Business Succession Planning: 9 Examples and Tips

Soloman Kerzner, the founder and executive chairman of Kerzner International Ltd., was 71 years old when he handpicked his 42-year-old son, Howard “Butch” Kerzner, to run the luxury hotel company when he retired. Butch was the perfect successor. He was talented and Soloman had practically raised him to take over the company when the time was right.

The leadership future of Kerzner International looked great until October 2006 when Butch was killed in a helicopter crash in the Dominican Republic. Not long after Butch’s death, the Singaporean government rejected a vital proposal for a luxury resort in Singapore that Butch championed. And worse, the company was faced with the problem of finding a fitting successor for Soloman Kerzner.

With no immediate solution in sight, Solomon was forced out of retirement to bridge the gap left by his son’s death.

Soloman Kerzner’s situation shows how risky it is to depend solely on one potential successor, instead of developing a deeper leadership structure. It also emphasizes the importance of business succession planning.

Read on to find out what business succession planning is, the benefits, how it works and some tips to do succession planning the right way.

What is succession planning?

Succession planning is the process of passing down leadership roles to the employee(s) with the right skills and experience. This process involves identifying core positions within the organization and recognizing/training talents to serve as replacements for existing (occupied) leadership roles.

Succession planning ensures that the workforce operates swimmingly even after business leaders retire, move on to new ventures, or pass away. It also enables the smooth transfer of ownership to a new leader(s).

In many companies, succession planning applies to those at the management or executive levels. However, succession planning should go beyond that to include mid-level and even bottom-level employees. This way, people with proven talent can move through the ranks.

While succession planning may seem like something only large organizations do, it’s quite the opposite. Many small and medium-sized enterprises (SMEs) also practice this, albeit on a smaller scale.

What are the benefits of succession planning?

Succession planning is one of the best things you can do for your business. Here are four reasons why:

1. Protect the business from unexpected events

Succession planning prepares a business for unexpected changes. In Soloman Kerzner’s case, it was the death of his son, whom he chose as his successor. But there are other things that existing leaders may experience that may cause them to abruptly leave their positions, including illness, family problems, run-ins with the law or even poaching from one of your competitors.

If you don’t plan for these possibilities and have a strategy in place to respond to these events, you will struggle to keep the business running smoothly. Not to mention, your talent strategy will always rely on external resources — which can hurt your company. Sure, you may hire new people to replace them, but that will cost a lot in terms of high salaries, fees, and loss of intellectual capital.

2. Identify your most-qualified future leaders

A good business succession plan requires you to:

• Identify positions that are vital to the continued success of the company (they don’t all have to be C-Suite roles)
• Identify the existing employees with the skills, experience, and desire to take on those positions and the responsibilities they come with
• Meet with potential candidates and discuss their career plans for the future

This process pushes you to meticulously examine your organization and its employees’ strengths, weaknesses/vulnerabilities, opportunities and threats — also known as a SWOT analysis. This, in turn, will expose opportunities to train your employees to take on other roles.

If you study your internal candidates only to find zero potential successors for these positions, you can begin searching externally way before there’s an urgent need to fill the roles.

3. Promote training and development

Once you’ve identified employees that are a great fit for these critical roles, it’s easier to find any competency gaps and start training them for their move up the ranks. An early start to their training process gives your employees time to master the skills they’ll need to perform well in more advanced roles.

That said, not all employees like to be trained in the same way, so you’ll need to build a well-rounded training and development program. Offer coaching, mentoring, apprenticeship or a gradual increase of complex responsibilities. If needed, you could send your employees back to school to get more education and/or a professional certification.

4. Long-term planning and retention

Having a clearly defined succession plan reduces your reliance on recruitment and ensures that sourcing externally for leadership talent is a last resort. It also assures your workforce that the business will run smoothly, should anything happen. This allows them to focus on important tasks that move the needle toward business growth.

A succession plan also motivates ambitious employees to work harder, especially now that you’ve proved that you notice their skills and drive and are willing to promote them if they keep up their good work. This makes them want to stay with your company and take advantage of the growth opportunities you offer.

How does succession planning work?

In large companies, succession planning is done by the chief executive officer (CEO) and the board of directors, and it affects the owners, employees and stakeholders. This process involves assessing each leader’s skills, identifying potential replacements within and outside the business, and training qualified internal employees for their eventual succession.

But for family-owned businesses, succession planning is about training the next generation to take over the business once the existing leader (usually the parent) retires or dies.

Succession planning requires:

• Recruitment: The company has to choose candidates — internal and/or external — who have the skill and desire to climb the official ranks.
• Training: This involves helping viable candidates develop new skills, master existing ones and gain professional certifications. This may require employees to shadow various jobs across all major departments. This improves employees’ understanding of how the business works and can help identify candidates who are unable to develop necessary skills to run the company.

There are two major kinds of succession plan a business should have: an emergency succession plan for when a key leader needs to be suddenly replaced, and a long-term succession plan that helps the company prepare for expected changes in leadership.

Note: Succession planning is not a one-time thing. It’s a plan that should be reassessed and updated at least once a year or as the company structure changes.

Examples of business succession planning

Succession planning, especially for top management roles like CEO and CFO, typically takes between 12 to 36 months and can cost the business a lot if not implemented properly. Little wonder the CEO of Apple, Timothy Cook, told Buzzfeed News, “My role as CEO is to prepare as many people as I can to be CEO.”

