- THE NEEDS OF THE BUSINESS AND THE MANAGEMENT TEAM
- BUSINESS STRUCTURE AND THE MANAGEMENT TEAM
- STRATEGIC GOALS AND ACTION PLANS
- ORGANIZATIONAL STRUCTURE
- CAREER OPPORTUNITIES AND INCENTIVES
At least four factors define succession planning: the needs of the owner and spouse, the requirements of the business and its management team, the demands of ownership transition, and concerns about inheritance. The first article in this series on Succession focused on the needs of the owner and spouse. This explores what the business and its management needs.
Perhaps the one factor that is least often associated with succession planning in an owner's mind is the business itself and the management team that runs it. After all, "Its my business and what I choose to do with it is my decision alone. My major and possibly only concern is my family." A sentiment more detrimental to succession planning could not be deliberately crafted! Yes, the business belongs to you, the owner, and you can do anything you want with and to it, but then don't be surprised when your goals for succession and transition become depressingly unattainable.
When the needs of the business and the management team are not considered, all too often the purchase value of the business diminishes, the problems facing a successor are often insurmountable, and inheritance is threatened. "Had the Old Man still been in the saddle, the horse would have remained a contender!" is a frequent, though a frequently questionable, rationale for business failures during the reign of a successor or of a new owner who had bought the company. All too often what faced the new president were inherited management and business problems not solved by the original owner and not appreciated as problems by the incoming president until too late.
The moral of the story can be stated at the outset: to provide a strong base for succession planning, the vision of the future of the business as a business entity has to be shared by ownership and management. The notion of participatory management only captures a piece of what will be conveyed here. The process of sharing involves:
- The setting of corporate goals and defining specific action plans to achieve these goals,
- Providing input about the future organizational structure, and,
- Clarifying career opportunities and incentives for all employees.
Management and employee participation in setting the course that the business will take enhances commitment and loyalty to, and identification with, the business and ownership. This is in sharp contrast to paternalistic ownership (either authoritarian or benign) that holds all decision-making responsibility and authority within the shadow it casts; the consequence is that management and employees feel and act as if its "we" versus "he".
The "Five Year Plan" has become either notorious or a joke in many businesses. Either it is too far off to even think about, or useless because business conditions are about to change drastically anyway. The assumption is that a Five Year Plan, were it to be developed, would then be cast in stone, demanding to be followed exactly. However, that is not the major purpose of a good Five Year Plan.
Whether we own to them or not, each of us has an implicit or explicit set of assumptions about the future. The Sales Manager is thinking that if we go into a new product line, he can increase sales dramatically. The Operations Manager is considering that to be more efficient, he needs additional space and equipment, and may even have a picture of exactly what kind of space and what kind of equipment. The Comptroller knows exactly what expenses needs to be cut in order to increase net. To the extent to which they don't know what each other has in mind for the future, much less what the President is thinking about, to that extent miscommunication, conflict and mistrust will result. Once a decision about any of these items is made, it forces everyone to reframe reluctantly their picture of the future.
The business owner of a large and growing firm died suddenly, leaving the business to his wife who in turn appointed their son to run the business. He had worked there for a considerable length of time and was generally acknowledged as the heir apparent. However, the son who was the successful head of sales and the plant manager rarely agreed on goals. The rest of the management staff were generally divided between the two in terms of alliances. It soon became apparent in retrospect that father's view of the future was to rein in growth. He had communicated this to the plant manager, but not to his sonwho had thought that a move into new and more advanced product lines was supported by his father. Prior to father's death, the son had continually criticized the plant manager as behind the times and was in favor of replacing him. The plant manager saw the son as a young upstart. When it became apparent after father's death what this lack of communication had caused, a mutual reevaluation occurred and commonly accepted goals could then be pursued. They discovered that father had been very concerned about protecting his estate, the majority of which was the business itself; he was afraid of spending money for the equipment needed to compete in new markets. The debt load might have affected the estate. At the same time, since he wanted his son to succeed him as president, he promised him anything to keep him in the business.
The function of a Five Year Plan is not only to serve as a magnet and guide to the future, but also as a "clearing house" of ideas. A Two and One Half Year Plan then becomes a reality check: what would have to be accomplished in two and one half years so as to serve as a realistic platform to support achieving the five year goals, and can this in fact be done? How attainable a Two and One Half Year Plan is can then be measured by what the management team can plan for one year out. The goals of the three different plans can be adjusted until agreement is reached as to whether they are realistic and attainable or not.
In the example above, this strategic planning process allowed each manager to have his input and thinking considered. They were able to determine the new markets they wanted to enter and the new customers they wanted to pursue; they decided on the new products needed to compete in this market. They could coordinate this with a purchase plan for new equipment that fitted what the comptroller considered to be prudent spending. Securing the necessary training, personnel, software systems, etc., were timed with financial, production and sales requirements.
