Getting Started with Succession Planning: Part II
Succession planning requires the owner of a small or medium-sized business to plan for what the company will look like and how it will operate after the transition to new owners is complete. Unless the owners have succession goals in mind, they won't achieve them. Once these goals are in place, the owners should backtrack and identify the process that will get the firm from its current status to the targeted status after succession. Some of the people involved in the process of transforming the company should be retained as future managers. Others are best utilized just for the transition but not in a managerial or ownership role after succession.
The owner will need metrics to measure the performance of those assisting him with the transition. The owner will want to assess who among the people assisting him with transition are capable of handling and performing well with increased responsibilities. It is helpful to all those involved if they are aware of the metrics upon which their performances will be assessed and also whether they have achieved their transition goals.
The transition plans and performance metrics used in the transition period will become the de facto succession plan. But firms should not think of their succession plans as carved in stone. Instead, succession plans should be living, breathing documents that evolve and are refined on a monthly, quarterly, or yearly basis. Being open to new ideas means that different strategies will be adopted to achieve success than were originally formulated in the succession plan.
Sometimes successors unexpectedly leave the firm, and the plan must have a deep enough talent pool to accommodate personnel or availability changes. When key personnel leave the firm, then the owner must decide whether it is feasible to groom new talent from within the company or whether the particular skill set that has been lost must be found externally.
Business planners also need to be aware of unexpected changes in financial conditions for the firm. Perhaps an infusion of cash that was expected from outside investors will not be forthcoming. In that case, the likely successors of the firm may need business development skills and the ability to attract venture capital or angel investor financing more than was previously thought in the succession plan. Rising interest rates may curtail business investment, and the new ownership team may be required to utilize the existing capital base longer than expected in the original succession plan.
The key to maintaining high employee morale is to communicate these changes in the succession planning and the reasons for the change. If those who work for the company, whether in a leadership position or not, understand how the leadership needs are evolving, there will be less surprise when changes are made to the list of successors. It is always good management practice to communicate to those who work for the firm about changes in the future direction of the firm. Through open lines of communication, owners of the firm may be pleasantly surprised to receive feedback that some members of his current talent pool believe they have the skills and talents now being sought for the future.
Succession planning is just one part of strategic planning. Firms need to have developed strategic plans for their businesses before they can address the future-related issue of successors. However, the strategic plans should help the current owners identify a set of criteria for their successors. With strategic plans that identify how the firm will grow and evolve to the point of transition to new owners, a business will be well on its way to placing the future of the company in the hands of a capable new team.
Dr. Michael A. S. Guth, Ph.D., J.D., is a risk management consultant and practicing attorney at law based in Oak Ridge, Tennessee. In addition, Dr. Guth is a financial quant and former investment banker, having worked for Credit Suisse First Boston and Deutsche Bank in London and Frankfurt. He specializes in developing investment strategies and strategic plans for small and medium-sized companies, as well as mergers and acquisitions for large corporate clients. For five years, he consulted to the electric power and gas industry in the USA, and even managed the Middle Office (financial risk control) groups for two trading floors.
Dr. Guth has taught over 30 courses on-line at the undergraduate and graduate level on topics ranging from Managerial Economics to Strategic Management to Business Law. He can be reached through web page riskmgmt.biz/economist.htm
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