Advantages and Disadvantages of Succession Planning

August 10th, 2009 Posted in Succession Planning

Here’s an early career lesson I learned about some of the advantages and disadvantages of succession planning:

Many years ago I worked for a large privately held company whose number two executive was the presumed heir apparent for many years. Then, the aging founder and CEO had a change of heart despite very successful performance by that person and named his daughter to be the successor to run the firm. The company was then split into two large independent corporations with the number two person as CEO of a new entity that was no longer owned by the original firm.

Since then, I’ve learned other important lessons about the advantages and disadvantages of succession planning, which I am going to share with you here throughout the rest of this post, but first…

Quick Summary

Key Advantages

The advantages of succession planning include the opportunity to:

  • Conduct a SWOT analysis of the business to determine its leadership needs now and in the coming years
  • Develop a strategic Leadership Human Resource Plan that includes comprehensive position descriptions, needs analysis and plans to bridge the gaps
  • Build relationships with and carefully study the performance and behavior of successors over a long period of time
  • Provide a sense of direction, stability and expectations for all key stakeholders: employees, customers, shareholders and vendors
  • Retain a critically important employee who might otherwise leave if not formally recognized as the successor

Key Disadvantages

It’s difficult to think that there might be disadvantages to succession planning but here are some things to consider:

  • Appointing the wrong person can lead to a variety of problems that result in poorer company performance and turnover
  • Pulling the trigger too quickly to appoint someone only to have a better candidate appear later on
  • Engaging in succession planning when the business is immature may lead to erroneous conclusions about leadership needs
  • A poorly conducted succession planning process will lead to poor decisions, disharmony and ultimately poor company performance as well

Let’s take a second to look a little closer at these key advantages and disadvantages of succession planning.

Advantages (Cont.)

The business SWOT analysis paints a picture of the opportunities and threats in the market, importantly including, what the future of the market looks like and what the special characteristics are that effective leaders will need.

The strategic Human Resource Plan is where the rubber meets the road for solving your leadership needs. It includes understanding your leadership needs, creating an organizational plan, developing comprehensive position descriptions to fill those needs and then comparing that to the experience and attributes of internal and external candidates. Internal successor candidates would then receive training to help them become the leaders they will be needed to be.

The ability to monitor the performance of internal candidates closely and external candidates to a lesser extent is a great advantage of succession planning. Generally speaking, the availability of more data regarding a person’s performance in a variety of situations, the better we can predict their success.

Advantages and Disadvantages of Succession Planning (Cont.)

Not to be underestimated is the value of managing the expectations of stakeholders via succession planning. Knowing who will be taking over and being confident about that decision matters greatly to shareholders, customers, employees and vendors. Succession which are well managed can be communicated and marketed effectively to all of these groups so that they are pleased with the company’s leadership direction.

A critically important employee, especially one who knows their value, may not stick around without a succession process that demonstrates the company’s commitment to them. They may or may not accept casual verbal comments of support as adequate proof of a commitment to them.

Disadvantages (Cont.)

The wrong successor will not optimize the firm’s future. Missing out on the opportunity to hire a better successor will be painful, especially if they go work for a competitor.

An immature business may not be capable or have enough information to develop an effective succession plan. It may be better to wait a few years until maturity sets in.

Even worse than not doing succession planning is doing it poorly. Making poor decisions is never a good practice and this will happen if proper thought, time and consideration are applied.

Done well, the advantages outweigh the disadvantages

So, in weighing the advantages and disadvantages of succession planning, keep these factors in mind. If you are committed to an excellent process, you’ll find that the advantages greatly outweigh the disadvantages. An incompetent or half hearted effort reverses this.

Succession planning, done well, is an important ingredient in the long term success of your business.

Would you like more personalized guidance on succession planning for your company? Shoot me an email and I’d be glad to discuss it with you.

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