With management discussing what gross sales, gross profit, net profit, return on investment and assets, etc., they are shooting for, then each becomes aware of their responsibility to achieving those goals. Disagreements can surface and be resolved; if not resolved, then further researched until resolved. Management is then in a position to translate corporate goals into departmental goals and action plans, and, these, in turn, into individual employee goals and action plans. Performance criteria, expectations and goals become clear for all individuals at all levels within the company.
The net result is awareness and agreement which serves as an antidote to blaming, scapegoating and failure. In the example above, the plant manager emerged from under the son's label of "an incompetent has-been" to a progressive manager willing to experiment, provided he knew what was going on.
Given an accepted plan for the future, two questions become more easily reconciled:
- What structure should the organization have in order to advance into the future?
- Which people can carry the business into the future?
A very creative way of looking at how businesses are structured is contained in Robert Keidel's book, Game Plans: Sports Strategies for Business, E.P.Dutton, New York, 1985. There are essentially three basic forms. All businesses, regardless of size, exhibit primarily one of the three basic forms, though all borrow features from the other two. Many firms may exhibit one of the three in their senior management structure while their various divisions or departments may exhibit different structures. The three types are analogous to the three major sports enjoyed in the United States: football, basketball and baseball.
Winning football teams are characterized by tightly knit and coordinated platoons and special teams, where each player's role is carefully designed and programmed. The prototypical business example of a football-type business is a manufacturing firm.
Basketball teams require continual, spontaneous and flexible teamwork, with little preconceived planning and integration from the coach. The creative department of an advertising firm is a good example.
Competitive baseball teams are composed essentially of individual players that interact as a team only periodically, i.e., when the ball is in play and even then only several players are involved at a time. A sales force can be characterized in this way.
Once a common vision of where a business is headed can be agreed upon, then a decision as how to structure the organization becomes clearer. Maybe the various departments have functioned too independently in the past, causing some unpleasant events. Perhaps the sales force has to be compensated differently, i.e., on the basis of their individual performance, than people in the other departments in order to be as motivated as they should. The manufacturing plant may not be as tightly integrated as required by competition and the market.
Given the business form (football, baseball, basketball) required by the future goals of the company, the personal and professional characteristics of the successor become more obvious. A football team needs a meticulous planner; the players on a baseball team appreciate a coach who is attuned to them as individuals; a successful basketball coach can tolerate if not appreciate the need for flexibility and spontaneity. This is not to say that other qualities are not desirable and essential, but only that the features noted above are mandatory at the least.
The son who had succeeded father at his death was fortunately very much a basketball coach. Father acted as the coach of a baseball team, with each department more or less functioning through him. That is to say, he was the only one who knew the performance, capacity and functioning of each department. Thus, for example, if a new product came along, he made the decision whether to go ahead with it or not based on his knowledge of the capacity of production. The plant manager never knew ahead of time what new sales avenues the sales manager, the son, wanted to pursue; the son really didn't know what the abilities of operations were. Under the new regime, the department heads in learning to play basketball continually pooled the necessary information needed to pursue growth.
Further, analyzing a business in this way provides more input into the decision about future disposition of the business. Not only does is the question addressed about whether there is a family member or manager qualified to succeed, but also whether the business has the internal resources to proceed into the future. Perhaps additional personnel need to be added. Maybe an outright sale is in the best interest of the company, employees and family? If so, the increased value of a business that has been planned in the way described above becomes obvious.
The loyalty of management and employees is generally suspect, and if they stay around, the reason offered is that they have no other place to go or are not qualified enough to obtain positions elsewhere. A frequent lament is that good employees are hard to find; if found, then their loyalty is questioned; and, and if they stay, their abilities are downgraded.... and, so it goes round and round.
A successful succession plan requires the loyalty of employees and management. When they are made part of the planning process, are trained to perform their jobs, are given the responsibility to contribute to the growth of the company, and are evaluated, promoted and rewarded accordingly, their loyalty is rarely lacking. A succession plan that takes into account their needs and concerns receives their support.
In the previous example, not only did planning keep the management team intact, but it engendered an even more loyal management crew. Each member expressed how relieved they were that the son had succeeded to the presidency and had engaged them in the planning process. Prior to the father's death, several people had thought that the business was beginning to stagnate and had presumed that father wanted to sell it, leaving them at risk. These several people were the ones in whom father had confided his concerns about the safety of his estate; they had translated his fears into the prospect of their losing their jobs in a buyout. They in turn had slowly lost interest in doing more than a 9 to 5 job.