The Business Transition Blog

Succession Planning – Leveraging Your Assets

You’ve heard company promotions assert that “People are our most important asset.” You may have said it yourself. If there is any truth to that statement, then as you transition or sell your business, “people” – your employees – will play an integral role in running your business while you slow down, or adding value to your asking price when you sell.
For that reason, and because of recent trends, Succession Planning is more important to you now than ever before. William Rothwell’s research indicates a number of trends that make Succession Planning more urgent today:

1. The need for speed;
2. A seller’s market for skills;
3. Reduced loyalty among employers and workers;
4. The importance of intellectual capital and knowledge management;
5. The importance of values and competencies;
6. Managing a special issue: CEO succession.

Because of these trends, the ignorance of which could cripple a company when things go wrong, you need to be prepared. Even at this stage – especially at this stage as you prepare your business for transition — you need a plan that will address the challenge of recruiting, selecting, hiring, training, coaching, developing, and above all, retaining great employees.

INTERNAL BLEEDING
There are four typical and easily identifiable stages employees go through when they join and work with a company. If we assess their engagement level and their proficiency and put it on a chart, it would look like this:

Q 1 – Entry Level
• Highly engaged and motivated individuals
• Keen to learn and do well
• Not yet proficient, competent or productive
• Low performance
• Cost you money – an investment Q 2 – Stars
• Continue to be highly engaged and motivated
• Have learned skills and knowledge
• Have developed good habits
• Proficient, competent and productive
• High performance
• Always looking for ways to be better
• Make you money – return on investment

Q 2 – Stars
• Continue to be highly engaged and motivated
• Have learned skills and knowledge
• Have developed good habits
• Proficient, competent and productive
• High performance
• Always looking for ways to be better
• Make you money – return on investment

Q3 – Falling Stars
• No longer engaged
• Stopped learning new skills and knowledge
• Barely competent – not bad enough to terminate but not good enough to keep.
• Beginning to develop bad habits
• Not as productive
• Make money some days, cost you on others.

Q 4 – Deadwood or Toxic Dumps
• Not engaged
• Behind the times
• Incompetent – should be terminated
• Bad habits
• Unproductive
• Toxic – bad example to all and dragging others down.
• Cost you a lot of money – money down the toilet. Q3 – Falling Stars
• No longer engaged
• Stopped learning new skills and knowledge
• Barely competent – not bad enough to terminate but not good enough to keep.
• Beginning to develop bad habits
• Not as productive
• Make money some days, cost you on others.

Q1 Employees are hired and they enter the four quadrants in the upper left. They’re excited. This is their first day on the job. But initially, even though they might have trade or professional skills, their proficiency isn’t high. You hope these will be your future stars. But initially, they are still untested and a cost or investment to the organization until they become more proficient. Too many people in this category are expensive and may indicate high turnover.

Q2 After a while, depending upon their ability to learn quickly and the complexity of the job, they become both highly engaged and highly proficient. They join Quadrant Two. These are your super stars. They are great. They are responsible and accountable. They do whatever it takes to get their job done. You want to do everything in your power to keep people in this corner. You want to train, coach, support, and promote them, and show them that you care about their professional advancement.

Q3 However, over time in most organizations, some of these people will become disengaged and for a myriad of reasons they lose their motivation. As a result, they are still proficient, but not as engaged. They’ve slipped almost unnoticed into Quadrant Three.
Quadrant Three people know how to play the game and how to work just hard enough to stay under the radar. But at the coffee machine they are busy recruiting people from Q1 and Q2 to their way of thinking. These disgruntled employees spend more time with your new recruits than you or your managers do. The Q3ers are toxic. They reduce morale, lower quality, forget to do machine maintenance, treat customers – inside and outside — as a nuisance, and have high absenteeism. They may or may not be deliberately malicious, but they are no longer an asset; they are becoming a liability.

