March 08, 2011 | Drs. John Foltz and Jay Akridge
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The Next Generation of Management: Creating a Succession Plan

Choose and develop the future leaders in your company.

Who will succeed you as owner or manager of your feed and grain business? If you are like many owner/managers, this is a topic you may not have seriously considered — or it may be something you would prefer not to think about. It is a bit like facing your own mortality — but the reality is that this is something which should be given some very careful thought. Perhaps the most important sign of a great manager is the ability to transfer control to the next generations successfully — it takes a lot to make this happen. In this column we take a look at some approaches to grooming up-and-coming managers and to the topic of management succession.

Grooming the Next Generation of Management

Peter Cappelli, management professor and director of Wharton's Center for Human Resources, states that it is not necessary for firms to groom specific people to become a manager — or, indeed, for any other specific position. He feels that it is best for companies simply to "develop people so that their skills continue to improve.” While we do not disagree at all, there is also some merit to developing an internal pool of talent — that you work with and develop with the specific intent of possibly “turning over the reins” at some point. To us, this is just good strategy and it seems especially important in small/medium sized and family-owned businesses. Obviously the urgency here depends a bit on your age and future intentions — how long you want to work, and the age difference between you and some of these key employees. But, working to grow the capabilities of your employees is just good management at any time.

This process begins by making good hires (…as if you are consciously going to make a bad hire!). But the point here is to look for evidence of people-oriented traits — communication and problem solving skills, proof of leadership, and ability to mediate. Some additional characteristics that can be used to identify talent within the workforce include the following: comfort with change; clarity of direction; thoroughness; participative management style; persuasiveness, persistence, and discretion. These traits would seem to indicate that talented people are not necessarily extraordinary individuals. People can be groomed to enhance these characteristics and become more talented themselves. But hiring with an eye toward growth potential can go a long way in bringing the right kind of people into your organization. During the interview process, some prospective employees may fill the bill for the position as currently defined. Others you can see growing beyond the immediate position. In our experience, you rarely go wrong hiring the person with the potential.

Once those with potential have been identified, then give them some time in position and observe — again for the aforementioned traits. If things continue to look promising, now look for ways to “test their mettle.” Giving them special projects, assigning supervisory duties to them, and bringing them in on periodic discussions and decisions you undertake are all ways to strengthen their experience base and observe them in action.

You should also be on the lookout for training opportunities from which the identified individuals might benefit. Most states have an “Ag Leadership” program — these are great programs to put these protégées through, and are typically a several month or even year-long program which focuses on networking, communication, leadership and other very useful “soft” skills. They typically immerse the participant in a variety of activities designed to strengthen their skill set, as well educate them about the agriculture and agribusinesses of your state.

Give careful thought the skills, background, and abilities of the individual. Talk with them about their goals, and look for training opportunities that help them grow. Suppliers offer a variety of training opportunities, and with just a bit of work, you can identify many other possibilities available through universities or organizations such as the American Management Association or the National AgriMarketing Association. Another source of good training for up and coming managers are programs offered by the Purdue Center for Food and Agricultural Business (see: https://www.agecon.purdue.edu/cab ).

The overall point here is that you really must be intentional about supporting the growth of your employees. In our lean worlds, it is easy to let 6 months or a year pass with really no focus on an employee’s growth needs — especially if they are doing a good job. It will take discipline on your part to support an employee’s growth through assignments and training.

Succession Planning

As we have discussed above, one important aspect of management succession planning involves evaluating the skills of people in your feed and grain business and identifying those employees who have the potential to ascend to top management roles. In this way, succession planning encourages staff development and sends a message to your employees that your company is serious about developing people. This approach may also persuade talented employees to stay with your firm rather than looking elsewhere for growth opportunities. Grooming a successor from within the company can save the time and expense of hiring a new leader from outside. It also aids in continuity, as an insider is more likely to follow through with current plans and strategies.

The key to management succession planning is preparing a written succession plan. This document provides for the continued operation of a business in the event that the owner — or a key member of the management team — leaves the company, is terminated, retires, or dies.

According to the online “Encyclopedia of Business” (http://www.referenceforbusiness.com/encyclopedia), fewer than one-third of family businesses survive the transition from the first generation to the second, and only 13% remain in the family for more than 60 years. Ninety percent of family companies fail to transfer into the third generation. Additionally, only 45 to 50% of business owners establish a formal succession plan. Thus, it would appear that there are definitive opportunities for working on succession for as an old management proverb states, if you “fail to plan, plan to fail.”

