Given the uncertainties we face; it is wise to plan for a time when you may not be around to lead your business.
The ongoing second wave of Covid has left a trail of death and devastation. People have suffered huge losses both on personal and professional fronts. While tales of young children left without parents grab news headlines, the stories of companies where the founder has suddenly passed away because of Covid and left the company grappling for survival is no less worrisome.
There are around 63 million MSMEs in India which are working relentlessly to make an impression on the world market. The founders or a small management team run most of these entities and very few have a proper succession planning in place. When these key players leave the business upon retirement, ill health, critical situations, death or in pursuit of other options, the businesses end up collapsing in the absence of a proper succession plan.
Succession plan and the roadblocks
Industry subject-matter experts say succession planning is a major challenge that MSMEs face, but still doesn’t get the attention that it deserves.
“As many as 35 percent of MSME owners feel succession planning is their biggest challenge. Unlike big businesses which have a clear organisation structure, MSMEs largely have an owner or promoter driven structure due to which the decision making is focused on them. The rest of the people in the organization are implementers. There is a functional implementation of roles and responsibilities. There is no concept of shared ownership, the external talent is only need based, and loyalty is higher than just functional capability,” said V Swaminathan, Head of Corporate Audit & Assurance,Godrej Industries Limited.
He adds that the next generation is not interested or educated enough and since development of talent was never on the agenda, businesses die once the owner hangs up his or her boots.
Swaminathan was talking at a webinar on succession plan for MSMEs, Indian entrepreneurs conducted by The Institute of Risk Management (IRM), India Affiliate, in collaboration with National Institute of Micro, Small and Medium Enterprises (NI-MSME).
What a good plan looks like
When it comes to MSMEs, people talk about attrition, but succession planning really doesn’t get the attention that it deserves because of psychological reasons. Most of these MSMEs are owner or promoter driven and there is a fear of family conflicts and stake holding issues among other things. But the fact is that succession planning is very critical more so in these times of Covid-19 pandemic where organizations are grappling with the problem of continuity as many in the management are seriously ill or in home quarantine and hence could not provide the right guidance.
Outlining the important aspects of a proper succession planning program, Jitender Arora, CFIRM, Managing Director & Head – Business Risk Management, State Street says that this program cannot be run by HR or management paying lip service, but there has to be commitment from the top level of management.
“Accountability has to rest with the top level whether it is owners or promoters. They need to make sure that they are providing all the support for this exercise,” he adds.
Integrating succession planning with the future strategy of the organization is the second important aspect. “Many organisations have super stars who perform very well but they cannot train that person to handle critical responsibilities in the time of need. For example, if you are doing a big digital push, you need someone who has that skill, knowledge and experience to take you to that next level,” explains Arora.
Third, critical people need to be identified, but it is also equally important to build a talent pool. “Don’t put all your eggs in one basket, identify people for different roles and give them diverse experiences,” says Arora.
Communication is another important part of a succession program. It needs to be ensured that the decision on succession planning is communicated on time to all the relevant parties so that there is no confusion and people know what they can expect. “Have development plans like coaching or a feedback related exposure that you want to give. That’s where the accountability part comes in,” he adds.
A must for business continuity
With rapidly changing environments, organisations are facing serious unpredictability and uncertainty, leading to instability in their business operations. In this environment the organisations need to rely on the most important asset- their people.
Traditionally succession planning is linked with the replacement planning. This is a form of a risk management which focuses on replacing the key executives just before they leave the organisations.
“Replacing employees and not developing them is a big and one of the common mistakes done by organisations. There are many problems arising from the replacing process. For example, most times it is hard to find the right employee for a new vacancy in a short period,” says Sandeep Bhatnagar, Director (Marketing & Business Development) NI-MSME.
The exit or exodus of key stakeholders can make a business vulnerable and diminish its worth as investors will not invest in a business that is not sustainable. A good succession plan can add value to MSMEs and make them more sustainable. If this planning is done correctly and with foresight, it can ensure continuity of leadership and provide a solid foundation for the employees and managers.
“The plan needs to be reviewed annually to ensure managers’ suitability for positions and that all aspects have been accounted for,” he adds.
An organisational structure should be implemented so that employees know what is expected of them so that the company can still carry on if something happens to the top management. “Existing top management and shareholders should have contingency plans in place to ensure that the business can outlive them and that they can have a proper exit strategy in place,” adds Bhatnagar.
In conjunction with a good succession plan, it is also necessary to have a good performance management system to ensure that we identify potential top managers from within or to see where individuals can improve or which skills should be recruited from outside. Also, employees should be multifunctional and flexible and duties should be delegated in such a way that the business can continue to operate if one or more key persons are absent.
Take an innovative route
There is a need to think of innovative ways of making the succession happen, feels Shailesh Haribhakti, Chairman, Shailesh Haribhakti & Associates.
The obvious one is the employee succession. “Make your succession planning visible, communicate it to people. Make sure the people know employees can be your successor but more importantly it should be communicated clearly. This creates a huge empowerment in dealing with difficulties in the value chain. In order for you to be a dependable part of the value chain you need to make sure that the people are confident that you will continue to supply high-quality goods and services,” he says.
Give an option to a private equity player to buy the equity through a will or to create a trust house which will clear the succession planning ideas. “It is not necessary that you should have an identified successor. You could put it in the trust house which can manage the continuity of the business for a short while until a new person is found. Some people don’t like to make a successor and you have to make sure that they are catered to,” he adds.