All companies face a universal truth. At some point, employees will leave and talent will exit the business.
Whether through retirement, new opportunities, or unforeseen circumstances, a transition of key people is inevitable. Yet, only 35% of businesses have a formal succession planning process in place, when it comes to leadership or senior management roles, according to the Society of Human Resource Management.
In a highly competitive business landscape, many organisations overlook how succession planning directly impacts their ability to attract and retain their greatest asset, their people.
And without a clear path forward, businesses may find that their best talent seeks opportunity elsewhere and that they struggle to recruit high-performers for the future.
Succession Planning and why it’s important for all businesses
Succession planning is crucial for companies of all types and sizes – large corporates to smaller independently, family-run businesses – for a range of reasons:
1. Business Continuity
Effective succession planning safeguards against disruption and from the challenges and cost of losing valuable expertise and institutional knowledge.
It protects businesses against leadership gaps and can reduce leadership role vacancy time by 50% (HCI and Oracle Succession Planning Benchmark Study).
Without identifying and preparing successors in advance, gaps in key executive roles or strategic leadership positions can have costly implications.
In fact, a lack of succession planning can cost companies up to 2.5x the salary of a departing executive in replacement and lost productivity costs, according to the Center for American Progress.
Leadership gaps can also negatively impact client and supplier relationships and employee confidence. So, by having a plan in place, businesses can maintain the momentum they have worked so hard to build, maintaining stability and avoiding what could otherwise be a turbulent period.
2. Talent Development, both Internal & External
With internal hires for leadership roles performing 20% better and having a 61% lower failure rate compared to external hires (Wharton/University of Pennsylvania), it makes sense for businesses to create clear development pathways before roles become vacant.
Businesses that identify and develop high-potential talent are also four times more likely to be prepared for leadership transitions, states a recent Gallup Workplace Insights poll.
Added to this is that leaders who come from internal pipelines tend to stay 50% longer in their roles compared to externally hired peers, according to the Corporate Executive Board (CEB).
Investing in developing and preparing internal leaders through targeted training, mentoring, coaching and involvement in varied strategic projects, can pay great dividends.
Taking a proactive approach, will make sure future leaders gain the diverse experiences required for higher-level leadership roles and help expand their skills sets.
A robust succession strategy will also make a business more attractive to high-performing candidates outside of the business, creating a healthy pipeline of leadership talent, looking for long-term career development.
It sends a powerful message to prospective leaders, of ‘Join our team, and we’ll invest in your growth.’
3. Retention of Business Knowledge and Intellectual Property
Departing employees take valuable institutional knowledge with them. In fact, an estimated 42% of role-specific knowledge is lost if there’s no formal transition or documentation process, says the Institute for Corporate Productivity.
Relationships with key stakeholders, familiarity with business systems, often built up over years, can go quickly.
Succession planning provides a structured way for businesses to protect critical intellectual property, processes and industry connections, allowing them to transfer knowledge, practices and relationships and prevent costly time spent re-learning, re-training or re-solving previously solved problems.
4. Improvement in Morale and Loyalty
A lack of development opportunities is cited as a top 3 reason of why high-performers leave an organisation, according to the Work Institute Retention Report.
It’s no surprise therefore, that when internal talent sees a clear career progression pathway within the organisation, employee engagement transforms.
Succession planning sends a powerful message to employees that the business is invested in their future and growth. Helping them see obvious career progression opportunities and a clear way to advance in the business, will lead to significantly higher motivation levels and reduce the likelihood of them seeking employment elsewhere.
The psychological impact extends beyond those directly in the succession pipeline too, where the entire business benefits from a culture that visibly values and develops its people.
5. Strategic Advantage
Leadership stability is one of the key competitive advantages, businesses gain from having a succession plan in place.
Key executives progressing is the ideal scenario, because of the time and resources required to help an external leader settle in to a new organisation, with Harvard Business School estimating it takes 6 to 9 months to onboard an external hire successfully.
Although not always possible, internal hires often mean that strategic initiatives continue without interruption. Competitors experiencing unplanned departures, may have to stop and reassess or change their approach entirely.
Consistency of leadership or a smooth transition builds market confidence and supports long-term planning that less prepared businesses are unable to match.
While other companies scramble to fill sudden vacancies, businesses with a succession-ready pipeline of internal or external talent can take advantage of their prepared leaders and maintain strategic momentum.
6. Business Finances – Bottom Line Improvement
The financial returns of having a robust succession plan far outweigh the required investment of time and resources.
More than just avoiding high business disruption costs, businesses which promote from within can also reduce their recruitment and onboarding costs and steer clear of costly mishires. Especially if they feel pressured to hire quickly and reactively.
They can also minimise productivity losses during leadership transitions, and evade the costs of losing high-value clients who might otherwise follow departing leaders.
Businesses with a clearly documented succession plan are also more likely to command a higher valuation during an acquisition or when seeking investment.
