It seems amiss, but it’s true – the day you start your job is the day you should begin planning to leave it.
Whether you leave by means of promotion, retirement or emergency, having an exit strategy in place will encourage you to think about the legacy you want to leave – day one. It will also positively impact the culture of the company and the engagement of your employees during your departure.
Think about it: If you were to leave your position tomorrow, who would maintain your day-to-day duties? How much time would it take you to either develop an employee to take over your key leadership role or hire someone from the outside?
Research provided in the previous article Succession Planning: Organizations Still Have Some Work to Do shows only six of 10 respondents had a succession plan in place, and 80 percent said their company would need at least a year to replace key executive leaders. These companies might reconsider their strategies if they calculated the dollar amount of a typical executive turnover, which can cost approximately three times the executive’s salary in the first year alone.
Effects of an executive transition or departure
An executive leader’s departure can have a trickle-down effect that reaches every aspect of his or her company. While a succession management plan can reduce the risk of these effects, an unexpected exit can result in:
- Heavy financial losses – As the company attempts to fill the open position, there are many complications that result in financial losses. These include:
- Separation costs: The cost of severance pay, continuation of benefits, exit interviews and other administrative functions that the company performs as an executive is leaving.
- Vacancy costs: These are costs that occur while the position is left unfilled, including overtime pay for employees who are left to juggle the tasks of the executive as well as their own. Vacancy costs often create a “domino effect” as one position begins to perform the duties of another. These costs grow if the position is left open over a long period of time.
- Low productivity costs: It is possible that, as an executive makes a sudden or unplanned exit, the contacts he brought to the company or maintained may also unexpectedly leave. Communication may slow down with key contacts or between departments and result in a time of low productivity for the company.
- Replacement and restructuring costs: Replacement costs include recruiting, interviewing and development. However, in 2013, only about 24 percent of incoming CEOs were hired from outside of the company. A more likely cost incurred by companies left without a proper succession plan is the cost of restructuring the executive leadership role for one or more current team members.
- Additional departures and feelings of instability or fear – If a key leader seems to be jumping ship, the crew may follow. Imagine a well-respected CMO uncharacteristically leaving a company without notice. The entire marketing team could follow in fear that his or her unexpected exit signaled an underlying issue with the company or that their jobs were in jeopardy. Communicating the transition process to employees through a succession plan can minimize the fear and chaos that occur when a leader leaves the company.
While the effects of not implementing a succession plan seem risky, a well-executed transition can provide an opportunity for executives to identify gaps in their business strategy and allows for innovation and restructuring that can help the company grow.
5 steps to take when creating a succession plan
As you begin to create a plan in the case of your departure, the first question you should ask yourself is: What is the legacy I hope to leave as a leader? Once you have this question in mind, you can continue to plan with the following steps:
- Build a culture of collaboration
Creating a team of employees who work together fosters a sense of team responsibility and guarantees that there are multiple hands on every job. If any employee unexpectedly leaves the company, there is another employee with a deep understanding of his or her tasks. This results in little or no productivity loss.
- Establish three qualified candidates for your role
These employees will become your leadership pipeline in case of emergency and should start being developed to lead the company upon your departure. Beginning their development now will cut vacancy and replacement costs. Communicating to your employees that you will develop them to become leaders also creates a sense of investment that will help to keep their talent at your company.
- Create a succession plan with key responsibilities
Outlining the responsibilities of each executive role is a great reference tool that can be used to find gaps in efficiency and strategy that may have otherwise gone unnoticed. A written plan will also clearly communicate the goals and duties of key roles to future executives.
- Craft a communication strategy
Communicating with investors during an executive transition is vital and will prevent uncertainty about the trustworthiness of the company. Be sure to communicate clearly with both internal and external stakeholders before your departure so they are aware of the plan in case any unforeseen risks are encountered during the transition.
- Make introductions and share professional communications with your successors
The final step in a planned transition is to be open and share all business documents and contact information that will benefit your successor. In doing so, you are further safeguarding the company and its relationship with your customers.
While planning your exit may seem like an overwhelming feat to accomplish before you transition, if you begin on your very first day, you’ll find more opportunities for growth than obstacles.