As a young division leader of a large media organization, I had assembled a strong team of managers who had performed together at a very high level for some time. We were making it happen! However, there was one manager, a fairly recent hire, who had strong technical knowledge but was out of step with our culture.
When it became very clear he was not a fit and was becoming a liability, I had to make a move. However, I had an empty talent pipeline for this seat. I had a choice: make a change now and suffer the consequences of being short-handed or continue on with this “wrong person” and let my culture suffer. I chose to make the change but paid the price in the near term in stress level, lost sleep and a dip in performance that could have been avoided had I had a succession mindset.
Succession and profitability
As I think back to that episode in my career, I can pinpoint more than a few issues that challenged me. At the time, I had a full life (like most of us do in business), with many demands on my time personally and professionally.
First, how do you deal with an empty talent pipeline at a moment’s notice? Today’s average employee tenure is about 1.8 years (Deloitte 2016 survey) with first-time career individuals averaging less than 1 year. This is a frightening statistic. Today’s war on talent is forcing us to change our perspective. Turnover is expensive. What are the ramifications of that kind of low retention in your organization? When people walk out your door because they don’t like your culture or a manager or because they weren’t a right fit in the first place, this affects the bottom line.
Another consequence of this situation was losing out on the opportunity cost … meaning I had created a crises because of my lack of awareness in building my bench. I had to scramble which disrupted normal business and compressed a timeline for finding a replacement for that open role. And when you try to hire quickly to fill a hole, under duress, we all have that tendency to settle for less than an ideal candidate. I was playing defense, not offense.
My third painful issue was the drop in performance which ultimately hit me personally (as the manager of the division) through a lost bonus. The overall performance of my team affected the company’s revenue and profitability when we missed our quarterly target. For a high achiever and leader of a division, that hurt in multiple ways.
Building long term value
For owners and leaders, let me clarify one very important point: succession applies to you as well as to everyone in the organization. As a matter of fact, succession should be a major strategic initiative. The definition of succession is “preparing a company to succeed in the absence of its key people”. Succession is not an event … it is a continuous movement toward building an intentional, self-reliant culture.
Don’t assume a single planning session is all it takes to execute succession. After one planning session, all you have is a framework, an outline of what succession might look like in your organization. The execution of succession is based on your people strategies, your philosophy around employees and your defined culture which aligns with continuous improvement. This is why it becomes a strategy and requires long term goal identification.
By creating a “succession culture”, this becomes a constant, measured, proactive activity that keeps the momentum humming along at a steady clip vs. having to start over every time an employee walks out the door.
So, in essence, succession planning’s goal is to maximize
the value of a company.
I’d like to introduce a tool which is based on a statistically proven algorithm that predicts future company value. The Value Builder System is comprised of eight Value Builder drivers. Through a survey of over 30,000 businesses, these eight key areas define a single score that helps an owner predict the value of his/her company. A Value Builder Score of 80 or better can deliver as high as a 71% increase in the offer for the sale of a business. Two of the eight Value Builder Drivers focus on people strategy.
Hub and Spoke
The Replacement Theory can be summed up as “in order for a business to grow, you must be able to replace yourself.” This is what the Value Builder driver, Hub and Spoke, measures. It’s a simple concept, easy to understand and accept, but very difficult to execute. How does a company replace its founder/owner? Hub and Spoke can be a trap for some organizations if everything revolves around the owner (like a hub of a wheel). The organization becomes more reliant on one person. Feeling needed and believing this is how to control business may allow the owner to feel good about himself/herself. However, the benefits of that control are outweighed by the risk of what happens when you’re no longer there. You end up undermining the value of your company. If no one can replace you, your business is not very valuable.
The Switzerland Structure is focused on business risk driven by the over-reliance on a vendor, a customer or an employee. Remember the old saying, “don’t put all your eggs in one basket”? It is critical not to rely on a major customer to bring in revenue. It is just as critical not to rely on a major supplier or vendor to follow through on all jobs or one star player who is the only one who can perform in that one position. What would happen if any of these individuals walk out the door tomorrow? How much would it affect your revenue, your bottom line and the value of your company?
There are ways to prevent these problems from happening.
First, become aware of the potential situations within your company. From here, begin building out your succession strategy just as you build out your strategic initiatives each year. Remember, this is a long term, continuous-improvement play so your goals should be very long-term. Changing and building a people strategy and culture that supports rather than hinders value can take quite a while. Break down your initiatives into actionable steps.
3 steps towards building a continuous succession mindset
Assess your bench strength. This is where leadership will begin their analysis and perhaps problem solve. Openly discuss with leaders: Where are my A players? What will my plan be for my B players (and my C’s, or even D’s)? Where are my leaders or my high-potentials? Who can replace or who can move into another position? What if someone leaves … who is on my team that can replace quickly? Be sure to also assess why employees leave as this will trigger discussions around improving culture.
Develop. In today’s business world where talent is critical, employers and managers must change their mindset and think like coaches and mentors. The action steps will focus on developing your existing bench (retention) and/or finding new talent (recruiting). Leverage the individuals you already have. Develop individualized growth plans for specific employees to help them learn new skills and capabilities to be able to take on new responsibilities.
Documenting, assessing and developing your people is a long-term strategy that becomes part of your culture and people philosophy. Succession requires the identification of behaviors, standards and expectations, actions and commitment from leadership.
Succession is an ongoing, ever-evolving strategic mindset that can yield great dividends in the value of your company.