The Importance of Planning the Succession of Key Management Personnel

Succession planning has been defined as the process by which organisations ensure that employees are recruited and/or developed to fill each key role within the organisation. The key part of this definition is the latter part, whereby people are identified to cover for each key or fundamental role within the organisation. For this reason, succession planning is a crucial part of the human resources strategy that is often overlooked by local standards.

But what does succession planning really involve? Is it just a headhunting or people development exercise carried out as a contingency plan? Is it a process that organisations should adopt as a best practice? Similar to various key resources within an organisation, the real value of a succession planning exercise can be measured when this is actually needed. Succession planning involves preparing the organisation for the inevitable day when key personnel will no longer form part of the organisation. This situation is not applicable solely for retirement, but more importantly in the face of resignations from key personnel.

One unforgettable experience that I had was a local organisation that urgently needed a succession plan operating as a local electricity utility provider, when a particular engineer had reached the legal retirement age, and due to the fact that he was the sole person that had the necessary skills to produce spare parts for a specific electricity generation equipment that was still in use. His retirement would have meant the automatic shutdown of such equipment. Although the equipment in question was being phased out, the crucial lesson learnt was that identifying key positions and making sure that there is more than one person that can carry out such duties holds true for every position, particularly in leadership positions.

Although a succession plan should be implemented for each key position, one of the most crucial areas within the organisation is management. Organisations have the inherent need to ensure that they have the adequate management resources to lead the organisation at all times, take the necessary decisions and instil an adequate culture within the organisation. One may actually argue on this point further and state that management actually has an obligation towards it’s’ stakeholders to ensure that an appropriate succession plan has been implemented for all managerial personnel.

But what does succession planning really focus on? The secret of an effective succession planning programme is one – identify your key activities and make sure you have more than one option that will still enable the activity to be carried out as planned. Over the years we have seen a lot of thriving organisations with a healthy future fail simply because an adequate succession plan for management personnel was not in place. Examples of such a practice has been repeatedly noticed in the case of family businesses, whereby in the majority of cases failure to have planned beforehand for the necessary development and handover to younger generations has led to such organisations losing business and eventually closing down. It is also important to note that such situations have not been prevalent within any specific industry but is a widespread phenomenon that has taken place across all local industries. An example of an organisation that suffered this fate was a local organisation that had sole representation of a particular brand in Malta. This successful organisation thrived through the effective business management and development by the four founding brothers of this business. However, there was inadequate preparation and development for the next generation of the family to take over, with the unfortunate consequences that not only was the brand taken over by another organisation here in Malta, but this particular family-owned organisation eventually also ceased to exist. The main reasons leading to this situation were not the lack of business intelligence of the family members concerned, but more so the lack of preparation and proper understanding of the business that the younger generation of the business failed to acquire.

Succession planning integrates human resource planning with business planning, marrying the two so that all key activities are carried out no matter what happens. Planning for business continuity and the protection of immovable assets are given priority, so must the necessary human resource plans ensuring key activities continue to operate be given their due importance. Such a necessity is particularly evident at management level, where all major decisions are taken and implemented, and failure to have an active succession plan could have significant adverse effects upon an organisation’s long-term sustainability.

International experience has proven that the five main business reasons why it pays an organisation to invest in a suitable succession plan are the following:

  • Continuity of operations; in finance we negotiate an overdraft facility, and in I.T. we plan towards data redundancy: similarly in people management we need to consider the cost(s) of not being able to carry out these key activities.

  • Financial and business loss; the inability to proceed in a specific course of action could lead the organisation to losing out on an opportunity, or incurring penalties for non-completion. Succession planning is thus not just about the person carrying out the specific role, but it is more about maintaining business effectiveness.

  • Human capital loss; having a succession plan already in motion means that process or activity owners would not only be identified, but any areas where there could be a potential loss of human knowledge would also be identified a priori – that is, before such potential losses actually materialise.

  • Competitive edge; being already within the market means that an organisation has both a presence and a market following: being certain that the organisation would be able to keep its’ competitive edge and improve on this is vital in today’s global environment. An effective succession planning framework ensures the organisation’s competitive edge is retained as all valuable knowledge gained is retained within the organisation.

  • Business goodwill; as employees are recognised as an organisation’s greatest asset, retention and effective use of people’s knowledge and capabilities directly affect business goodwill. Succession planning also leads to recognising and giving value to these capabilities as a source of service differentiation, adding business value and hence goodwill to the organisation. In the case of management, more often than not the goodwill being generated by these employees is vital for the organisation’s growth.

In today’s global marketplace, business knowledge and connections have become a strong source of competitive advantage. The knowledge generated by employees is an invaluable resource that no organisation would want to part with; more so if such knowledge is able to generate continued incremental wealth for the organisation, as is the case with management personnel. Hence an effective succession planning framework for management personnel is vital for maintaining business continuity, ensuring the organisation’s effective use of available human capital for continued success.

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