For many business leaders, passing their organization on to new management can feel like giving away their own child. While this can be an incredibly difficult process, all good things must come to an end; it’s better to face reality with a plan than to deny the truth and be left scrambling when the time for succession inevitably arrives.
In fact, one study revealed that companies that don’t have succession plans for their CEO end up spending three hundred percent more than their competitors to find a last-minute replacement. What’s worse? Most companies don’t have succession plans. And because of their poor transition plans, an estimated 40% of newly hired CEOs fail to meet expectations within their first 18 months.
On the other hand, companies that do implement succession plans tend to enjoy increased performance and investment. So it should be no surprise that being prepared is paramount for future success. In order to ensure that your organization is ready when the time for transition occurs, pay attention to these key points.
Assessing Your Budget
The first step in succession planning is determining how much time and money you’d like to allocate towards the process. We recommend that you start planning at least one year before you hire your new executive. In order to get an accurate sense of how much you should budget, it’s best to consult an executive search firm.
Establishing and Communicating Your Vision
After your finances are in order, the next step is refining your vision of what your new hire will look like. Although we’d all like to find replacements who are carbon copies of their incumbents in order to minimize the effects of change, in reality, this hardly ever happens.
For that reason, it’s important to envision the core competencies that your ideal successor will possess. To do so, start by analyzing the core competencies that already exist among your employees. After that, figure out the skills that will compliment your team and invite greater efficiency. These complementary skills are what you should look for in your new hire.
After understanding what kind of leader your successor will be, it’s best to set key performance indicators (KPIs) that will measure their successes in their first six months, 12 months, 18 months, 24 months, and 36 months. One great way to establish these KPIs is looking back at your organization’s past performance in order to get a sense of what is realistic for the future.
Now that you know exactly what you’re looking for, it’s time to communicate this vision to your staff and maintain transparency throughout the entire hiring process. This transparency will ease the transition as more trust is built between your existing team and their eventual new management. This will also give members of your organization the chance to step up to fill the new role.
Hiring Internally vs. Externally
Companies who promote from within typically see more success than those who don’t. One of the biggest reasons for this is because company culture is seamlessly preserved in such a transition. Another big reason is that existing employees are more familiar with how the incumbent took care of things and is thus more able to emulate their leadership style.
So, when planning to resign or retire, it’s best for executives to inform their direct reports of the opportunity to take on a greater role. However, in the case where there are no viable internal candidates, hiring externally is usually the best option. Bringing fresh leaders into your organization provides the opportunity to expand your company’s culture and competencies.
Once candidates have come forward, a rigorous and transparent interview process is then conducted on each of them to discover whose best fit for the job. This will ensure that the candidates have ample experience, education, productivity, and demonstrated successes. Here, it’s important to put candidates on the spot with challenging questions to test their ability to communicate and deal with disruption.
Once a candidate is chosen, they should be put through a lengthy onboarding process where they will ideally shadow the incumbent to their position and learn the ropes gradually, rather than being forced to hit the ground running. This process will ensure that your new hire is comfortable within your organization, thus enhancing their likelihood of success.