The Succession Planning Process In 12 Easy Steps (Template Included)

In the TV series "Succession," Logan Roy, the formidable patriarch of a media empire, grapples with choosing a successor among his power-hungry children. The struggle for leadership mirrors the challenges faced by real-world businesses in ensuring a seamless transition of power from one generation to the next.

Of course, not all companies are as dramatic or dysfunctional as the Roys. But, every organization of any size or type should create a stellar succession plan to mitigate the risks associated with key personnel leaving or retiring. This guide discusses the importance of succession planning. It also provides a template to develop a pool of succession candidates and execute a seamless handover when the time is right.

What Is Succession Planning?

Succession planning is the process of identifying and developing potential successors for critical positions within an organization, so there's always a pipeline of capable and prepared individuals ready to step in when needed. Effective planning encompasses both expected and unexpected departures—for example, a CEO might plan for their retirement but also have a backup plan in the case of sudden illness.

Often, companies choose internal successors pinpointed earlier in their tenure. Over a typical period of one to five years, the company develops their skills, provides them with growth and development opportunities, and grooms them for their new role. By doing so, the company has a pool of qualified candidates ready to take on essential roles when needed.

In the case of CEOs, Spencer Stuart's research found that 82% of S&P 500 companies favored internal successors in 2022. Of the remaining successors, 16% were external candidates, and 2% were members of the board directors acting as bridges until the right successor was found.

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However, it's not just large corporations that must commit to succession planning. SMEs must equally prepare for the future, whether passing on a family-run business to the next generation or ensuring that a key employee is ready to take the reins.

Fractional CFO Ben Hackley explains how small business owners can frame succession planning, “Instead of viewing it as 'letting go' of your business, see it as giving it the opportunity to grow and evolve. Think of it as sending your child to college. It's a necessary step for growth, and while it can be hard, it's for the best. Focus on the legacy you're leaving behind and how the next generation will uphold and build upon that legacy. This shift helps you see the bigger picture and the continuity of your life's work.”

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How Does The Succession Planning Process Work? 

Whatever the size of your business, the succession planning process involves a similar set of stages: 

• Identify key positions: Work out the organization's roles—those where if the current employee left tomorrow, you'd be in a critical situation. 
• Pinpoint potential successors: Review your current talent pool and earmark employees to prepare for those roles. 
• Develop the successors: Offer relevant training programs, stretch assignments, or mentorship opportunities in readiness to take over. 
• Hand over to the successor: When the time is right, carry out a smooth and efficient handover from one person to the next.

Why Is Succession Planning Important?

According to SHRM, only 1 in 5 HR professionals have a formal succession plan. A quarter have an informal plan, but over half haven't done any prep work to safeguard their organizations' most critical roles. Here's why succession planning is crucial for ensuring a company's longevity and sustainability:

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It Ensures Business Continuity

A personnel change, especially in leadership or customer-facing roles, can be unsettling. Customers may wonder if standards will remain high, employees about the new direction, and stakeholders about the company's stability. Succession planning ensures qualified and capable employees are ready to step into critical roles, minimizing disruptions and maintaining business continuity.

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It Retains Institutional Knowledge

A quarter of Fortune 200 companies are led by CEOs who've been in place for a decade or longer. They'll take a truckload of institutional knowledge when they depart their respective organizations. Carefully handing over to an appointed successor allows for the smooth transfer of information and experience, ensuring that the organization retains valuable insights and expertise.

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It Improves Organizational Diversity

The percentage of women and underrepresented racial and ethnic groups in Fortune 500 companies has increased from 38% in 2020 to 44.7% in 2023. But minority women still only hold 7.8% of seats, and progress for Latino women specifically has slowed, according to Deloitte. Succession planning ties into your organization's DEIB initiatives by fostering a more diverse leadership pipeline and creating opportunities for underrepresented groups to advance within the company.

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It Retains Employees With Growth Opportunities

Attrition is still a common pain point for companies following the Great Resignation, with LinkedIn highlighting that 93% of organizations are concerned about hanging onto their staff. Employees want to work for companies they can visualize their future with, and succession planning allows them to see a clear path for growth.

