The Value of Succession Planning for SMEs
Of all the business-critical decisions that were made in your organisation in recent years, how many of these were related to succession planning?
Succession planning refers to the process of identifying and developing employees with the leadership potential to fulfill key roles and ensure organisational success in the medium to long-term. The need to replace senior leadership is inevitable due to reasons such as retirement, and resignation. However, this essential process may be overlooked when organisations keep their focus on current financial challenges instead. This has longer term repercussions for employers; research has shown that businesses that are unprepared for the turnover of senior leadership may face a 10 to 20% decrease in operating performance and a 5 to 10% increase in volatility1.
The Unique Challenges Faced by SMEs
As SMEs seek to be competitive in an increasingly challenging market environment, succession planning for key leadership positions cannot be ignored. A local study of SMEs identified increasing competition as one of the top risks faced by employers and linked it to their inability to attract and retain quality talent2. Thus, SME employers should begin the conversations around succession planning early, to ensure the smooth transition between leaders and the long-term survivability of their organisations.
The business value of succession planning:
- Ensures the long-term endurance and sustainability of the business, by minimising disruptions, uncertainty and potential conflict.
- Provides sufficient runway for knowledge transfer and honing of leadership ability of potential leaders.
- Aligns goals throughout the organisation early, by identifying business objectives as well as the leadership requirements to address these.
In the war for talent, having a clear and structured plan for talent development that includes options such as cross-functional training, on-the-job exposure to different projects and mentoring programmes can make SMEs more attractive to potential hires, and make it likelier that they retain existing high potential employees as well.
Singapore’s ageing workforce also has implications for SME employers. It is projected that by 2030, 40% of the workforce will consist of employees who are aged 50 and above3. With individuals likely to remain in the workforce for longer, SME employers should consider succession planning as one way to spot and develop talent early in their careers, to fully optimise their years of contribution to the organisation. Additionally, employers should find effective ways to tap on mature workers as a valuable resource for mentorship and knowledge sharing, as they are a trove of business knowledge and relationships nurtured over time.
Forward-thinking SMEs can look to progressive employers who invest in human capital development, for key strategies in effective succession planning. A TAFEP study was conducted to uncover the relationship between human capital practices and business performance. The research revealed that exemplary organisations that experienced business success took a structured approach in their overall HR strategy – including succession planning.
These are the key steps to succession planning that were identified, that SMEs should consider as well:
Succession Planning Implementation Plan
Form a Talent Council and Identify Critical Positions
A Talent Council consisting of senior leadership and HR should be created to ensure the succession planning is relevant to the business. A periodic review of the succession planning programme should be carried out to meet the changing needs of the business over time. The Talent Council will also determine critical job roles which significantly impact the achievement of organisational goals.
Analyse the Success Profiles of Critical Positions
A comprehensive analysis should be conducted to understand the success profiles for the identified critical positions. That is, to find out the competencies, skills, values and behaviours that are needed to be successful in these key job roles.
Identify and Build a Leadership Pipeline
The Council will need to determine the optimal number of successors required for each critical position. This is particularly important for SMEs that anticipate a growth and expansion phase where the business needs are likely to become more complex. The next step will be to identify employees internally with the potential to fulfil these roles. They should be evaluated through consistently applied assessments based on the success profiles determined earlier. As a best practice, employers should seek to promote from within the organisation, to support the development of their workforce.
Develop and Track Progression of Successors
Even future leaders with high potential will have competency gaps that need to be addressed. Individual Development Plans can be designed with inputs from the candidates. These plans should focus on relevant experiences, exposure through coaching and mentoring as well as relevant certifications and other educational requirements of the role. The progression of these high potential talents will need to be carefully tracked over time.
Expected Outcomes and Successes
Organisations that have consistently followed through on their succession planning, have seen various positive outcomes. Through the concerted efforts of the senior leadership and HR, the identified high potential individuals have taken on enhanced roles or experienced job rotation, providing them with more experience in different parts of the organisation’s work. As these individuals were given opportunities to learn and grow, retention of these employees also increased. Having to clearly identify the business-critical roles and the relevant attributes to succeed in them, also sharpens HR's strategies to identify, recruit, develop and retain highly skilled personnel who can support the organisation’s long-term growth.
SMEs that seek to thrive and stay competitive will need to make succession planning a key strategic priority. By investing effort in identifying and nurturing high potential talent who will form the next generation of leaders, SMEs will ensure their longevity even in a constantly changing market environment.
The Fair and Progressive Employment Index (FPEI) is a free, online self - assessment tool that allows employers to evaluate organisational workplace culture and benchmark their practices against industry peers. The FPEI offers insights and recommendations on how employers can leverage their workforce for better business and employee results.
 “Passing the Baton”: The effects of CEO succession planning on firm performance and volatility. (2018). Wiley Online Library. https://onlinelibrary.wiley.com/doi/full/10.1111/corg.12251
 Aon Asia newsroom - Inability to Meet Evolving Customer Needs and Increasing Competition are Top Risks for Singapore Small and Medium Enterprises (SMEs). (2019).https://www.aon.com/apac/in-the-press/asia-newsroom/2019/press-release-4-april-2019.jsp
 Aging Workforce Cost and Productivity Challenges of Ill Health in Singapore (2017). https://www.mercer.com.sg/our-thinking/health/aging-workforce-cost-and-productivity-challenges-of-ill-health-in-singapore.html