Passing the Baton
To ensure business continuity, many leading companies are creating a succession plan. Have you got one?
By Akanksha Prasad & Priyanka Chowdhury
 In my 30-odd years in IT business, I have seen several leading companies become extinct or lose their way due to lack of proper succession planning. The best example that comes to my mind is that of Datapro, who at one time was a leading IT distributor, but the untimely death of one of its directors resulted in its downfall,” says Nitin Shah, Managing Director, Allied Digital.
This episode and a few others, led Shah to prepare a succession plan for all its key managers way back in 2000 when the company hardly had a turnover of Rs 10 crore. “Preparing a succession plan is akin to writing your Will. As much as you owe the Will to your family, you owe a succession plan to all the stakeholders in your company including customers and employees,” avers Shah.
Allied Digital was probably the first solution provider to appoint a professional CEO, Bimal Raj who has been running the company operations for over seven years. "Letting someone from outside your family run the company that you have built with your sweat and blood is tough. But it is an emphatic statement that anyone can aspire to run Allied one day. It also allowed me to gradually move out of micro-level management and don a more strategic role. On hindsight, I feel that if I hadn’t delegated, I may not have been able to achieve what we have for in the last 4-5 years,” says Shah.
Allied is not the only company to think so strategically about succession planning. Saurin Shah, Founder and MD of Ashtech Infotech too believes in the strategic importance of having a systematic succession plan. “About five years back, I decided to plan for my succession. I chose two of my best employees—B Shankar who currently is the President of the company and Vinod Menon who is Director of technology—as my successor(s). Presently I am mentoring both, and eventually, the best man will succeed,” adds Shah.
Devendra Taneja, CEO of PC Solutions adds, “Having a succession plan is vital to business continuity. In any kind of eventuality, the business shouldn't suffer. In channels, where most companies are driven by single individual, it’s easy to undermine the criticality of succession planning. Mind you, by succession planning, I don’t mean finding a replacement for me, but for all our senior managers. To be candid we don’t have one, but have set ourselves a time frame of one year to come up with a well-documented framework for who will succeed in every key position in the company.”
Another company in the process of putting a succession plan in place is Choice Solutions. “For me the exercise of succession planning is a moral obligation, more than just a legal requirement. I have to think about my customers and the future of my employees. While at Choice, we do have a succession plan but it’s not well-documented and lacks a strong execution framework. For several years, as part of our business risk management strategy, every Senior Manager has to have minimum two people in his team who can run their functions in their absence. Also in eventuality of the death of the CEO, the senior management knows exactly what needs to be done. Since last year we have also started a program to identify top performers at the mid and entry-level and mentor them. It is happening in bits and pieces, but this year we need to document it and make it an integral part of our systems,” opines K V Jagannath, CEO, Choice Solutions.
For Kolkata-based national distributor, Supertron Electronics, succession plan is a need of every business and every role has an importance, which cannot be played with anyone else, but the person designated to perform it. However, the CEO of the company, V K Bhandari, feels that the company is yet to reach to the stage, where it requires a succession planning. He says, “The urgency of having a plan comes, when you have the entire show run by one individual. In a big organization like Supertron, every particular job is carried out by a team, where a sudden mishap with one member will not perturb the work.”
What is succession planning?
Simply put, succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation. “In SMBs, especially in family-run businesses, there is a misconception that succession planning is limited to only finding a replacement for an ageing Founder Managing Director. On the contrary, it is an exercise to find a replacement for any key manager or position in the organization to ensure that business continuity is not compromised, due to the untimely exit of the existing employees. Ideally, a good succession plan is the one that just doesn’t focus on the top level but examines all levels of employees and hence, it is important to make it an integral part of your HR processes,” says Vinaya Shetty, President of HR management firm Vin Consultants.
“Succession planning is mainly done for top-level managerial positions like Head of Department, Chairman, but we have succession plans for all hierarchy. We try to send this message across all departments that every employee should have a replacement for himself. Every employee should be trained in such a way that he would become a clone of his superior,” says Nitin Shah.
Jagannath agrees, “Succession planning is also important for the company to scale up. For instance, as we grow and today’s key managers move to bigger and wider responsibilities, you need a strong middle-level to take over our current responsibilities. And this to me, is as much a part of succession planning as is nominating my successor. Hence, it has to be an organization-wide process.”
According to B Shankar, “Once you put a succession plan for the top management, it is implied that you would need one at every level. If a mid-level person takes over a senior position, you need somebody to fill his shoe. So in essence, forming a succession plan for the top management will mean planning it for each level. In our organization, we have covered the top-level managerial positions that are an integral part of the organization like Head of Sales, Head of Customer Support, Head of Technology and Head of Operations under the succession plans,” says Shankar.