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12 Tips For A Smooth Succession Planning Process

Every business should execute succession planning in a way that makes sense to them. The following tips can support you in preparing succession candidates for their future roles and then sliding seamlessly into the hot seat when the time comes.

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1. Start Sooner Rather Than Later 

Succession planning is a task that's easy to leave on the back burner while we focus on more pressing matters like retaining employees, plugging skill gaps, and automating our processes to become more efficient. While these are critical tasks, what's more important than securing the future of your business? Succession planning ensures you're setting your company's next generation up for success. In the case of senior executive leadership positions, McKinsey partner Blair Epstein believes you should start planning to hand over your role from the first day you arrive. Speaking on the Inside the Strategy Room podcast, she explained:

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“This is not a conversation that should start when you're a year or two out, when you're 60 days out. This is something that should truly start on day one of your role. When you do that, don't think of it just as replacing yourself, but rather think of it as leadership development for your team.”

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2. Understand Succession Planning Doesn’t Illustrate Lack Of Commitment 

Arriving in a role and immediately preparing to leave can seem flaky. Companies want to invest in people who are dedicated to the role and plan to stick around. Allocating resources to developing a potential successor can seem counterintuitive, but this is a perspective that needs to change, as described by McKinsey senior partner Kurt Strovink: 

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"Ideally, from day one, you should be thinking about succession, you should be thinking about the development of the people pipeline. It's no admission of lack of commitment to be focused on that human capital equation from early on. I think pushing that is actually a strength of good CEO leadership. And one way to make sure it's not misunderstood by a board, is to emphasize that look from the beginning. I want to be focused on succession, not because I plan the leap anytime soon, but I'm serious about building leadership capability and making sure that we have multiple candidates and that we're strong."

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3. Anticipate Talent Gaps 

Choosing internal talent as successors offers many benefits but also creates vacancies that can be challenging to fill. We spoke to Robert Kaskel, Chief People Officer, Checkr, who encourages companies to consider the talent gaps that exist when succession candidates are promoted into a higher role. He shares:

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 “The worst thing you can do for a new leader is to set them up for failure and burnout with a stretched team missing key skills and capabilities. This is especially true since their first instinct might be to try to do two jobs simultaneously and continue their old duties as they await the lengthy recruitment process. You need to have new candidates ready to fill those roles immediately so successors can train them and seamlessly transition into leadership with the right talent supporting them.”

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4. Look Beyond Executive Roles 

Succession planning isn't just for CEOs and other senior positions. A business has many critical positions and high-performing employees that are integral to its success. Each organization should evaluate its specific needs and goals to determine which roles need to be included in its succession plan, but some common examples include: 

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• Executive positions: CEO, CFO, COO, CTO, etc. 
• Senior roles: Department heads, managers, or other key leadership team members. 
• Specialist roles: Roles that require a specific skill set or expertise, such as product knowledge or technical proficiency. 
• Employees with long tenure: People who are "part of the furniture" hold a wealth of institutional knowledge that may be difficult or impossible to replace quickly. 
• Market trending positions: If you have a talented employee in a position that other organizations struggle to recruit for, they might be targeted by competitors. 

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Stephanie Barthelemy, Head of People, Sr. Director at COTA, Inc., agrees:

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“In succession, most companies focus solely on C-level and executive-level roles. While these roles certainly are important, I've learned that the functional cruciality of a role to a business can happen at any corporate level. If succession planning isn’t in place, this can severely impact business operations and company profitability which is why we must prioritize business impact over corporate level.”

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5. Build Your Successor Bench

Effective succession planning is only possible if you have strength and depth in your talent bench. Remember that successors can be someone other than the next person in line in your org chart. Leapfrog CEOs—people like Microsoft's Satya Nadella who are not in the natural succession path—are increasingly common and make excellent candidates. 

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To build your bench, you need a solid internal pipeline of high-potential candidates you think could be developed into potential successors. Focus on a ratio of two to three candidates per critical role you need to fill. You may also consider external hires, but they come with a higher risk than internal candidates who have already proven their capabilities in the company.

