There was an error in this gadget

Tuesday, June 9, 2009

Why a sound succession plan is important for sustainable development.

A proper succession plan for your business has more of an impact than just the idea that your namesake will survive for future generations, but also its critical to sustainable development for the collective as well.

Through my experiences with numerous European CEO's working the western European desk at my former Management Consultancy (M&C), succession planning- especially as it relates to the wider economy and the social responsibility that comes with it- was something they were unsure of but not at all insouciant about. However, many understand it as obviously and absolutely vital.

Business owners tend to think of their businesses as singular to the frame of things. This is especially for family owned businesses, large or small. But, if you employ, at least, one person, whether directly or indirectly, you have an established multiplied impact on your social environment and it is essential that not only your business lasts through the duration of your life span, but that it can also see its way forward to another generation as people depend on it for their livelihood.

Let's be clear firstly; not everyone is cut out for owning and operating their business. Many talented people, need the support and/or respond to the leadership of someone who is control of an organization's direction. This statement can be evidenced very clearly when we take into account sport's figures, or entertainment mega stars who all have their own personal manager's or have in place management team.

Also, as people depend on your current services today to make their lives easier, they will in fact continue to need your goods and or services once you have stepped away.

Let's examine a scenario under an economic microscope!

Let's assume that there is a small community that has a car manufacturing plant and the plant is owned by a single owner with no heir. The plant employs 20 people and produces the only cars within a 50 mile radius of where it’s situated. If someone from the community would want a car not manufactured at that plant, they would have to travel 50 miles and incur all of the transport costs and intangibles.

Let's also assume that the other car manufacturing plant 50 miles away, manufactures cars at a higher cost compared to the one at home and is operating at optimum efficiency. They also produce 10% more cars with a lower labour head count of 15 as well as their comparative price mark up to that of the first plant is 25%. They also supply their community base comfortably and have half of the 10% of their cars that they create more than the first plant, to export.

If the owner of the first plant happens to close up shop due to the lack of interest, by some unforeseen incident, or by a lack of capacity of the other community individuals to operate that car plant, persons who depended on the car plant for cars would have to go to the next possible plant as well as persons who worked at the plant being out of employment.

Because of a lack of a succession plan by the owner, the individuals at the plant would have to find alternative employment; the consumers would have to purchase more expensive cars and; the community is losing wealth due to both- even though it may be ephemera.

Even if someone were to buy the firm, they have marketing and operational cost they have to absorb as additional overhead- having to advertise that the firm is going to be back in operation, the recruitment of new and old talent and training and re-training employee's to the new management structure. The new operator, in this case, loses value on his investment in the short term without the guarantee that the plant 50 miles away, has not found a way to get cars more available and cheaper to his domestic consumers due to aggregate consumers, investing solely in his car plant while making greater profit.

While this is certainly the way the cookie crumbles in the free market, this could have been avoided if company's board took it upon themselves to invest the time in instituting a succession plan, work at it and, in some cases, practice it.

There are three things with regard so succession planning an owner or CEO must bear in mind when thinking about securing the future of his or her organization post their departure.

The first is to start putting in place self governing management infrastructure, which is not dependent on singular person/CEO intervention.

Making sure your organization can run by itself, today, means that it will stand a better chance- or more viable if external buyers would want to keep it afloat- in the event that it has to run without its integral CEO.

With this regard, having a computerized inventory system connected to its point of sales with that balanced by automatic and verifiable deposits and with that deposit insurance, is very important.

A computerized- or an IT- system, does not have to be elaborate as Micros or a warehouse/supply chain management system. A system can be as simple as an EXEL spreadsheet, or as Microsoft has expanded its business packages in its 2008 MS Office version.

It’s not the system that is overly important, but the system as it relates to the person who will be using it and how they respond to working with this interface. Also, let your banker know the plans exactly.

Ensure that the people you have selected to succeed you, actually are interested in the development and maintenance of the organization and understand their role as the individual who's next in line.

With this, it’s always best to pick more than one person. Also, it is also a good practice to have those chief's in waiting, liberalise their duties to their next in line, to ensure a smoother organizational transition. This improves efficiency while training your staff at the same time.

Thirdly, practice an absentee scenario. Take a real vacation and leave clear instructions to the second who is the most advanced.

This issue can become problematic when the situation finds itself where a CEO, and not a sole owner, has to leave the keys to the store to his second in command who may want the top position. However, it's always up to the owners- or shareholders- to ensure that the second knows his position as well as has the capacity to step in, in the event the CEO takes absence.

This can be ascertained by short one on one's with the second about the company. In house company knowledge tests. As well as having the second prepare his or her own strategic plans for company development in addition to introducing the second to all of the key individuals in the supply and value chains.

These are, by no means, the only points to creating a succession plan. But, they are critically important as any other succession plan we can begin to conceptualize.

So, before you meet with the lawyers from your sick bed about your last will and testament, or before you speak to the accountants about a company liquidation or stock transfer, take it upon yourself to speak to someone at an M&C to ensure that you have the right succession plan; one that is relevant to your needs as well as implementable under real world settings.

It would only make your organization and community stronger in the long term.
Post a Comment