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.
THE NEEDS OF THE BUSINESS AND THE MANAGEMENT TEAM
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.
BUSINESS STRUCTURE AND THE MANAGEMENT TEAM
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".
STRATEGIC GOALS AND ACTION PLANS
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 son who 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.
ORGANIZATIONAL STRUCTURE
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.
CAREER OPPORTUNITIES AND INCENTIVES
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.