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Succession Planning

Succession Planning Is Difficult: Particularly for Family Businesses

indexBy Paul Finkle, on Jul 29, 2015 According to the Family Business Institute, family businesses are critical to economies throughout the world representing 80% of all companies worldwide. In the U.S., family businesses employ approximately 60% of all workers and create 78% of new jobs.

Yet, the majority of family businesses do not make it to the second generation. The Family Business Institute found that only 30% of family businesses last into the second generation; 12% continue into the third generation and a meager 3% operate into the fourth generation and beyond.

Why Do So Many Family Businesses Fall Apart?

There can be multiple reasons for a family business to discontinue, but most of the reasons can be summarized by observing that the majority of family businesses failed across the chasm from an entrepreneurial business to a professionally managed, long- term sustaining organization. One reason for this phenomenon is, in our observation, a failure to engage in succession planning. Succession planning can be defined as the discipline of mapping out a vision, long- term strategic direction, and identifying organization charts or staffing plans to supply the organization with the required skills in the future. In order for a family business to cross the chasm to long- term sustainability, it is necessary to bring on professional managers in key roles. It is the rare family business, in any industry, that possesses family members with the critical skills necessary to carry the business into the next generation. The second key factor, is the inability of a family business to adopt a governance structure that enables family members and professional managers to work in harmony.

What Not To Do

In our experience, the number one mistake made by family businesses is ignoring the reality of the need for succession. In short, the train is allowed to run off the track. The old saying applies aptly to family businesses, “If you fail to plan, then you are planning to fail”. A patriarch running a business with an iron grip and planning to bequeath it to his eldest offspring has less than a 30% chance of success according to the Family Business Institute.

Messing Up the Transition

In the sea sweep succession of an organization is where two-thirds of family businesses came off the tracks according to a recent Harvard Business Review article. This includes failing to attract the right kind of talent with the right kind of skillsets to fill future roles is critical. The family business must transition from certain people being the center of the universe to organization charts with the right skillsets supporting the future infrastructure of the business.

The last big area we will touch on in this article where many family businesses fail in the area of succession is governance. Families have certain behaviors and accepted roles which relate to governance in the family business. These roles fall apart quickly when professional managers are brought in with expectations of running the organization according to logical skill based roles. The key ingredient in this area, according to our experience, is to bring in outside consultants and directors. Trusted individuals who can hold up a mirror to key family players, make the case for change in allowing professional managers to be involved and providing insight into good decision making. According to the Harvard Business Review Article, family boards rank themselves performing much worse than non-family boards, especially in the area of succession and talent management. Only 10% of family only boards rated themselves effective at attracting, hiring, retaining or firing employees. There is a key role in strategic planning, governance and succession planning that outside directors can play (on either a formal or a family advisory board) if the goal is to transition to a long- term sustaining organization.

Hallmarks of Success

We have seen the best transitions occur when the following factors are present:

- Long- term vision

- Core values to support professional managers making decisions

- A living strategic plan

- A professional environment where non-family managers can flourish

Significance

Succession planning is a sensitive, complicated, and difficult area for a family business. Failing to address it however, is likely to result in either a sale of the business, liquidation or other unfavorable demise. Long term planning is the answer, and the sooner that a family business recognizes this the better off it will be, and the more likely the organization built by generation one will effectively transfer to future generations.

Learn more about how we can put together an easy to follow plan that will get your company launched into the future properly.

How to Work Out a Succession Program in the Workplace

Posted by Ty Hall 

exerciseWhy do you exercise? To look good, perhaps, or maybe to lose weight; but, ultimately, to live a longer, healthier life. Exercise is to the body what succession planning is to a business. Treating succession planning the same way you (ideally) treat your body is a good start to optimizing your company’s healthy succession program.

If you’re anything like me, you take a good hard look at yourself occasionally and think, “I could be better.” So, you do a couple pushups, decide it’s kind of late, and you plan to get up early tomorrow morning to start an exercise routine that you’re going to maintain for the rest of your life. But you don’t. You keep planning on it. And that’s exactly what planning is: not doing. If you want an effective succession model, you must turn “planning” into “development.” Planning to do something doesn’t change anyone, but development—and developmental experiences—does. Succession planning has a lot of checklists, charts, forms, and meetings, and can cause a false sense that the planning process is an end in and of itself, rather that the precursor to real development.

