Almost all businesses outlive their leaders/owners. But for that to happen you need an active succession planning process.
Most large companies have pretty good personnel policies. First of all, they all actually have personnel policies. Second, they cover the major issues in terms of employment such as code of conduct, leave, conflict of interest, termination, etc.
One of the key ones they have is employee appraisal and potential. Unfortunately, most small and medium-sized companies either don’t have a written personnel policy or if they do, they tend to avoid appraisals and potentials. Particularly in the area of employee potential, this is a serious mistake.
Risks facing SMEs
First, most of these small and medium-sized companies are run by individuals or a small family. So what happens if the individual becomes incapacitated with an illness or accident? There may not be anyone capable of running the company. Yes, someone will leap into the breach but too often this will be another family member who may not be qualified to handle the job.
Second, most of these individuals are entrepreneurs and while they are running a successful business, in many cases, these people want to go into other lines of business. The risk, of course, is that this other line of business will take the focus off the current business – to its detriment.
Third, in some cases, the entrepreneur wants to actually sell the business. But any buyer who knows that the entrepreneur will be leaving the business either at the point of sale or shortly thereafter will want to know who will run the business afterwards. Yes, they can bring in someone from outside but that usually puts a lot of pressure on the business having an experienced but new business leader.
For these reasons, it is important that small and medium-sized businesses have a succession plan (who is going to take over what role) and that leads to reviewing all the employees to determine who has the potential to do a larger job, and in some cases the ability to take over the business.
The how-to of succession planning
But to get there you just can’t appoint an heir apparent. Although you can do the appointment, you really haven’t done anything to mitigate the risk.
To get there you need to know the potential of all of your employees. You need to know which junior clerk has the potential to be a supervisor, which supervisor has the potential to be a manager and which manager has the potential to take the top job(s).
It is important to differentiate potential versus performance. While often high performing individuals will also have high potential, it isn’t necessarily so. For example, some of the best football players in the world (think Pele) have made poor managers and Alex Ferguson who started out as a rather mediocre player turned into a great manager. So you have to be careful not to overlook those with high potential but mediocre performance or to include in your select list those with outstanding performance but little or no potential.
So what do you look for?
You look for someone who has ambition but also someone who wants to manage other people. There is nothing wrong with someone who wants to continue to be an individual contributor, but that means they are unlikely to be a good manager.
I have known many outstanding salesmen (individual contributors) who never wanted to be promoted to sales manager and many truck drivers (individual contributors) who never want a distribution office type job. So if the employee doesn’t want to grow into a bigger job then you need to just make sure you reward them adequately for being an outstanding individual contributor.
Simply identifying that someone has potential isn’t sufficient. You also need to put a plan in place so that you can develop them and assist in them fulfilling their potential. This means you need to think about the kind of training/coaching/counselling they need to improve their capability to do a larger job.
How to grow your employees into leaders
This can be accomplished in a number of ways such as formal training courses, vacation relief, special assignments and job shadowing. If you have a high potential employee that needs to have a better understanding of things like internal rate of return, discounted cash flow and cost of capital, you probably will need to find an external training course to help them learn and use the concepts.
Alternatively, if you use these kinds of measures in your business then you can provide excellent training by including your high potential employee as part of the team. Vacation relief is an excellent way of providing a high potential employee with a different perspective on the company/industry as well as testing their capability to enter a foreign landscape and cope with the uncertainty.
The same is true of giving the individual a leadership role in a special project. This will give them a chance to lead a team and deal in a microcosm with the issues of managing people such as setting targets and monitoring progress as well as all the interpersonal issues that arise in a team environment.
The best way to do this is to get your senior management team to nominate the folks that they think have potential. Then sit down as a group and discuss those people and come to a consensus if indeed they have potential. And you should always bias your list to include people that some may have doubt about. There is really no cost in having someone on the list even if not everyone agrees.
The last important point to make is that you need to tell the people on the list that they are on a High Potential list. The reason for this is very simple. If someone believes there is a potential career path for them in the company then they are likely to stay. If they don’t see that career path then they are more likely to create their own by moving to another company that will provide them, at least initially with a move up the corporate ladder.
Almost all businesses outlive their leaders/owners. But for that to happen you have to have an active succession planning process. That also means you not only have to determine your employees’ potential but work their potential through training and counselling.
By Bob Paterson. The author is a retired CEO of Fortune 500 Company. He now spends his time working with SMEs in Kenya.