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6. Take A Data-Driven Approach 

Gut instinct may have been the traditional way to approach succession decisions, but many businesses now have data to guide them. HR Executive Soumyaja Vagvala of Codegnan shares:

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“For succession planning, we use Power BI to collect data and analyze it to give us insights systematically. We feed the system with well-structured data sets like employee records and performance evaluations, and with that, we do data modeling where we represent the organizational structure, job roles, leadership requirements, etc. With all the data and identified KPIs, we then use Power BI to filter and show us the high-potential candidates for future leadership roles.”

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Smaller businesses can also lean on data to support proper planning, and there’s no need to invest in specialist business intelligence software if your budget is tight. The following types of data can be equally revealing: 

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• 360-degree performance reviews with multi-source feedback from managers, peers, and self-evaluation 
• Cognitive and personality assessments such as Hogan Assessments prove suitability for leadership roles 
• Qualifications and training program completion, for example, to signal specialist or technical knowledge
• Positive feedback received from peers and managers in your company's employee recognition software

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7. Implement A Role Experimentation Policy 

Internal moves such as secondments, rotations, or job shadowing should be part of any organization's growth culture, allowing employees to develop new skills and explore varying roles. For example, you might allow someone from sales to experiment in a marketing role if they have the interest and talent for it. This experimentation policy helps identify future leaders by exposing hidden talents, accelerating their career development, and contributing to a culture of continuous learning.

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Elizabeth Sweat, People Leader at City Journals, explains: 

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“In our company, we've found that letting people try out different jobs really helps us find the next generation of leaders. When someone tries a bit of everything, they usually find something they're great at, and that often turns out to be leading others.”

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Nectar Tip: Always implement role experiments with structure and purpose so employees aren't jumping from team to team without clear objectives.

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8. Communicate Your Succession Plan

Once you've identified your pool of potential successors, hold conversations with each candidate to check their interest in succession development. Let individuals know they're part of the company's succession plan and share any potential career paths or new roles you might be considering.

These conversations create transparency, ensuring employees see a fair path to advancement. They also work as a strategy to reduce turnover, showing employees that the company is invested in their growth and sees them as an integral part of its future success.

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9. Understand The Right Time To Hand Over The Reins

Unless the succession is unexpected, in the case of an accident, illness, or any other sudden departure, you'll need to pick a handover date. And finding the perfect moment can be challenging—it can feel like there's never a good time. McKinsey senior partner Kurt Strovink suggests when it might be time to step aside:

• You’re not equipped for the evolution of the business: If the world around you is changing rapidly, and you're less capable or the less natural choice to lead in the new era.
• Your successors are ready: They're prepared to take the reins, and you want to harness their fresh energy to strengthen the next generation. 
• You don’t want to lose your successors: People who stay in the chair too long may cause executive talent to move on and find an opportunity elsewhere.

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10. Be Strategic About What You’re Handing Over 

Succession planning is a process that takes between one and five years, from choosing candidates and nurturing their growth to handing over a critical role to them. During the handover part of the process, the incumbent employee will pass on their knowledge and responsibilities in a specific order determined by:

• Criticality: Some tasks might require a more immediate handover to ensure business continuity. Other non-essential duties can be passed along gradually. 
• Complexity: Separate tasks that are more straightforward from those that are more complicated or require a specific skill set or experience level.
• Impact: Consider what areas the successor will have the most impact on and prioritize those responsibilities. This is especially important when handing over leadership positions where the ability to influence others is critical. 

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McKinsey partner Blair Epstein highlights some of the discussions that may take place during this phase, including handing over relationships as well as work: 

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“How can you help them build stakeholder relationships, internal stakeholders, external stakeholders, hand over those relationships, hand over the business knowledge, particularly where there's big in-flight pieces of work that will continue? Share some of the behind-the-scenes counsel; talk to them about talent; talk to them about the things that are in your mind that no one else might know.”

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11. Ensure Role Clarity 

Sometimes, it's tempting to have a period where the original person works alongside the successor until they're ready to lose their training wheels. While there are merits to this approach, it can slow down any organizational progress if the roles aren't clearly defined. For example, your team members may inadvertently undermine the new leader by contacting the previous leader for decisions or approvals. Get around this by clarifying roles based on:

• Differences between roles: While there will be some overlap, defining where one person's domain ends and another's begins is essential.
• Authority levels: Be transparent about who makes final decisions so everyone knows where to go when they need something.
• Leadership styles: Succession shouldn't mean the new leader is a carbon copy of the old one. Allow for some flexibility in how the role is approached, and don't expect a replica performance-wise.