Also, it is important to measure outcome, not simply the process itself. Say you want to lose twenty pounds, so you go out and run a mile. You run a mile for a week and, on the seventh day, weigh yourself to find you have lost five pounds. You’re off to a great start, but you can’t expect to drop the remaining fifteen pounds in a month by only running a mile every day. You have to adjust your routine to compensate for the progress you’re making. Set goals that you want to reach in your succession process, and measure your progress against those goals. SmartMoves offers many tools and assessments to help set measurable goals for your company’s succession program. Some other possible measurements of succession planning performance include:

  • Number of roles within the organization that have a successor in place.
  • Percentage of candidates “ready now” compared to those still needing additional years of training. This metric reflects bench strength.
  • Ratio of internal to external talent: This can also indicate the strength of an organization’s bench. If a high number of leaders are coming from external sources, it may be time to build a stronger bench.
  • Employee attrition rates: Attrition rates can reflect how satisfied workers are with their jobs and can serve as a barometer of the talent management system’s effectiveness.
  • Length of time in roles of leadership.
  • Leadership representative of workforce diversity.
  • Company alignment with strategic values and vision.
  • Stakeholder buy-in: A balanced succession plan will be approved by a variety of sources.
  • Coordination with risk-management teams to assess whether leadership decisions have decreased risk.

Another good rule of thumb—in both body and succession development—is to keep things simple. Remember Rocky IV—the one where the iron man Drago kills Apollo Creed in an exhibition match, so Rocky flies to Russia for revenge in the boxing ring? If you recall, Rocky didn’t use all the fancy science and machinery to prepare for his fight; he used his surroundings. The same should go for your succession model. Use the resources you already have to advance the next generation of leadership in your company, and use assessments to gauge who in your company should be moved up in succession. Using in-house resources in succession planning will result in:

  • An ongoing supply of well trained, broadly experienced, well-motivated people who are ready and able to step into key positions as needed.
  • A cadre of desirable candidates who are being integrated into the company with positive goals established for them individually.
  • A flow of these capable people through various departments with the goals of educating them into the culture and processes of the company.
  • Availability of appropriate resources within the company to conform with the future needs of the company.
  • Positive goals for key personnel, which will help keep them with the company and will help assure the continuing supply of capable successors for each of the important positions included in the succession plan.
  • Defined career paths, which will help the company recruit and retain better people.
  • The continuous input of ideas to improve the internal processes and procedures of the company, as well as the opportunities to improve the offerings and services of the company in the marketplace.

Finally, be realistic. I’m never going to look like Stallone in his heyday, and I’m okay with that. The Harvard Business Review gave an example of an unrealistic succession plan:

“The head of engineering is a high performing leader who has the potential to be COO. She has always been in an engineering role. If she had sales experience, she would be even more ready to be the COO so her development plan is written to include a job move to be head of sales. However, this company would never take the risk of putting someone without sales experience in the top sales job — so her development plan perpetually says, “move to a sales job” even though that will never happen.”

Setting unrealistic goals will only lead to frustration. I’m not going to bulk up to a 350 pound mountain of muscle, and your mediocre sales person is probably not going to be the next sales manager. While development plans and succession charts aren’t promises, they are often perceived as such by high-performing individuals in the organization that want to advance. Setting realistic goals helps everyone involved understand what is necessary for advancement, and how it can be achieved. For some people, it’s just not going to happen.

The most important thing to remember is to define what success means to you, and what goals you wish to accomplish. Maintaining a strong line of succession is just as important as keeping your body healthy and fit. By considering the aforementioned suggestions, you can achieve both.

Do you have a strong succession program? How is it working out for you? Tell us about it in the “Comments” section below.

Motivate Through Match Rather Than Money

Posted by Aoife Gorey on Fri, Feb 22, 2013 Understanding what really motivates top performance

One of the most significant challenges of this decade is the selection, retention, and motivation of top performing talent. Organizations have implemented costly benefit programs, signing bonuses, and countless other attractions designed to win employee loyalty and stimulate employee engagement.

Typical benefits include a comfortable and unique work environment, the option to telecommute, casual dress code, snacks, etc. Some organizations go as far as having a "bring your pet to work" day, a concierge service, and take home meals.

Surveys by Ceridian found that 65% of employers believe perks help attract employees. Attracting employees is well and good, but are you wasting money on benefits that don’t yield enhanced employee engagement? What do you think really gets your employees excited about their work? A critical reality is that the magnitude of your people’s contribution to the organization will be directly proportional to how engaged they are with the organization and their jobs.

So does money really matter? "Unless you're extremely careful with how you use rewards, you get people who are just working for the money," says Edward Deci, a human motivation psychologist at University of Rochester. The appetite for money can be insatiable.

A SHRM Survey outlining the most important aspects of employee job satisfaction ranked job security as most important (63%). Benefits fall second (60%), with compensation and pay close behind (57%). So do not be fooled; paying your people a substantial salary is not enough to find top talent and keep them engaged.

Attracting top candidates is the easy part; now you must focus on how to motivate and retain them. But, you only want employees that fit your company culture and whose personality and behaviors match the job. Find this, and you will find your top performers.