Benefits of Succession
There are immense benefits of having a well-planned succession. “For one it ensures business continuity. In case of a sudden exit of a key person, your business could suffer badly. For instance, if a project manager exits suddenly it could delay an undergoing project. You may lose customers if you lose a key account manager. If you don’t have successor to take over, then imagine the amount of cost on hiring or training a replacement, and the time lost in bringing him up to the same level of productivity,” says A L Srinath, CEO, Shell Networks.
“One benefit that we have noticed since we started the plan is that after we had chosen the candidates as successors for the respective positions, we noticed that they have been working harder and more efficiently than before. The candidates tend to get more involved in the growth of the company, which in turn, has helped in the growth of the company,” says B Shankar, President, Ashtech Infotech.
Jagannath adds, “It helps you attract good talent and also retain talent. If an employee knows that if he works hard he can head the company and hence, he sees more purpose in giving his best.”
Elements of good plan
Vinaya Shetty believes that to have an effective succession plan, companies have to draw up a strong HR framework. “First and foremost there needs to be a concerted effort to audit and build a strong talent pool in the organization aligned with the long-term growth strategies of the company. One needs to identify the core functions of the organization and evolve an HR development strategy that will underline the potential leaders at each level, and mentor and review them at every stage. One has to keep in mind that it can be long-drawn process,” says she.
Balwinder Singh, Director, Targus Technologies says, “The entire top-level management of our organization has been given the responsibility to find their successors. Every year, they have to recommend two individuals from their team who they believe can be their successors. The company and the leader then share the joint responsibility of mentoring the two individuals by providing them advanced training, including them in key decision making, etc.”
Says Shankar, “We invest a lot of time in training the successors for the future. First of all, we try and make them believe that this is entirely a long-term decision. Then each and every manager personally takes their time out to train the candidates by explaining to them the nitty-gritties of the job and by putting them on different types of projects. We often enroll the candidates for international level training programs like CEO training programs, etc.”
K L Lalani, CMD, Lalani Infotech, for instance, had started mentoring his son Umang Lalani since last year. “I try to put him under different departments and ask him to run those departments all by himself for a period of 15 to 20 days. If he has any problems, he can come to me for the answers or to go any of our Directors for help. I plan to mentor him for another year or so, before I can give him the reigns of the company,” says Lalani.
When to have the successor
Ideally there is no particular time in the life of a company when it needs to start thinking about a succession plan. “But typically, promoters start thinking of having successors when the key manager is around 45-50 years old and by the time he is around 55; there should be a successor who is well groomed and ready to take over,” says Saurin Shah.
Jagannath believes that apart from age, it’s also the size and type of the business that decides the timing of a succession plan. “For instance in my case I plan to retire at the age of 50. In that regard I should start looking for my successor right now. But we also have a large and strong management team, each capable of taking over my role. So in essence, all these factors count.”
Family member vs. Outsider
There is an ongoing debate among family-run businesses whether to pass on the reins to a professional leader or a family member. While some companies prefer taking on family members so that they can keep the business within the family, others prefer to appoint professionals to gain substantial growth from their experiences.
For Allied Digital, appointing Bimal Raj as CEO was a decision about handing the reins to the most capable candidate. Despite the fact that Nitin Shah has several family members holding senior positions in the organization, he chose Bimal Raj. “I wanted to set the right example. The decision was based on who is most capable to take Allied Digital to the next level. Bringing in industry people is never about diluting family’s stake in the company, it is about adding and introducing more ideas and experience to the organization,” says Shah.
Shankar of Ashtec also agrees with the view. He says, “The growth of the company can be maintained and supported only when the organization brings in professional managers.
The varied expertise and experience of the professional managers help the organization more than the presence of family members.”
Agrees Prashanth S of Quadrasystems, “I would prefer putting a professional as my successor because he will bring in expertise and experience into the organization.”
Targus’ Singh adds, “Presently I am grooming two people to take up my position—one is my son, while the other person is someone who is an ‘outsider’ but has contributed immensely to Targus’ success. Selecting Raunaq as the Vice-President of the company was an obvious thing, as Raunaq is my only son and over the years he has acquired all the required qualifications needed to become a Director. Appointing Amarjeet Singh as the Sr Vice-President was more of a strategic decision because of the kind of experience and knowledge he brings with himself. The final decision about who heads the company will be taken based on who is most capable.”
Conclusions
Finally, no matter what kind of an organization it is, whether it is a family-business or run completely by professional, succession planning should be an integral part of it. Succession planning should just not be for the top-levels and for situations like disasters, accidents or untimely deaths, but should be for all levels of hierarchy. It should be incorporated so that companies can preserve its legacy, growth and profits for the future. |