What defines a successful succession? The importance of succession planning from an EU perspective
Succession, or business transfer, is defined as “the transfer of ownership of an enterprise to another person or enterprise that assures the continuous existence, and commercial activity of the enterprise” (European Commission, 2012: 9). A successful succession ensures business continuity, preserves employment, and upholds business values, whilst an unsuccessful succession can jeopardise the profitability of the company and even risk its eventual closure threatening the jobs of employees (Di Stefano, 2018).
According to the literature, the success of succession is influenced heavily by internal company dynamics. It is important to meticulously plan business processes, and business succession should not be an exception to this (Rotaru, Mihai & Ogarcă, 2020). Mokhber et al’s (2017) research revealed that approximately 70% of small family businesses collapse due to lack of succession planning. Succession planning (SP) refers to a deliberate and systematic process of planning for a change in leadership, which plays close attention to the retention and transmission of valuable corporate knowledge for business continuation and success and the identification of future leader(s) who can replace current leadership when they leave the organisation, retire, or in the event of their death (Obianuju, Ibrahim & Zubairu, 2021). The SP process is a continuous activity that requires frequent updating and re-evaluation in response to the changing internal and external conditions of the organisation (Hayden et al., 2021). Important elements of a SP involve preparation and training of the successor as well as defining the role that the departing leader will take during and after the succession (Rotaru, Mihai & Ogarcă, 2020)
A well-planned SP is expected to provide several benefits to an organisation. This assertion is confirmed by the literature that has found that businesses with formal succession plans outperformed those without these plans (Harrell, 2016; Sharma & Sengupta, 2018; Tao, Zhao, 2019). Furthermore, structured SP has a positive effect on a company’s adaptability and dynamic capacity, which in turn leads to a positive impact on the firm’s financial and non-financial performance post-succession (Obianuju, Ibrahim & Zubairu, 2021). Furthermore, literature has identified that the more comprehensive an organisations succession plan, the more successful the leadership transition process (Obianuju, Ibrahim & Zubairu, 2021).
Evidence suggests that successors should be selected by the company CEO themselves, rather than being delegated as successors who are selected by the founder are shown to outperform those selected by others in taking over leadership activities (Kiwia et al., 2019). Furthermore, a bottom-up participatory approach found to be the most effective strategy for holistic SP in organisations and a clearly defined SP (clear selection, criteria, clear rewards and clear organisational structure) have a positive impact on employee satisfaction, engagement and performance, as well as reducing employee turnover intentions (Obianuju, Ibrahim & Zubairu, 2021). A formal succession plan is also useful to reassure stakeholders about the competency of the business to deal with leadership change (Sain & Koul, 2020).
Literature agrees that the use of external expertise in succession negotiations is a key success factor (Alpeza, Tall & Mezulić Juric, 2018; Obianuju, Ibrahim & Zubairu, 2021; Tall et al., 2017); external advisors significantly improved the odds of overall satisfaction with the succession process (Motwani et al., 2006).
Author: Tasha Day, Junior Project Officer at UIIN.
Editor: Mario Ceccarelli, Project Officer at UIIN
References
EC (2012). How to support SME Policy from Structural Funds. Facilitating Transfer of Business. Guidebook Series n. 3
Di Stefano, C. (2018) The Business Transfer Through the Cooperative Model. A Comparative Analysis Italy France (2018). Journal of Entrepreneurial and Organizational Diversity, Vol. 7, No. 2, 2018, pp. 62-86, Available at SSRN: https://ssrn.com/abstract=3349107
Rotaru, V., Mihai, L., & Ogarcă, R. (2020). Succesion Management In Romanian SMEs. Management & Marketing Journal, 18(2), 135-150.
Mokhber, M., Gi Gi, T., Abdul Rasid, S.Z., Vakilbashi, A., Mohd Zamil, N. and Woon Seng, Y. (2017), “Succession planning and family business performance in SMEs”, Journal of Management Development, Vol. 36 No. 3, pp. 330-347. https://doi.org/10.1108/JMD-12-2015-0171
Obianuju, A. A., Ibrahim, U. A., & Zubairu, U. M. (2021). SUCCESSION PLANNING AS A CRITICAL MANAGEMENT IMPERATIVE: A SYSTEMATIC REVIEW. Modern Management Review, 26(4), 69-92.
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