Patterns of business succession

 

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.