HR Arabia

September 14, 2007

Why do we need succession planning?

Filed under: business,HR,HRM,human resources,small business,succession,work — Khaled @ 8:37 am


Why do organizations need succession planning? Some of the more important reasons are: (a) survival, (b) nature of business, (c) cost savings, (d) aligning HR policies and function with strategic long-term business goals and functions, (e) better retention, (f) better change/transition management, (g) creating future leaders, and (h) improved corporate image.

Both family run organizations as well as professionally run companies need succession planning although they may do so for different sets of reasons. For family run businesses, survival or change management is usually the predominant factor requiring a well thought out succession plan. For professionally run corporates, the single most important reason for having a sound succession plan in place is usually cost savings on account of (a) potential loss of business due to unfilled vacancies in key positions and (b) costs of external hiring and training. All the other reasons may be applicable to both types of organizations.

Family run businesses – whether large, medium or small and irrespective of other characteristics of the business – always require a sound succession plan because it is a matter of survival for them. Instances of family run businesses failing to survive after the death of the founder are far too many. Even large corporate houses such as those created by the Birlas, Tatas, Ambanis or Bajaj have all been in the news and for the wrong reasons after the death/retirement of leading group patriarchs apparently because they did not have an effective and already in place succession plan.

On the other hand, there are examples of family run businesses which have put careful thought into the question. The rapidly growing Rs 2000 crore GMR Group is a case in point. The Group’s patriarch, 56 year old founder chairman, Mr G.M. Rao has already put in place a very detailed succession plan so that after his retirement and eventually death, the family business can continue to grow smoothly. He has, in fact, got all his family members to agree to adhere to a written down family Constitution to help guide the whole process of change management and achieving balance between family interests and business interests on a long term basis.

Heads of family run businesses and HR managers working in such organisations can find it profitable to run a quick check on how ready they are to manage change, especially when the present CEO or head of the family business retires or dies and exits the business. There is a handy practical tool for doing this developed by management Guru Dr Randel Carlock called a Family Business Succession Readyness Assessment. This simple test and accompanying procedures are handy practical tools for getting a very good insight into whether a succession plan is needed for a particular business, if so how soon is it needed and what areas to focus on while developing a succession plan for that particular business.

Apart from the separate issues related to succession in family run businesses, most other organisations too need a sound succession plan. Knowledge intensive businesses need a succession plan not only because they are almost entirely human resource or “talent” dependent and, therefore, must have institutional mechanisms for talent recruitment, training and mentoring but also because most such organizations are global operators and need to specifically develop leaders with global perspectives. While IT majors such as Wipro, Infosys and many others have specific Talent Management programmes, a survey conducted in March this year by DNL Global and Human Capital Institute among talent management executives across organizations in Singapore, India, Sri Lanka and South Korea found that while most organizations had good project management capability they had poor ranks when it came to having people with global skills and perspectives, a finding that confirms an earlier survey that in the coming days organizations are going to face an acute shortage of people with global skills and perspectives. In such organisations, succession planning is needed to keep strategic business goals and functions properly aligned with HR goals and functions since the business itself is entirely talent or HR driven.

Global operators and service providers, remote management agencies, continuous production/service organizations such as chemical plants or newspaper production houses, national security and essential service organizations, and similar agencies operating 24/7 require an institutionalized succession plan since any sudden vacancy in a key functional area can bring about a major disruption in the entire business process chain. Hence, the entire chain of command is so constructed that most vacancies can be filled in-house. Consequently success for such organizations depend a great deal on how well they recruit talent, train, mentor and keep ready in-house talent who can succeed on to the next higher rank in the chain of command in case there arises such a vacancy. For them, success comes form successful succession planning.

While there is a seven step model for developing a succession plan, some of the best practices followed by global leaders in various countries can also be consulted by those interested in developing a succession plan for their own organizations. A word of caution, however, before we end this article. Most organizations also need a lot of fresh blood at regular intervals to not only bring in new perspectives and contemporary cultures and techniques but sometimes also to put a check on unhealthy in-house power politics. So, if and when necessary, don’t let an overemphasis on succession plans and in-house talent come in the way of external hiring even in key positions and despite there being an incumbent successor already in place!

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