Clients, Executive Search, Industry Experience

Succession Planning for Your Business

Our team was discussing the issue of succession planning, as it related to one of our clients, when, coincidentally, we received a Korn Ferry blog post relating to the current Jeopardy host auditions.

Is Your Business in Jeopardy?

Selecting a permanent host for a long running television show is a tremendous challenge, as the main key factor in ‘host’ performance evaluation is the audience, (customer), ratings.

However, in the business world, a different type of “jeopardy” is in play as the performance of the enterprise in its entirety is at stake.  One of the natural tendencies, when thinking of succession, is to consider promoting from within because, after all, an insider has a great deal of product knowledge, customer relationship history, cultural awareness, etc.  However, this may not always be the best decision …

A recent Harvard Business Review article on the high cost of poor succession planning delves deeply into the pros and cons of internal promotion versus external recruitment.  The article highlights several studies that have looked at the options of internal versus external appointments. In one study, they compared four scenarios: (1) an insider promoted in a firm doing reasonably well; (2) an insider promoted in a firm doing poorly; (3) an outsider hired in a firm doing reasonably well; and (4) an outsider hired in a firm doing poorly. They found that, on average, insiders did not significantly change their company’s performance.

Another study, as noted in the article found that while outsiders often appear to have better experience and education than insiders do, they are paid more, sometimes perform worse, and have higher exit rates.

The analysis was based on large firms because that is where the problem of poor succession at the top is most acute. Small firms usually lack a deep talent pool, so they can be better served by hiring executive leadership from the outside.

The Cost of Not Having a Succession Plan

What is the cost of a poor succession plan, or not even having one?  The best-case scenario will likely be chaos and uncertainty, and, in the worst case … the business fails.

Many successful business owners develop five-year business plans, however, fail to include a succession strategy.  All business owners need to develop plans for “what’s next” in their business.

Not having a succession plan for your business can lead to:

  • The erosion of the principles, processes, and ethics of your business.
  • Clients lose faith that your business can continue to serve them in the manner they wish.
  • Work insecurity leads to employees seek other opportunities.
  • The entire business is subject to troubled times ahead.

The lack of a succession plan can be even more destructive for a family business.  What would happen if an owner suddenly passed away or became incapacitated and there is nobody in line to carry on the leadership of the organization?

The conclusion, for all firms, large and small, is:

  • Plan succession well before you think you need to.
  • Purposefully identify and develop your rising stars.
  • Appoint the most promising leaders to the board, (or management committee), or provide them with more access to senior leadership.
  • Look at both internal and external candidates.

A conversation?

We welcome a no-cost, no-obligation, conversation with you regarding the succession plans in place for your subsidiary in the United States.  Please feel free in contacting us to arrange a good time to speak.

DSML Executive Search, with offices in Chicago and Boston, is a woman owned and operated recruitment firm working for European companies doing business in the United States.  Please follow DSML Executive Search on LinkedIn, where our blog post articles are published.

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