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12. Embrace The Period Of Renewal 

The process of key players bringing their strategies to a close and inviting successors to stamp their own mark is essential to the succession process. This renewal period is ideal for exploring new avenues for growth, re-engaging employees who were fed up under previous leadership, and evaluating the organization's progress.

Celebrate the transition by hosting a welcome event or team-building exercises that allow successors to develop relationships with existing staff. Remember, you want the new leader to be warmly welcomed by team members and have a good support network during this critical period of change.

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Download Nectar's Succession Planning Template

Are you ready to kickstart your succession planning process? Take this article one step further by downloading our free succession planning template. Click the image below to add a copy of this template to your Google Drive.

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3 Positive Examples Of Succession Planning 

Wondering what an effective succession plan looks like in the wild? Here are three examples:

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McDonald's 

In 2004, McDonald's faced a significant leadership challenge when the company lost two consecutive CEOs within a year. James R. Cantalupo died suddenly of a heart attack, and his successor Charles H. Bell left six months later due to terminal colorectal cancer. But the fast-food giant had another succession candidate waiting in the wings, and its subsequent move proved crucial to McDonald's resilience and success. After Bell resigned, James Skinner moved seamlessly from vice chairman to CEO after starting his career at McDonalds 33 years prior. 

One of Skinner’s moves was to reinforce the importance of succession planning, leading him to enhance and institutionalize the process during his tenure as CEO. Under Skinner's leadership, McDonald's thrived, achieving record-high stock prices and sustained growth.

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Apple 

Steve Jobs chose Tim Cook as his successor at Apple in 2011 while experiencing health challenges. Cook had previously demonstrated exceptional leadership during Jobs' medical leaves, showcasing his ability to manage the company effectively during critical periods. Following Jobs' passing, Cook seamlessly assumed the role of CEO, and Apple sustained its growth trajectory. Cook's emphasis on diversity and sustainability, while preserving the core principles laid down by Jobs, ensured a smooth transition and the persistence of Apple's legacy as a global tech industry leader.

Although Tim Cook has no plans to leave his post soon, he is committed to finding his own replacement. Speaking on Dua Lipa’s At Your Service podcast, Tim Cook shared:

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"We're a company that believes in working on succession plans, so we have very detailed succession plans. Because something unpredictable can always happen. I can step off the wrong curb tomorrow—I pray that doesn't happen. My job is to prepare several people for the ability to succeed, and I really want the person to come from within Apple. So, that's my role, to make sure there's several for the board to pick from."

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Barneys

Daniella Vitale assumed the role of CEO at Barneys New York in 2017, succeeding Mark Lee. Vitale, who initially joined Barneys as Chief Merchant, had an extensive background in the fashion industry, having worked for renowned brands such as Gucci, Armani, and Ferragamo. Mark Lee, the outgoing CEO, demonstrated a commitment to Vitale's professional development by implementing a five-year succession plan that provided her with multiple leadership opportunities. For example, as COO, Vitale gained comprehensive leadership experience across various business areas, preparing her for the CEO role. Mark Lee's endorsement of Vitale as his planned successor highlighted her unique qualifications and readiness to assume the day-to-day management of Barneys.

Recognize Your Future Successors With Nectar 

It's important to keep morale high during the succession process, continuously recognizing your employees for their hard work and contributions to the organization.

Nectar offers a suite of tools designed to engage and retain your employees:

• Recognition: Managers and peers send shoutouts and Nectar points to acknowledge team members who have exhibited core company values. These messages of appreciation are visible in the Nectar feed. 
• Rewards: Employees can exchange their accumulated Nectar points for a host of rewards, including Amazon products, gift cards, charity donations, company swag, and custom rewards. 
• Challenges: Leaders can incentivize positive habits by setting up workplace challenges in exchange for Nectar points. 
• Milestones: Companies can celebrate succession candidates by honoring their birthdays and work anniversaries as they wait in the wings.

Ready to learn how to use recognition to spot and engage future leaders? Download our succession planning resources and book a free Nectar demo today.