THE past several years have seen business icons like Bill Gates, Jack Welch and Louis 'Lou' Gerstner transition the leadership of Microsoft, GE & IBM respectively to internally-groomed successors.

The successful handover of leadership to Steve Ballmer, Jeffrey Immelt and Samuel Palmisano has demonstrated that the former CEOs can leave their legacy intact by creating organisations that sustain themselves beyond the giant personalities that established or transformed them.

These examples remind us of the critical relationship between effective succession planning and the long-term sustainability of an organisation.

There is a more important lesson here: Effective succession planning only happens when the CEO leads the initiative to identify and cultivate high potential talent within organisations. The CEO must take ownership of this activity and invest his time and mindshare for it to work.

Never is it more consequential to the life of a company than in an entrepreneurial firm where the founder-CEO is often the epicentre of the sales, marketing, operations, product development and strategy activities of the organisation.

The most likely causes of business failure occur during the transitional phase from an entrepreneurial style of management centred around an enigmatic personality, to an organised professional management structure.

Succession-related activities are triggered by many situations (planned and unplanned) that include the departure/promotion of existing executives, infusion of external financing, competitive shifts in the marketplace or simply growth.

Additionally, the succession process often involves the cultivation or injection of a generation of new leaders as opposed to a single person or position.

Succession planning is commonly misunderstood as being simply a contingency plan to find a replacement for the promotion or departure of a key executive. As a result it often becomes an administrative process that gets delegated to the Human Resources department and manifests itself as a last-minute scramble to identify internal candidates or retain a search firm to recruit an external candidate.

This simplistic view of succession planning takes a tactical rather than strategic approach and will likely end up costing valuable time and money with a low probability of achieving the desired impact of legacy creation and organisational sustainability.

In part, succession planning is about replacement but this is only one element of what should be a strategically planned and executed activity that is driven by the CEO and involves the active participation of the entire organisation. It should be viewed as a development strategy that supplements and enhances the entire team.

There is no generic prescription to building a succession plan; however, firms can implement a broad methodology focused on developing cultural alignment and action to address some of the issues surrounding succession planning.

The first step in a good succession plan is to be able to identify the management roles and the human resources necessary to achieve the company's medium to long-term strategic goals.

The next step involves assessing where the talent resides within the organisation at all levels. You need to identify existing high potential talent, discover the gaps that need to be filled and think about how those gaps can be filled.

Fundamentally, skills gaps can be addressed by developing, training and educating existing talent as well as hiring new talent from outside the organisation. One of the derived benefits of this introspective exercise is that it also helps to articulate what an organisation needs to look for in new hires.

A succession plan is implicitly a developmental philosophy so there is a tactical bias towards cultivating and promoting internal talent. Therefore, when looking at existing talent within an organisation, it is critical to measure the 'potential' of the executive as well as current or past performance.

The third step involves the development of high potential talent, both internal and externally-acquired. Examples of how one can do this include assigning more responsibility, providing coaching, education and mentorship.

An indelible component of this development process is learning, and for this to happen organisations need to institute mechanisms that measure performance and provide mutual feedback.

Succession planning often generates a certain amount of internal competition and if this is managed correctly it can inspire innovation, generate fresh perspectives and contribute to the health of an organisation.

Succession planning is a powerful organisational activity that enhances a company's ability to remain nimble in rapidly evolving markets. It also cultivates a culture of innovation and provides opportunity for upward organisational mobility which motivates people to achieve optimally.

It can also be an effective mechanism by which an organisation can rapidly adapt to changing environments and demographics with minimum disruption.

The intensity of competitive forces and the demographic changes taking place leading to the scarcity of good leadership talent mean that organisations need to be smart about how they leverage themselves. Thoughtful and strategic succession planning can be a key differentiator that provides an organisation with meaningful competitive advantage.

The writer is managing director of J Robert Scott

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