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FMI Quarterly/September 2013/September 1, 2013

Six Steps to Successful Management Succession

game_imageWhen leadership transitions from one generation to the next, the resulting transfer of power, influence and wealth can bring a turbulent combination of fear, anxiety, anticipation and hope. This has been true since ancient times.

When Alexander the Great fell ill at 33 years old after conquering the known world from Europe to Asia, he had no successor. On his deathbed he famously declared, “The strongest” would inherit his title. His final words were, “I foresee a great funeral contest over me.” His prophecy came true, and the resulting “funeral games,” where his marshals battled ruthlessly over control of his empire, lasted for nearly 40 years.

Succession planning is particularly significant for the engineering and construction industry due to a combination of forces, including mass retirement of the baby-boom generation, perception of the industry as less desirable than other more glamorous fields, and the residual impact of the long recession on young talent. However, recognizing these trends is much easier than responding to them. The process of succession planning should not be a singular event; leaders instead should embed it deeply in the culture and talent development processes in the company, starting with a clear organizational vision.

FMI’s experience shows that effective succession planning requires adhering to a well-defined, six-step process, as seen in Exhibit 1.

2013q3_management_succession_ex1

Many construction companies wrestling with succession planning jump straight to Step 4: Evaluate the organizational candidates. If you have fallen into this situation, you are not alone. While this leap is understandable, it misses opportunities to prepare the business and its leaders for even greater success. The ultimate objectives of your succession planning process should be 1) the maximum gain from the leadership transition, with 2) minimal loss of domain knowledge and organizational capability. In order to fulfill these two key objectives, you must start at the beginning.

1. CLARIFY THE ORGANIZATION’S VISION

A clear organizational vision rich in its understanding of company culture and history that is shared among the entire company is the foundation of an effective management succession process. Great construction businesses with the desire to endure for multiple generations know who they are (defined by core purpose and core values) and where they want to go (defined by an envisioned future projected out 10–20 years). The values and purpose provide a key to understanding the organization’s culture and are a litmus test for true alignment among the leadership team. Establishing or clarifying such a vision is also an important step in transitioning foundational company history from the current leadership to the successors. A clear vision creates alignment across the future senior leadership team and develops additional internal champions to drive the vision throughout the organization. Without a shared vision, the company may lack the solid foundation for continuing what has made the business successful to this point, such as developing business strategies and assessing talent. Done well, a clear vision creates alignment, stability and motivation for the challenging organizational work ahead.

2. DEVELOP BUSINESS STRATEGIES AND OBJECTIVES

Having a clear vision is important, but by itself, it is not enough. Leaders must take action today to make the vision come to reality. Senior leaders must understand how the business will compete and win during the next five years in order to take the first step toward achieving its 20-year vision. The power of having a clear vision is that once the company has achieved its five-year strategy, the next five-year strategy will build on the first. Most businesses without a clear vision pursue disconnected strategies every five years, without the possibility of realizing what they could accomplish with a clear, long-term goal.

A solid foundation for strategy must be built on market research, customer understanding, competitor analysis and a candid organizational assessment. The strategy must not be too rigid, but remain flexible to adjust to changing conditions, internally or externally. It must be grounded in research that does not end with the current strategic plan, but continues throughout the next five years and even further into the future as a perpetual process. The continued analysis will help leaders build greater understanding of the current environment and prepare for the next phase of achieving the overall vision.

3. IDENTIFY LEADERSHIP REQUIREMENTS

Only with a clear vision and strategy can the company begin to piece together what leadership will be required today and in the future to achieve success. The next move is to an organizational assessment, which asks fundamental questions  such as:

  • How does the organizational structure currently function?
  • Are there immediate changes required to fulfill the strategy?
  • What are the long-term changes required to achieve the vision?

Effective succession plans take time to design the organization to maximize how it will function most effectively, without regard for the current leadership. Once designed for the immediate need, plan for what the business should look like 20 years from now. This will be a tremendous asset in building your development plans as you survey how leading the company 20 years from now will be different than leading it today.

