively fills critical roles in an emergency.
A Deloitte study of 45 S&P 500 companies showed that around 76% of CEO transitions were internal. Companies in the dataset tended to begin the planning process about two years in advance of the CEO’s departure.
Succession planning isn’t just for family businesses; it’s for any organisation that delivers value and holds internal expertise. And while every business should have a succession plan, it’s the medium-to-large businesses that can be particularly vulnerable should someone critical drop out of the picture.
Why Succession Planning is Important
To see why succession planning is important, we only need to consider the businesses that failed to have adequate plans in place.
Polaroid
Polaroid lost significant innovation and leadership after Edwin Land left in 1982, with the company going through two rounds of bankruptcy and a significant fall in brand power.
Apple
Apple came dangerously close to collapse after Steve Jobs left in 1985. It was perhaps only because Jobs returned again in 1997 that it’s the behemoth we all know today.
Yahoo
Yahoo’s lack of ongoing succession planning saw the company cycle through six CEOs in five years, leaving it a shadow of what it had once been.
Those are a few major examples, but the same rings true in any organisation.
To know if you need succession planning, consider this: do you know who could step forward in your talent pipeline to take over critical roles immediately and would they actually be prepared?
The Benefits of Succession Planning
Some succession planning benefits aren’t immediately apparent, but they become far clearer as the organisation and talent changes shape.
Effective business succession planning can lead to:
- A talent pipeline of qualified and capable people
- Experienced leaders who can step up when retirements or resignations occur
- Smoother business momentum and continuity over many years
- Lower costs, both financial and otherwise
- Retained expertise and skill
- More engaged employees who can see genuine growth pathways
- Improved organisational and brand resilience to weather any storm.
How to Build a Successful Business Succession Plan Step by Step
Succession planning doesn’t need to be the fraught process that we saw on-screen with Logan Roy. By setting out each step and starting before pressure builds, you can avoid the TV-worthy drama and have a clear-headed plan to work to.
A business succession framework typically includes the following elements:
- Role mapping to understand what the critical roles are in the business
- Candidate identification to determine who has the potential for key roles
- Development plans to nurture and support that talent as needed, including knowledge transfer systems to support a successful handover
- A review and iteration process to ensure your business succession plan remains a relevant and accurate document over time.
Let’s look closer at each of these steps.
Step 1: Role Mapping to Identify Critical Roles
Role mapping is a visual technique that helps to clarify a role's scope and priorities. This step helps you understand the critical roles in the organisation and what gaps might exist in your talent pipeline. You set out the necessary attributes, skills and experience for each critical role, and evaluate the difficulty of filling it.
Critical roles can open up when someone resigns, retires or is in poor health. The golden question to ask here is which roles, if suddenly vacated, would pose the biggest risk to the business running smoothly?
Tip: It’s worth noting that critical roles aren’t always the most senior roles; they might be technical or otherwise specialised. This can be particularly relevant in startups, where early employees tend to hold essential skills and knowledge.
Step 2: Assessing Your Talent Pipeline for Potential Leaders
Once you have your critical roles identified, the next step is to conduct a skills gap analysis across the organisation so you can compare current capabilities against future needs. Who aligns best with each key role, and what skills, knowledge and support will they need to get to that level?
Consider qualities such as performance, but also the employee’s potential for leadership and their alignment with organisational values and goals. Set out realistic timelines for each succession as best you can based on expected leadership transitions.
Step 3: Building Talent & Leadership Development Programs
Once you’ve identified the emerging leaders you intend to nurture, it’s time to develop your program to address gaps in skills and experience so talent will be prepared to step into key roles with confidence. This isn’t best achieved through ad-hoc training, but rather with a structured learning and development (L&D) strategy.
A suitable L&D program can include any combination of mentoring, leadership coaching, cross-training, structured feedback, job shadowing and more.
Leadership Coaching and Training
Structured leadership coaching provides the frameworks, tools and diverse skills that emerging leaders will need to succeed in a new role. Team coaching delivers broad capability uplift, while executive training delivers skills critical for upper leadership, such as strategic thinking and change management.
Stretch Assignments
A stretch assignment requires talent to operate slightly beyond their current skills or knowledge. Assigning stretch assignments can be a powerful way to expand and test someone’s capabilities under real conditions before they’re ultimately asked to step up to the plate. Longer-term projects and increased responsibilities will help build confidence and familiarity with the demands of the key role in question.
Mentorship and Executive Exposure
For emerging leaders pinpointed to move into executive roles, try to provide plenty of opportunities to interact with the senior roles they’re in line for. This can take form through structured mentorship, but also through exposure to professional networks, relationships and everyday conversations. This equips future leaders with a full spectrum of skills they need to genuinely thrive, from the technical capabilities for sound decision-making to essential interpersonal skills.
Step 4: Reviewing and Refreshing Your Plan
Succession plans aren’t set-and-forget papers. They need to be living documents that evolve along with the organisation. Set an annual review for the succession plan (or more frequently for fast-moving businesses), and revisit it whenever there’s a major shift like an organisational restructure or industry disruption. By reviewing your succession plan regularly, you optimise your readiness for any upcoming transition.
What’s the Cost of Neglecting Succession Planning?
As mentioned above, insufficient or non-existent business succession planning can lead to a range of undesirable outcomes, including:
- Leaking of essential expertise and internal skills, leading to increased recruitment and training costs
- Disruption for clients, customers and partners, with long-term implications for brand trust
- Impacts on company culture and employee engagement
- Impacted vision and guidance, in terms of business strategy and focus.
What does that look like in cold, hard cash flow? It’s hard to say precisely, but that Deloitte research showed that external CEO hire costs were usually higher due to things like sign-on equity and higher compensation packages. There’s also the cost of recruitment, which can rise beyond two times that of an executive’s salary, as well as the deeper costs like loss of innovation.
Under-prepared internal hires have a cost, too. A 2022 Danish study found that managerial stress could be transmitted to employees, with ongoing effects lasting up to a year. That’s all the more reason to invest in L&D ahead of that critical point.
Why Do Some Succession Plans Fail?
When and why succession planning fails depends on many factors, but common threads include:
- Putting plans in a drawer and failing to implement them
- Mismatching emerging talent with key roles
- Focusing only on top leadership without considering mid-level leaders
- Underinvesting in training and development for successors
- Neglecting to update plans to fit current needs, circumstances and strategic goals.
Often, these missteps come down to one thing: not having the internal HR capacity to get these elements right.
The Role of HR in Business Succession Planning
Who would be responsible for business succession planning in your organisation? HR is the natural fit to both build and maintain the processes for a robust talent pipeline. The problem is, many mid-sized businesses find their HR functions already stretched across daily tasks and compliance. It’s easy for workforce planning and broad HR strategy to take a back seat to more immediate priorities, yet as we’ve outlined, that doesn’t lessen the importance of those strategic tasks.
This is where outsourced HR services prove valuable. Your HR succession planning gets the focus and clarity it needs from experienced senior-level HR professionals, without the cost or commitment of a full-time hire and without risking the sanity of your internal HR function.
Tailoring a Business Succession Plan with HumanX HR
As we’ve covered, succession planning isn’t a one-and-done task. It’s a dynamic, ongoing commitment to making sure you have capable talent rising up through the ranks. The most effective succession plans are those backed by clarity, foresight, and well-structured learning and development programs.
You don’t need to go it alone when it comes to business succession planning. If you’re ready to take action but could use a navigator for your role mapping or L&D, HumanX's HR consultants can help. Explore our services, or connect with your local team to get started.
