When a coveted employee or high-level executive leaves a business, it can have many adverse effects, especially if a succession plan is not in place.
A talent vacuum can be created, because of which, important roles and functions are not carried out.
This results in lost work, compromised quality, and low productivity.
The Risks Of Not Succession Planning
No matter what size business you own, succession planning is of paramount importance. While large corporations and organizations understand the importance of succession planning many small and medium size businesses have difficulty grasping this concept and its importance.
Succession planning is the key to a sustainable business. Nothing lasts forever and as a business owner, you should be prepared for all scenarios.
When you lose an employee, a business owner, or a top-level executive you are not just losing out on talent, skill, and competence, but rather an asset that is intimately familiar with your business and the dynamics of your workplace.
Replacing talent like that, immediately, is close to impossible without a succession plan and your business can suffer for it. You also run the risk of isolating and demoralizing your workforce in addition to putting the company’s financials in jeopardy.
In contrast, having a succession plan will help ensure the hiring and promotion of internal talent. The introduction of a career development plan, for example, would go a long way in motivating and retaining employees, and also strengthen their engagement and commitment to your organization.
Let’s analyze these risks in more detail.
Losing Internal Talent
Your employees are your assets and those assets are valued according to the knowledge and experience they possess. Employees that have been around for a long time, have institutional knowledge and experience that can easily be overlooked and undervalued.
When key employees, holding key knowledge and expertise, leave your company you are losing out on all that value. Moreover, your resource will take with them the relationships they’ve built with numerous stakeholders, and potentially use these relationships to build business elsewhere (possibly your own competitor).
You could try to hire a replacement from external candidates, but hiring a new employee will always have a cost associated with it. Sometimes this cost can be much more than that of the last employee.
If you’re having to replace a senior executive, business owner, or key employee, then you’ll have an even more difficult time finding a viable candidate. Without another key employee in the chain of operations to whom such knowledge and expertise can be transferred, the business is most certainly going to be losing out on a lot of value.
It would certainly be much cheaper, and prudent, for your company to have a solid succession plan in place. Create opportunities for your internal talent to be appointed to key positions, and give them a chance to progress in your company and become key leaders one day.
You can do this by making succession plans known to employees, creating an internal talent pipeline, and working towards a secure future for your employees and, by extension, your company.
Financial Risks
We’ve discussed how a lack of succession planning can impact your employees’ performance and development, but let’s now talk about the financial risks.
If you have employees leaving the company, especially key executives, then you’re likely to face issues like disrupted third-party/partner relationships, halted initiatives, compromised financial performance, and loss of revenue or shares.
Numerous studies have shown that without a proper succession plan in place, companies lose an average of $1.8 billion in shareholder value.
Other studies show that companies lose upwards of $100 billion in a year as a result of not having a succession plan in place for their business. Hewlett Packard is one such example, where they started the 2010s with a lot of issues due to their CEO stepping down.
Therefore, having viable succession strategies in place could make a huge difference in your profit and loss statement, especially with so much money at stake if you go without.
Your company should have a proactive and dynamic approach to succession planning, regardless of whether it is for a business-critical role or for an entry-level employee.
Ensuring a smooth transition and successful knowledge transfer, at every chain in the operations and management, is what spells success for companies.
When In Doubt Consult With The Experts!
We at Eastport Financial Group Inc, located in Halifax, NS, have helped hundreds of business owners build successful succession plans that have helped their businesses thrive even after their passing.
Our expert financial advisors help prepare a comprehensive succession plan that is unique to the situation of your business. We also help in cultivating company culture in a manner that builds opportunities for internal talent and encourages them to perform their job with skill, honesty, and vested interest.
Regardless of the approach you take, always remember to appreciate the skill sets of your employees. If you give them the opportunity to become potential leaders one day, the continued success of your business is all but guaranteed.
