To be efficient, patterns of business succession
should match industry complexity
Figure 1. How patterns of business succession should match
industry complexity
Business
succession is a transfer of ownership
and/or top management in companies.
Business
succession management is a process
through which companies plan, organize, motivate and control business
succession.
Efficiency of business succession reflects the degree of
stakeholders’ satisfaction with the process outcomes after a period of 12-18
months after the succession took place.
Complexity of
business succession management
represents the variety and amount of resources companies invest in the process.
Complexity of
industry depends on its rate of consolidation, capital and technology
intensity, market volume and potential, general exposure to macro-factors. It
is properly represented by the rank of the industrywide weighted average
β-factor against the overall financial market benchmark.
Patterns of
business succession are “model plus
action” kits which companies build and use to efficiently transfer ownership
and/or top management. Four patterns are observable: ad hoc reaction, short
term heir, long term heir, talent pool.
Ad hoc reaction is a practice of unplanned management replacement
decisions made to respond to internal or external emergencies.
Short term heir is a personalized replacement-targeted practice of
leadership development planned and performed over a period of 1-3 years.
Long term heir is the same as above but with the time span of 3-10
years.
Talent pool is an integrated leadership development and
succession practice applied to the whole organization’s human resources as part
of strategic management.
What the business
succession problem looks like internationally
In the current discourse business succession issues
fall in four broad categories:
- family and organizational;
- legal, finance, tax;
- other barriers against business succession;
- practical approaches to business succession.
It appears the debate focuses primarily on small and
medium companies of developed countries. That can be explained by a high rate
of closures of such companies due to lack of strategic approach to business
succession and by the active role governments wish to play in supporting SMEs
as employers and taxpayers. However, there is a noticeable discussion with the
emphasis on implementation aspects of business succession management in large
corporations. That one often takes for granted business succession is an
integral part of the process of strategic management and, therefore, frequently
seen as a stand-alone problem area. In the last decade emerging economies have
contributed to the business succession discourse (Ip and Jacobs, 2006; Stadler,
2011).
Concerns related to planning for succession are spread
across diverse industries (Ip and Jacobs, 2006).
Generally, the personalized replacement approach to
business succession is being widely criticized as it is obviously less
“strategic” and probably less satisfactory to stakeholders than the long-term
talent management based on pooling talents and using competence merits for
selecting the best (Groves, 2006; Hatum, 2010).
Why industry may shape the pattern of business
succession
There may be a reason to question the versatility of
the strategic talent pool approach to business succession. Researchers indicate
there are apparent differences in actual patterns of business succession
between companies representing different industry sectors. The heir pattern was
preferably practiced in retail, wholesale and manufacturing industrial sectors;
the talent pool pattern was most frequent in financial sector, as well as in
education, real estate, transport, utilities; the ad hoc reaction pattern was
largely used in construction, mining and services (Taylor and McGraw, 2004).
The talent pool succession pattern appears to be most
rational way to identify best candidates for management positions. It is
depersonalized, objective, performed in a comprehensive way as part of
strategic management in companies. Stakeholders admitted its high efficiency.
On the other hand, they justified high costs associated with it by indicating
that otherwise their companies would have not been able to meet the challenges
of industrial rivalry and other external factors (Groves, 2006; Ip and Jacobs,
2006; Stadler, 2011).
It seems that the degree industry complexity
influences stakeholders’ views of how much effort and money should be invested
in business succession management to offset potential strategic losses in the
future. In other words, the more complex an industry is, the bigger investment
is considered necessary.
It also seems that the opposite is correct, too. If
there is no industrial strategic challenge for major investments into the
talent pool pattern, companies’ practice of business succession becomes less
complex. Stakeholders tend to choose less expensive and less time-consuming
approaches to business succession: the long- and short-term heir patterns, or
the ad hoc reaction.
Hence, if stakeholders’ satisfaction with the outcomes
of business succession is viewed as an adequate measure of its efficiency, it
is sound to link the degree of industry complexity to matching patterns in
business succession management. The least complex pattern would be the ad hoc
reaction, it is followed by the short- and long-term heir patterns, and the
talent pool pattern works best in cases of high industry complexity. The model
is presented in Figure 1.
Such reasoning has led me to this entry’s headline
hypothesis proposition (modified Dec 04, 2013): to be efficient, patterns of business succession should match
industry complexity.
References
Groves
K. (2006), “Integrating leadership development and succession planning best
practices”, Journal of Management
Development, Vol. 26 No. 3, 2007, pp. 239-260.
Hatum,
A. (2010), Next Generation Talent
Management: Talent Management to Survive Turmoil, Palgrave Macmillan, New
York, NY.
Ip,
B., Jacobs, G. (2006), “Business succession planning: a review of the evidence”,
Journal of Small Business and Enterprise
Development, Vol. 13 No. 3, 2006, pp. 326-350.
Stadler,
K. (2011), “Talent reviews: the key to effective succession management”,
Business Strategy Series, Vol. 12 No. 5, 2011, pp. 264-271.
Taylor,
T., McGrow, P. (2004), “Succession management practices in Australian
organizations”, International Journal of
Manpower, Vol. 25 No. 8, 2004, pp. 741-758.
