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Succession Planning: ‘It’s make or break’

The process of succession planning presents a crucial challenge for many Australian companies, and not just for big businesses. For smaller, particularly family-owned enterprises it is the ‘make or break’ issue. It is predicted that during the next decade the procession of Australian business owners exiting their companies will grow significantly. Add to this the large number of baby-boomer executives soon to exit senior positions across the corporate sector and it is no exaggeration to predict that Australian businesses face a demographic ticking time bomb.

Global management firm Hay Group has been working with companies managing leadership change for over 40 years, and has derived four critical success factors for effective succession planning that will prepare businesses for the task of finding a new captain to take the helm. It is worth noting that the process of transitioning to a new CEO or managing director tends to take much longer than expected, indeed even several years, so early, future-focused planning is essential.

Articulate the strategy

When determining what you are looking for in a new managing director, it’s important that first and foremost, you know what you what them to achieve, and that the strategy is clearly defined. For example, perhaps you want to pursue growth into new markets, a revitalised brand identity, create a more nimble and dynamic culture or a much improved profit target.

Then ask yourself why the defined goals are important – this will have implications for the requirements of the new managing director role. Defining and clearly articulating the motivation driving each objective is vitally important if you’re to transition successfully to a new leader, especially one not already intimately familiar with the organisation. There may be inherent assumptions that need to be communicated, such as principles and practices that are fundamental to existing business areas that should not be ignored. Perhaps there are trade-offs to make in order to change the direction of the business under new leadership, which should also be acknowledged. Ultimately, a process in which assumptions are surfaced and alignment is built around core aspects of the strategy will enable you to better define the role of the new MD, and create a smooth transition for the company. Alongside a clearly defined strategy should be a clear set of measurements for how to evaluate the outcomes.

A new role for a new direction

Planning for new leadership means a great many changes are afoot for your organisation, and it’s best to seize the opportunity to evolve. History has proven that the ability to adapt to the changing environment to meet changing needs is a marker of a thriving business, one that will survive the challenges ahead.

A win today does not guarantee the same result tomorrow. The goalposts that determined your current success and strategy will inevitably shift, so it’s important to understand that the future strategy of the company will be different to the current strategy.

So too, the way in which the role of the new CEO or MD is shaped and focused will be very different from the current top role. To be successful in the future, the CEO may need a different set of skills and competencies that reflect the changing nature of the organisation and the market in which the future strategy is to be executed.

Therefore, the next step in the process is to define the new role, ensuring that it is future-focused. When deciding on who will succeed you, it’s crucial to recognise the direction you want to head and then determine what competencies and skills are needed to get you there.

Challenge the old image of success

As a business community, we need to challenge the implicit ‘images of success’. Should your next CEO be a white male, over the age of 45, just because this appears to be ‘the norm’? It is human nature to seek out qualities in others that we possess ourselves – and certainly it is important to know what talents and competencies have brought your company success thus far, as these will form the baseline for appraising potential candidates. But a search that is limited to finding someone of the same ‘mould’ as the incumbent may result in the best candidate being overlooked; the opportunity to find the person who can bring a fresh approach to the table or greatly enhance a company’s financial success may be lost.

This is not merely a hypothetical possibility. To illustrate this, Hay Group’s research shows that global organisations that appoint more women to the top team materially outperform their peers in terms of total shareholder return (TSR). So having a transparent and robust process, which prevents you from being trapped by your own implicit images of success, makes a lot of business sense. Would a business looking to expand into the growth markets of China and South East Asia be wise to consider a candidate with ties to or heritage from this region? Similarly, if you’re targeting the female market, why discount a diverse range of candidates that includes women, to ensure that you are not missing out on real talent.

Finding a successor right under your nose

The process of succession planning is also a great opportunity to evaluate your current pool of talent. Perhaps your next leader is already within your own ranks? With the increasing war for talent, can you afford not to leverage the potential leaders you have in your organisation? If your talent pool is quite small or undeveloped, it may be a good opportunity to evaluate what leadership development programs (such as mentoring or training) are needed and what specific leadership qualities should be encouraged within your organisation.

Developing internal talent for succession is a practice followed by the world’s best companies. Not simply because employees are attracted to the possibility of a career path with a great company. Promoting internally allows a business to maximise the investment made in professional development, relationships, industry knowledge and corporate memory.  According to Hay Group’s 2011 Best Companies for Leaders Study, the world’s top 20 companies all demonstrated a strong emphasis on internal leadership development and actively managed a pool of successors for mission critical roles. These organisations also had a sufficient number of qualified internal candidates ready to assume open leadership positions.

Navigating through turbulent waters

Finally, there are a number of challenges that will surface during this period of transition, so it’s a good idea to prepare well. For the broader organisation it generally signals a time of change and uncertainty. Consider how changes will be communicated to the company and stakeholders. For potential internal candidates, only one can be the successor. How will you manage the politics? What are you going to do to keep the other candidates engaged and active in the business?

For senior managers it means adapting to a new boss and potentially a different way of working. This is the team that needs to keep the business running through the transition so it is critical that they are able to keep their eye on the ball and not get distracted. And while the organisation is internally focused, your competitors are focusing on your customers. So throughout this process, the right balance between the needs of tomorrow and today should be struck.

­­–Nicholas Conigrave is Associate Director for Hay Group

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