With the new organizational design, you can identify which leadership traits, competencies and skills are required to implement the current business strategy successfully. Do a brief assessment: An engineering and construction business executing a strategy to move into new markets will require a completely different set of leadership skills than one that is well-positioned and acquiring market share in a current strong market. The first approach may require outside technical  expertise and a résumé of work to gain credibility with potential clients. The other strategy requires a leadership team focused on executing and driving performance to maximize the current position. Identifying the leadership requirements will necessitate a balance and tradeoff by taking into account what is required today to execute the current strategy, while also building the leaders of the future to achieve the long-term vision of the organization.

4. EVALUATE THE ORGANIZATION AND CANDIDATES

As leaders begin to assess potential candidates within the company, they must view the organization’s enduring success as the first priority. Inevitably, there will be tough decisions, but as long as leaders are making choices in the best interests of the company, without disregarding the impact on the individuals, it will make these decisions easier. Candidly assess the company and the candidates against the necessary leadership requirements for achieving the current strategy and long-term vision. This is the gap analysis — what we need versus what we have for both today and the future. Through the evaluation of individual leadership candidates, the firm can identify gaps among the designated talent pool for succession. Any gaps identified among a large percentage of the candidate pool might be a warning sign that requires additional attention.

This individual and organizational gap analysis can also lead to a root cause analysis as to how the gaps developed in the first place. Plan for the unexpected and create a potential talent pool equal to twice what your company needs. You will lose candidates for a host of reasons, and if there are not enough in the development process, then you will have to identify and develop new talent on an abbreviated timeline. This is not in the best interest of the company nor the candidates.

5. CREATE A DEVELOPMENT PROCESS

Build upon the current team’s effectiveness and leadership capabilities to achieve the organization’s long-term vision. Intentional and individual development of a candidate pool ensures that the necessary talent is available and at the highest level of preparedness when called upon. Most companies haphazardly prepare their next generations of leadership. Training events occur only when project demands allow it and most development is opportunistic versus highly planned. Just as the organization must develop a long-term vision, individuals need to work toward a long-term development goal that yields a return on investment.

The model of personal, purposeful and intentional talent development helps to clarify what this process should look like. Each candidate should have a personal program designed to maximize his or her potential growth. It should be intentional in that it develops his or her capabilities with the organization’s goals in mind. The team member is developing a skill or ability to fulfill the current strategy or the long-term vision of the business. The overall program must be intentional in that it is updated continuously to ensure the best possible outcome for both the organization and the individual. Imagine a group of leaders working through an intentional development process focused on their needs, and then consider how each of the individuals’ increased performance will affect the overall performance of the company. That positive impact begins almost immediately as each skill improved is put to use within the organization to get results today.

6. OUTLINE AND IMPLEMENT THE TRANSITION PLAN

Succession planning should happen well in advance of anticipated changes. Leverage the experience of the current leaders to define and explain how a methodical transition would be executed. Do emergency planning on the short list of essential transition items. Once the plan is built, it can be adjusted based on situational needs. The process of planning the transition is as important as the plan itself. It will force leaders to think through the responsibilities of their current roles and may answer key questions such as: What can be delegated for the development of my people? What am I not doing that they should be doing? How can we phase the transition to ease my successor into position?

As the appropriate time for transition approaches, refine the initial plan and implement the transition. No candidate will be perfect, but if the organization has followed this six-step process, there will be a pool of candidates that are much better prepared when the transition must take place.

CONCLUSION

Succession is, at its heart, about change, and therefore it is rarely easy and comes with many challenges — financial, operational, cultural and especially emotional. Negotiating these challenges requires leaders who see themselves as stewards of their businesses for future generations and dedicated teams willing to execute on the daily, disciplined hard work of making talent development a part of the culture.


Jake Appelman is a senior consultant at FMI Corporation. He can be reached at 303.398.7248 or via email at jappelman@fminet.com. Matt Kennedy is a former senior consultant at FMI.

 

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