Business Transition Planning: Developing your Organization’s Future Leaders
By Paul Bernhard and Steve Gravenkemper, Ph.D.
Human Capital Consulting
Universal Advisor, 2004 Issue No. 3

Businesses often engage in strategic planning to drive future business success. “Best In class” companies also engage in strategic planning related to developing leaders for the future. Why? Because developing these key leaders is too important to the future success of an organization to leave to chance. By linking leadership to business goals and utilizing assessment as a development tool, businesses can assure emerging leaders have the requisite skills to be successful.

Link Leadership to Business Goals
It’s crucial to create key leadership characteristics — often called competencies — that relate to organizational success. Defining these competencies is the foundation of a successful succession plan. Key competencies might include strategic thinking, selecting and developing talent, implementing change, or building the desired organizational culture. Failure to identify these competencies could result in future leaders without the appropriate skills to successfully manage the business.

Use Assessment as a Development Tool
Assessment is used most effectively when identifying key strengths and creating individual professional development plans for future leaders. Using assessment as a development tool has several benefits:

Those leaders tapped for assessment typically respond very favorably, as it signals the organization is willing to invest in their development.

Developmental plans provide specific recommendations targeted toward building skills in key areas needed to be successful at the next level.

Reviewing assessment results with senior managers or owners creates an active dialogue related to one of the most important organizational assets, leadership talent.

Assessment tools most commonly used in succession planning include cognitive abilities and skills testing, personality testing, interest inventories, structured interviews, simulations, work samples, prior performance reviews, and senior management assessments of the capabilities of these future leaders. Each of these data points can be helpful in identifying critical strengths and areas for professional development for emerging leaders.

Now Is the Time To Prepare
It’s never too early to begin developing tomorrow’s leaders. By investing the time to identify the leadership competencies necessary to assure your organization’s success and assessing potential leaders to determine how well their skills align with those competencies, you can assure that your organization is in good hands today, tomorrow, and well into the future.

The 7 Elements of Highly Successful Transitions
Leadership development is only one component of the business transition process. Six additional elements are just as critical:

• Financial planning ensures your retirement dollars are “bullet proof” and will last you the rest of you life. How much money will you need to retire? What are your investment options? Do you understand diversification?
• Estate planning is crisis planning — it considers the ramifications to your business if you suddenly become ill or are “hit by a bus.” While odds are that a crisis may never occur, it’s important to ask “what if,” which will ensure that your business will survive and prosper beyond the crisis.
• Strategic planning takes the long-term vision that often exists in a business owner’s head and puts it down on paper. This helps assure that a business will remain profitable and thrive for years to come.
• Ownership transition planning determines who will run your business. Whether the successor will be a family member, a trusted member of internal management, or a third party, it’s never too early to start this process, as there’s typically an acclimation period of approximately five years. Ownership transition also determines the value of the business. Most owners tend to believe their business is more valuable than the valuation reveals; in addition, a business is worth more when sold to a third party than when sold to a family member or member of key management. Therefore, financial planning is key; if you’ve done a good job preparing for retirement, you’ll have more options when choosing a successor.
• Family dynamics comprise a number of considerations: Are the family members in question capable of running the business? How will the business be structured? How will the successors be paid? How do you ensure fair treatment? This step helps business owners answer these often difficult questions.
• Personal growth and fulfillment helps the owner determine what’s next. Who are you beyond your business? If you don’t know what’s next, the tendency is to dig your heels in and resist the process, implicitly and explicitly sabotaging it along the way. Too often, business owners spend their time working in the business rather than on the business; when it comes time to plan for transition, they’re often shocked at the amount of work involved. So, start early. It’s always the right time to ensure the prosperity of a business you spent the better part of your life building.