PwC’s Global M&A Report highlights how 43% of private equity buyers say the absence of a clear leadership succession plan is a deal-breaker in acquisitions.
A structured and proactive succession plan represents a lower risk profile to potential buyers and investors.
For family businesses in particular, succession planning can prevent significant tax burden that might jeopardise the future of the entire business.
Key Steps to Creating and Implementing a Succession Plan
Developing and implementing an effective succession plan involves an investment of time and resource. There are several key steps to consider and questions to ask for businesses who are aiming to ensure a seamless transition of key roles.
1. Identify Critical Roles
Companies need to assess which roles are essential for the business’s operation.
A good place to start is by understanding the long-term objectives of the business. Critical roles are those that directly contribute to achieving these goals.
Employees often have firsthand knowledge too. Having conversations internally will help decide which roles are indispensable.
Look at positions that other roles rely upon. For example, leadership roles that drive decision-making or technical specialists who ensure smooth operations.
Asking questions like ‘Would a sudden vacancy in this role significantly disrupt operations?’ or “If this role became vacant tomorrow, how would the company be affected?” will help.
2. Review Responsibilities and Job Descriptions
Reviewing job descriptions helps define the skills, responsibilities, and expectations for key roles.
Up-to-date job descriptions highlight the essential competencies required for leadership or critical positions, allowing businesses to identify skill gaps and create development plans for potential successors.
By understanding what each role demands, businesses can tailor training programs to prepare internal candidates or looking what external talent is available and needed.
Accurate job descriptions can be especially important for family-run businesses where there can sometimes be less clarity around people’s job definitions.
3. Document Institutional Knowledge
With critical job roles identified and clearly defined job descriptions, businesses need to ensure that the processes and key information for successfully carrying out each role are documented and accessible.
Encouraging knowledge sharing from current role holders, especially those nearing retirement will also be beneficial.
This will minimise the over-reliance on any single individual’s expertise and reduce the risk of a key employee departing with all the technical knowledge in their head.
4. Evaluate and Identify Internal Candidates
With critical roles known and documented, businesses can start to identify high-potential employees who could step into critical roles.
Their willingness to take on leadership responsibilities, current skills and performance, as well as any gaps, can be benchmarked against the competencies required.
This will also reveal where there might be a dearth of internal successors and identify where external talent is needed.
5. Develop a Pipeline of Talent
To ensure talent is ready to progress or is prepared to take on executive level positions, companies will need to provide relevant training.
Buddying up with incumbent leaders, mentoring programs and leadership development opportunities for potential successors, will benefit.
6. Map External Talent
Researching the external talent pool for critical roles will help businesses understand their hiring options if skills gaps exist internally and take steps to address any weaknesses.
Understanding external talent availability and engaging with them proactively, allows companies to make more informed hiring choices, ensuring they are an attractive option for the best candidates when leadership transitions occur.
7. Create a Transition Plan
Once a business has a clear picture of critical roles and the availability of talent, it will need to put together a clear plan for role transitions.
This should include timelines, responsibilities, and an interim solution if a vacancy arises unexpectedly.
8. Regularly Review and Update
Succession planning isn’t a one-off activity, it’s an ongoing process, so businesses need to review and update their plans regularly.
With fluctuating market or industry conditions, work patterns and shifting talent pools, it’s crucial for businesses to reassess critical roles, candidates, and plans on a frequent basis to reflect changing business needs and employee growth.
Questions for Businesses to Ask Themselves
Is the current role held by someone with exclusive knowledge or skills?
Does that employee have industry, technical or technological knowledge that they and they alone hold or understand?
Are there job roles which are more likely to become vacant in the near future?
For example, are there a number of employees approaching retirement in a certain business function or area?
What impact does that have on the business and the wider team?
And what are the hiring requirements to fill those roles?
Are there internal candidates who could take on an interim role if needed?
Do they have the ability to step up immediately?
Will the business suffer if a vacancy arises suddenly?
How long can a role remain unfilled before it has a significant, negative impact on the business and the wider team?
Are specific qualifications or industry accreditations required for certain roles?
Is there a sufficient supply of external talent ready to fill the role in question?
How big is the talent pool?
Are candidates available in the same geographic location?
How quickly can they be hired?
Beyond talent retention, succession planning creates a culture of continuous growth.
By identifying future leaders early, whether internal or external, and providing targeted development opportunities, companies can prevent critical skill gaps and protect their institutional knowledge.
Taking a proactive approach reduces risks to business continuity and demonstrates to employees or prospective candidates that their professional growth matters.
Effective succession planning will create ripple effects throughout the business, including improved morale, stronger recruitment outcomes and reduced turnover costs.
In essence, succession planning isn’t just about preparing for departures, it’s about creating an environment where the best talent chooses to stay and thrive or join the business.
Find out more about our Talent Advisory services and how we support clients with Succession Planning