Q4 After a while, some people just give up and slip into Q4. They stop even putting on the appearance of caring. They don’t take training or stay abreast of issues in their field. They get sloppy. And over time they lose their proficiency as well as their engagement. They have clearly become liabilities. Why are they still working for you?!
This is such a common phenomenon it almost seems pre-ordained. We have described this as “Internal Bleeding.” In our work with clients, we have found that ten to 15 percent of a company’s payroll is often pure waste and could be redirected to improve their bottom line.

Keeping deadwood in your organization is not good for anyone – including the employee. It costs the company now, it will cost you when you sell the company, it negatively affects your good employees, and it is disrespectful of the employee who is not being coached to find more meaningful employment. Implementing a prevention program and dealing with deadwood in your company may well be one of the most important steps you take in preparing your business for transition.

COMPLACENCY – THE KILLER OF NECESSARY CHANGE

Almost everyone was caught off guard by the economic storm of 2008. While there were red flags that are obvious now with 20-20 hindsight, even some economists were still predicting growth just a few months before the maelstrom. Some people were prescient, wary enough to pull out of their stock investments sooner and avoided major losses. Most were not.
Imagine some of the meetings that must have taken place before this big economic crash. It’s June, 2008 and a meeting has been called in the boardroom. Large, ornately framed portraits of the founding fathers adorn the dark walls. The room smells of money. Old money. Permanence. Success. It’s a well established, profitable company.

Today’s meeting has been called by a nervous vice-president. Conversation between the sales manager, comptroller, operations manager, and manufacturing manager is percolating around the coffee pot. “I’m concerned about the trends I’m seeing in some of your reports”, opens the VP.
“We’re down a bit from last year, but I’m not too worried,” the sales manager responds. “My people tell me they have a lot of orders waiting to close in the fall. You know it always slows down a bit in the summer.”
“I’m not concerned at this point either,” echoes the manufacturing manager. “I’ve spoken to our suppliers and they’re seeing a slight dip but I know one of them just invested half a million in new equipment and is planning to increase hiring in the next couple of months.”
“I hear you,” muses the comptroller, looking thoughtful and slightly guarded. “I’ve heard some buzz in our association meetings, but the general feeling is cautious optimism.”
“I just hope it gets a little easier for us to hire people,” complains the operations manager. “If I could hire twenty good engineers, I’d do it right now. In fact, I’m interviewing three this afternoon that look pretty good.”
The VP listened, but wasn’t convinced. The evidence of a pending calamity was not yet clear but her intuition told her something didn’t add up. She had a choice to make. She would have had no idea that her decision to push or not to push her concern forward would have such an immediate and profound impact on her business.

I’m sure this scenario played out in a similar fashion in thousands of businesses around the world. If someone raised concerns about where the economy and therefore the business was going, someone else was equally prepared to smile, pacify him or her, and negate the concern for a need to change. Complacency may well have been the biggest weakness facing businesspeople as they blindly stumbled into the toughest economy since the 1930s.
Complacency and inertia lead to a lack of urgency. Our behavior continues as before unless something interrupts the pattern. Sometimes we all need a wakeup call. Otherwise, committees continue to hold endless meetings without outcomes or expectations. Administrators continue to work on meaningless reports. Even when we look at the facts and wonder if a change is required, our natural tendency will be to overlook clues that may be obvious to an objective outsider. In Joel Barker’s research into paradigms, he learned that we see what we expect to see and will tend to deny or even be physically blind to the evidence to the contrary.

But if we are certain that predictable events will occur, we can prepare for them. The better prepared we are, the better equipped we are to face whatever challenges exist – many of which are, in reality, predictable.
• You will get older.
• You will at some point become less capable of running your business.
• You will one day sell your business – on purpose, or by default.

It’s peculiar that well-intentioned, intelligent, successful individuals can be caught off guard by the simple and inevitable reality of change. Yet many entrepreneurs resemble deer in the headlights when they consider their retirement. They procrastinate, deny the inevitable, and suppress reality rather than prepare for the change that is coming.

It’s difficult to accept our own mortality. But if we don’t, our family will have to.
John Kotter said “Never underestimate the magnitude of the forces that reinforce complacency and that help maintain the status quo.”