Experts claim that management succession planning should ideally begin when the manager or business owner is between the ages of 45 and 50 if they plan to retire at 65. Since succession can be an emotionally charged issue, sometimes the assistance of an outside consultant or mediator is required. Developing a succession plan can take more than two years, and implementing it can take up to ten years. The plan should be carefully structured to fit the company's specific situation and goals. When completed, the plan should be reviewed by your firm’s lawyer, accountant, and bank.

In the Small Business Administration publication Transferring Management in the Family-Owned Business, Nancy Bowman-Upton discusses the fact that succession should be viewed as a process rather than as an event. She outlines four main stages in the management succession planning process: initiation, selection, education, and transition. In the initiation phase, possible successors learn about the business. Here it is also important for the manager or owner of the grain and feed business to speak openly about the business, in a positive but realistic manner, in order to transmit information about the company's values, culture, and future direction to the next generation.

The selection phase involves actually designating a successor among the candidates for the job. Rivalry may often develop between possible successors — who, in the case of a family business, are likely to be siblings — and thus, this can be the most difficult stage of the process. Because of this, many business owners either avoid the issue or make the selection on the basis of age, gender, or other factors besides merit. Thus, Bowman-Upton recommends that the firm owners develop specific objectives and goals for the next generation of management — including a detailed job description for the successor. Then a candidate can be chosen who best meets the qualifications. This strategy helps remove the emotional aspect from the selection process and may also help the business owner feel more comfortable with their selection. The decision about when to announce the successor and the schedule for succession depends upon the business, but an early announcement can help reassure employees and customers and enable other key employees to make alternative career plans as needed.

Once a potential successor has been selected, the company then enters the training phase. Ideally, a program is developed through which the successor can meet goals and gradually increase their level of responsibility. A suggested part of this phase is where the owner or manager may want to take a number of planned absences so that the successor has a chance to actually run the business for limited periods. The training phase also provides the feed and grain company owner or board of directors with an opportunity to evaluate the successor's decision-making processes, leadership abilities, interpersonal skills, and performance under pressure. It is also important for the successor to be introduced to the manager or business owner’s outside network during this time, which should include customers, bankers, and business associates.

The final or transition stage in the process occurs when you as manager or owner retire and your successor formally makes the transition to their new leadership role. Bowman-Upton stresses that the business owner can make the transition smoother for the company by publicly committing to the succession plan, leaving in a timely manner, and eliminating involvement in the company's daily activities completely. We understand this is a very “tall order,” as you are being asked to “walk away” from a business in which you have likely invested significant time, effort and thought — it is a part of you! But — this is where the thoughtful and careful execution of a succession plan pays off — it should make this transition both easier and successful. In order to make the transition as painless as possible for yourself — you as the company owner/manager should be sure to have a sound financial plan for retirement and to engage in relationships and activities outside of the business.

We want to re-emphasize a couple of important points. You can kill a succession plan before it has a chance to be successful by failing to prepare your successor and/or by choosing someone based on some criteria other than merit. Employees will rally around the ‘right’ person, the person ready and qualified for the job. They will quickly dismiss the person who has the job before they are ready, or gets it because they are the ‘oldest son’, ‘favorite daughter’, etc., when someone else is better qualified. Again, this choice can be very, very tough — especially if there is no family member qualified for the role.

The succession plan can also get undermined if the owner just can’t stay away from the business. Being available for guidance and to provide a steady hand when needed, while not interfering in the day to day, is a delicate balance to strike. But, the owner/manager who lets his/her protégé spread their own wings is the one most likely to be able to enjoy retirement — and the success of what they have built.

Possible Sources of Assistance

Several software companies have developed software to assist with developing a succession plan. While this is not an endorsement of their products, they may be worth checking out. Halogen Software has a program called eSuccession which can be used to identify the skills and competencies required to support your strategic plans and cultivate these in your high potential employees with career and development planning (see: http://www.halogensoftware.com/products/halogen-esuccession). Sum Total Systems also offers a succession planning platform which can be found at: http://www.sumtotalsystems.com/products/career-succession-planning.html

Grooming Employees and Succession Planning – Part of Your Strategic Plan

Identifying up and coming employees and grooming them for management in your feed and grain business and developing a succession plan should all be a part of your strategic plan. While these items may not require quite as much attention as the short-term plan to develop capacity to merchandise an additional 500,000 bushels of grain in the next two years, or to manufacture and sell an additional 25,000 tons of feed — they are certainly important. Hopefully, this column has spurred your interest in developing such plans and given you some things to consider along the way.

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