When it comes to succession planning we often look outside the business for the next CEO rather than internally. In a recent HBR article Joseph Bower explores the trends in S&P 500 companies, finding that 80% promoted insiders in the past 12 months. So, which strategy is more successful and why?
Outsiders are often considered as they take on a fresh approach to the company. However, they often have little knowledge of the industry, company culture or even the company’s capabilities in the marketplace. Shareholders often benefit from an outsider’s appointment, as they are typically good at cutting costs, restructuring and subsequently selling the company. However, in the process the company can loose its competitive position in the market.
Insiders on the other hand have a grasp of the company’s strengths, people and culture and Bower’s research shows that insiders have more success in new appointments than outsiders. Bower also found that to be successful insiders should retained a strong streak of objectivity, they understand why and how the company needs to change to deal with challenges and changing technology.
Now you’re probably thinking “But I’m not a huge company – what does this have to do with me?” Even small businesses need to think about succession plans for various reasons. Firstly, you likely went into business wanting better work / life balance (the holy grail of business) but find it difficult to get away for a long weekend let alone take an extended holiday. If you want to not be as tied to your business, you need someone who will step into your shoes, take some of the load and allow you to do more of what you want. Secondly, you might have expansion plans but need someone on the ground geographically to see these plans implemented. Lastly you might also have plans to sell your business down the track, you may overlook your employees as possible purchasers when they already know plenty about your business, including ways that they would perhaps change it to make it even better.
So how can you take this information and implement it in your business?
- Consider your succession timeframe early
- Think about your current staff and whether any individual may have the required traits to take the helm
- If there’s no one internally now, consider hiring early and then investing the time and effort to develop the individual for the future role.
- Introduce the potential successor to operations, planning and budgeting processes as a means to develop their company knowledge.
- Consider your recruiting, mentoring and training processes for all staff