Engagement= Productivity + Profitability, which equates to a 51% gap in operating income and a 39% gap in earning per share, between high and low engagement organizations.

For more information please visit www.smartmovesinc.com or contact us at 800. 700.6507with any questions.

Stephen Covey's, "7 Habits..."

Contributing Author:
Susan Young, Get in Front Communications.
7 leadership lessons from Stephen Covey

Dr. Stephen Covey, who wrote the 1989 best-seller, “The 7 Habits of Highly Effective People", passed away on Monday. In addition to being an author, Dr. Covey was also co-founder of Utah-based professional services company FranklinCovey, and his message of success won him millions of followers worldwide. Dr. Covey was a well-known motivational speaker and had an enormous impact on both the corporate world and the personal lives of millions.

More than 20 million copies of The 7 Habits of Highly Effective People have been sold and it was named one of the most influential management books by several organizations, including Time and Forbes magazines. The audio book is the best-selling nonfiction audio in history. In 1996, Covey was listed among Time's 25 Most Influential Americans.

To learn how to get a comprehensive report that can help identify the talents and strengths of your employees: http://www.smartmovesinc.com/summary_leadership-development.php

Former Hearst Magazine's President Cathie Black described what made Covey’s message so appealing:

“You will flourish by concentrating on the aspects of life that you can control rather than by reacting to external forces. The seven “habits” covered in the book may seem so simple as to be obvious (“Be Proactive,” “Put First Things First,” etc.), but Stephen Covey weaves them into a principle-based philosophy that emphasizes the importance of relying on your own character and intrinsic beliefs as you pursue any goal. I’ve found that even if you’re able to take on board only a couple of the book’s seven habits, you will still notice their beneficial effect on life both in and out of the office.”

For those of you who never read the book, here’s a brief overview of Dr. Covey’s famous seven habits:

Habit 1: Be Proactive. Decide your own goal and go for it. Highly effective people don’t dwell on the things they can’t change and instead are proactive. Covey wrote, “Self-awareness enables us to stand apart and examine even the way we ‘see’ ourselves — our self-paradigm, the most fundamental paradigm of effectiveness. It affects not only our attitudes and behaviors, but also how we see other people. It becomes our map of the basic nature of mankind.”

Habit 2: Begin with the End in Mind. Think about your end goal, whether these are life or business goals, so that you know what you are working toward. “This habit is based on the principle that all things are created twice. There’s a mental or first creation, and a physical or second creation to all things,” wrote Covey. In other words, visualize what you want as if it already happened and the universe will begin to work wonders.

Habit 3: Put First Things First. Prioritize tasks based on importance, not urgency, and make sure your plan drives you toward the overall goals previously mentioned. Once you’ve prioritized tasks, execute accordingly. Covey writes, “Management, remember, is clearly different from leadership. Leadership is primarily a high-powered, right brain activity. It’s more of an art; it’s based on a philosophy. You have to ask the ultimate questions of life when you’re dealing with personal leadership issues. But once you have dealt with those issues and resolved them, you then have to manage yourself effectively to create a life congruent with your answers.”

Habit 4: Think Win-Win. Look for solutions that are beneficial to everyone involved. According to Covey, “This is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win-win means agreements are mutually beneficial, mutually satisfying… Most people think in terms of dichotomies: strong or weak, hardball or softball, win or lose. But that kind of thinking is fundamentally flawed.”

Habit 5: Seek First to Understand, Then to be Understood. Listen to other people and really try to understand what they are saying. In turn, they will grant you the same courtesy and respect you have shown them. Covey writes,"We have such a tendency to rush in, to fix things up with good advice. But we often fail to take time to diagnose, to really, deeply understand the problem first…This principle is the key to effective interpersonal communication."

Habit 6: Synergize. Work as a team to accomplish things you could not do alone. Covey writes, "You begin with the belief that parties involved will gain more insight, and that the excitement of that mutual learning and insight will create a momentum toward more and more insights, learning, and growth.”

Habit 7: Sharpen the Saw. To be more effective over time, make sure to keep your body, mind strong, by exercising, prayer or meditation, community service, reading, or doing other things you enjoy. “It’s renewing the four dimensions of your nature — physical, spiritual, mental, and social/emotional," said Covey.

In 1996, Time magazine wrote, “The essence of Covey’s message -- that self-knowledge and control must precede effective dealings with the world at large -- seems unremarkable.” To which Covey responded, “What’s common sense just isn’t common practice.”

"Remember, to learn and not to do is really not to learn. To know and not to do is really not to know." – Dr. Stephen R. Covey

If you have any questions, please do not hesitate to contact us at (800) 700-6507 or www.smartmovesinc.com