Let’s take a look at three companies that successfully implemented a succession plan.

1. Apple

Steve Jobs, the founder and former CEO of Apple, prioritized the continuous development of internal talent. That’s why he established Apple University — an academy whose curriculum aims to teach employees “how to think like Steve Jobs.” This academy doesn’t just train people to become CEOs, but it trains employees to become effective leaders that can fill other executive and management roles at Apple.

However, when Jobs was choosing a successor, he picked Timothy Cook, who didn’t attend Apple University. This is likely because Cook already exhibited the right skills and experience to run Apple in a way that Jobs appreciated.

Timothy Cook became the Chief Operating Officer (COO) at Apple in 2005, and Jobs named him interim CEO in 2009 when he took a leave of absence for health reasons. Two months after Jobs’ death, Cook replaced him as CEO, and his tenure runs to date.

2. IBM

The International Business Machines Corporation (IBM) took a long-term approach to succession planning when making Virginia Rometty replace Samuel Palmisano as CEO in 2011.

Rometty started working for IBM in an entry-level position and stayed with the company for 30 years prior to becoming CEO, rising steadily up the ranks during that time. Her efforts to become IBM’s first female CEO were supported by the company’s willingness to invest resources into HR programs that seek high performers and help them grow in their careers.

While 30 years is a long time to run a succession plan, it did make it easy for Rometty to smoothly replace Palmisano in 2011, and eventually be replaced by her successor, Arvind Krishna, after her retirement in 2020.

3. Amazon

In Amazon’s first annual shareholder letter, Jeff Bezos, its founder, wrote: “The bar has to continuously go up… I ask people to visualize the company five years from now. At that point, each of us should look around and say, ‘The standards are so high now — boy, I’m glad I got in when I did!’”

These words reflect Bezos’ understanding of an organization’s need to constantly invest in development, and that’s probably why his effective succession plan is considered ideal. It was so good that after Bezos stepped down from CEO, business activities continued as normal the next day.

In February 2014, Jeff Bezos named Andy Jassy, who led Amazon Web Services (AWS) at the time, as his successor. This only made sense as Jassy was one of Bezos’ first hires when Amazon went public in 1997. And with his success at leading AWS to become a $40 billion business, Jassy showed that he had the necessary skillset and experience to take on the mantle of CEO.

Tips for business succession planning

Whether you’re a small business or an international corporation, succession planning is integral to the continuity and growth of your organization. So you’ll need all the information you can get. Here are six tips to create an effective succession plan:

1. Start early

One of the biggest mistakes many companies make with their succession plan is waiting until unexpected changes start to occur. This results in leaders making hasty (and sometimes wrong) decisions that negatively impact the business.

Don’t wait until your employees get sick, reach retirement age or get poached by another company before you have a succession plan in place. Starting early makes it easy to find the right person(s) to fill those roles and gives you time to craft a smooth transition plan for when the time comes.

2. Review your business strategy

Before implementing your succession plan, ensure that it aligns with your business goals and work culture. If not, it’ll be hard to get your employees and the C-Suite on board.

When your succession plan aligns with your business strategy, you’ll reinforce the long-held goals and beliefs that have brought your company to the point that it’s at. Those same goals and beliefs will carry you into the future.

Pro tip: If you want to make changes to your business strategy, do it before you start your succession plan. To help with the process, consider using strategic planning software to map out your goals and trajectory.

3. Ask necessary questions

As you choose the employees you think would be a great fit for the roles you’re making a succession plan for, ask yourself some difficult but necessary questions:

• If I were to hire for X position internally, which employees would be the best fits for this role?
• Would these candidates need extra training to improve their skills? If yes, what kind of training?
• What happens if they’re unable to master the necessary skills even after training?
• What happens if they decide later on that they no longer want to fill X position?

Knowing the answers to these questions and planning for them will help you choose the right people for the job(s). However, don’t focus only on the person that’s on the next rung in the organizational chart. Consider all employees who have the necessary skills and mindset to thrive in higher positions, no matter their current title.

4. Harness the expertise of long-term employees

As you pick out qualified candidates, think about how experienced employees in your organization can pass down their skills and expertise to less experienced employees. This way, their knowledge doesn’t leave the organization when they do.

For example, if you’re planning a CEO’s succession, they could work alongside their successor for about a year, and then continue as a part-time mentor to support important business decisions. Twelve months is an ideal length of time — it gives the CEO enough time to pass on their business and client insights, process, tips and contacts and smooth over any issues before the actual succession.

5. Integrate your succession plan into your recruitment strategy

Once you’ve identified successors for important roles in the organization, take note of the gaps they would leave when they step into their new roles. This will help you know where to focus your future hiring efforts.

6. Be transparent about your succession plans

The last thing you want is for rumors of retirements, replacements, or a company takeover to make your employees feel uncertain about their jobs and the company’s future. That’s why you should communicate your succession plan with them from the jump.

Explain that a succession plan helps decrease risk and ensure that operations run smoothly during the transition(s). Assure them that you have their best interests at heart and that they shouldn’t worry that their jobs are in peril.

Create effective business succession plans for smooth transitions

The only constant in this world is change. And in business, anything can happen at any time.

The tragic story of Soloman Kerzner of Kerzner International Ltd. proves that no organization is immune to crisis, no matter its size. That’s why you should have a succession plan in place to secure the future of your business — and the employees that are its lifeblood.