4 MinsNovember 08, 2023
You might have heard the saying, "The King is dead, long live the King." This medieval proclamation signifies the seamless transition of leadership. Imagine your corporation as a chessboard, a game where every piece counts, but losing your king spells the end. That's where succession planning comes into play.
There could be several issues when it comes to succession planning. For instance, the next-in-command to the CEO may suddenly resign instead of taking over the position. Or the top management and board of the company may find it difficult to agree on the choice for the top position.
Poor or no succession planning can affect a business, its finances and its future adversely. On the other hand, approaching succession planning with a long-term strategy can help businesses sail through leadership transitions smoothly.
Let’s understand how the process works, and its role in strengthening business goals.
Importance of succession planning
Any large corporation or financial institution, especially if publicly listed, needs to have continuity. It has a fiduciary responsibility towards investors and other stakeholders. There is always the chance of the untimely departure of senior leaders due to several factors.
In the absence of succession management, this outcome can lead to disrupted business processes. There may be a tussle within the board concerning the right successor for a role, thus delaying the appointment process. A new leader appointed in a hurry may not have the tools, training and context to step into the role effectively. Critical knowledge and expertise may have been lost, rather than transferred. Employees may not be comfortable with the leadership style of the chosen successor.
On the other hand, a well-planned, well-executed, and ongoing succession planning process enhances confidence in investors, employers and customers. It lays the foundation for sustainable and profitable business growth.
The TCS example
Tata Consultancy Services (TCS) is often cited as the epitome of seamless succession planning. The transition from S. Ramadorai to N. Chandrasekaran in 2009 was not just smooth but also strategically insightful. Under the tutelage of Chandrasekaran, TCS’ market capitalisation soared to USD 50 billion by 2012. The strategy was simple: long-serving tenures, internal grooming, and a dedicated mentorship period.
This approach to succession planning ensures business continuity, sustains market value and preserves institutional knowledge. Companies like TCS have made it a part of their internal culture to identify potential leaders early and invest in their skills and leadership qualities.
Let us try and understand how large corporations such as TCS carry out succession planning.
Planning business succession
1) Identify key succession roles
Succession planning teams must identify key roles. For instance, CEO, CTO, CIO and VP (Sales) are some positions that are not easy to replace. At any given time, there must be a pipeline of capable leaders ready to step into their shoes if the need arises.
2) Ensure smooth leadership transfer
Top leadership roles come with extensive responsibility and access. Succession planning must clearly outline how the transfer of leadership will work. This ensures that a new leader is adequately equipped to take over a legacy role.
3) Build the leadership pipeline
Companies must invest in the training of new generations to take up leadership roles. For instance, talented employees must be identified, groomed and put on the growth track. Companies can also consider retention strategies, such as offering a stake in the business to retain high-value talent.
4) Consult with an expert
The Human Resources department typically manages succession planning. However, it is advisable to partner with a succession planning specialist. External intervention paves the way for objective reviews and value-addition to the process.
Impact of poor succession management
1) Loss of confidence
Chaotic succession in leadership can lead to a loss of confidence in customers/clients, employees, investors and regulators. Loss of confidence tends to have a domino effect on other aspects of the business.
2) Financial losses
Ongoing projects and those in the pipeline may be disrupted. They may be poorly managed due to a lack of efficient knowledge transfer. The company may face financial losses if clients pull out of projects due to poor or delayed decision-making.
3) Fall in share price
As the media, industry and investors get wind of these developments, it can affect the reputation of the business. A typical outcome is a fall in the share price. This trend reduces the company's valuation.
4) Employee attrition
In the face of uncertainty and poor management, employees may seek stability and opportunity elsewhere. Companies need to invest time and financial resources in training and hiring replacements. In the interim, reduced productivity is a common outcome.
The takeaway
Are you ready with a sustainable and effective succession plan for your organisation? Remember, succession planning is vital for the success and longevity of any organisation. And it should be an ongoing process that should continue even after a new position is filled. Establishing clear processes and guidelines for succession planning helps fulfil the needs of the organisation. It will allow the business to thrive for a long time to come.
[Also Read: 8 steps towards a secure financial future for your family]
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
