Business Planning - Succession planning: thinking ahead

How will your business fill key leadership roles and map its future after you leave? asks Neville Stein.

On a recent trip to the Woking area, once the beating heart of the nursery stock industry in Surrey, I was reminded of some of the notable growers of the past who are no longer in production such as Waterers, Fromows and Slococks - just a few of the world-famous names that no longer exist as nurserymen.

Much of this is due to a changing economic landscape, commercial pressures and perhaps the opportunity to exit the business by selling valuable land. There are, however, some businesses that cease to exist or are sold, liquidated or just simply mothballed because there is no one to take over in the event of an owner's retirement or death.

Family business specialist Lynn Conover has estimated that fewer than 70 per cent of UK family businesses make it to the second generation due to lack of succession planning. While economics of course play a vital part in enabling a business to continue trading, its future often depends on the availability of future leaders, a factor that is sometimes considered too little or too late.

Sad example

Laura Ashley made this mistake. Her untimely death in 1985 when she was only 60 led to her company being sold because her husband and daughter felt unable to take the helm. The business changed and her four factories in Wales were sold, a consequence many believe she would have deeply regretted.

So if you operate a business where the senior managers or key personnel are approaching retirement age, it is vital that you consider a succession plan - a process to identify who will fill the key leadership positions in your business as and when they become available. Leaders in your business will retire, may seek a career change, become ill or want to take on a reduced role. In some family firms succession might already be a fait accompli. You may be fortunate enough to have family members who want to make your business their career, making succession planning so much easier as long as their skills and abilities are duly nurtured.

Along with considering who will fill leadership positions that are vacated, succession planning also needs to consider the future growth ambitions of the company. Project forward 10 years and where do you want your company to be? Will you have the skills required to help you get there? If not, this needs to be built into your succession plan.

So where do you start? Begin by listing the key leadership positions and when the current incumbent is due to leave the company. Once you have produced a list you might then consider prioritising it - whose position is most urgent to fill? Is a successor required? It might be that the role becomes redundant once the incumbent has left or perhaps the role can be split between several other staff?

Assuming that the incumbent's role is essential to the development of the company, the next stage is to identify the skills, qualities and experience required to fill these positions effectively. Remember to consider future growth ambitions.

Then comes the challenging part - who in the long term will fill these positions? To answer that you can either look at internal candidates or recruit external candidates. The challenge with the latter is that often the right people are not available when you need them or may not even exist. Typically in this instance larger companies have resolved this problem by developing their own management training schemes.

Growing your own talent is one way of solving long-term recruitment challenges. However, beware of relying totally on this strategy. It is all very well to grow your own talent but occasionally it is wise to bring in new people because they come with fresh ideas, new approaches and will often challenge the status quo.

Development plan

Whichever route you go down, internal or external, you will need to create a development plan for those people who are going to fulfil key roles in future. This plan obviously needs to be developed so that staff have a structured programme in which their skills gaps are met. Usual HR practices will need to be set up from the start - training needs analysis, performance appraisals, etc.

Having sketched out a development plan, you will then need to ensure that it not only incorporates your high fliers - the future leaders - but also those older, experienced managers who may have plateaued in their careers. They still have a lot to contribute and will be essential in developing your staff.

The development plan also needs to ensure that the high fliers have experience in all aspects of your business so creating lateral promotion opportunities, moving them into sideways positions, will give them a more holistic understanding of your business. Likewise it is also advisable to create opportunities outside your business for your future leaders. Placing them on a secondment with other companies in your supply chain - customers, suppliers, etc - will give them valuable experience. Also, getting them involved in trade associations will greatly assist with their development.

Perhaps the greatest help they can get with their development is by being mentored. This could either be an external third-party person or the current incumbent of the position you are seeking to fill - or a combination of both. Flexibility is key here. Perhaps a departing staff member could work part time to mentor the new replacement.

Underlying variables

Obviously there is a huge risk in investing time and effort in fulfilling your succession plan because there are variables that will be beyond your control. For example, what if after investing many years in developing your future leaders they decide to leave your employment?

Identifying those who have a long-term commitment to your business at the start may help to reduce this risk, as will keeping lines of communication open to help highlight any problems before they become too big. Another option is to lock them into your company by giving them an equity stake to ensure more long-term commitment.

To finish on a positive note, I am proud that we are an industry in which there is a growing culture of investment in staff and also a large number of thriving family businesses. A special mention and congratulations therefore in particular to Pennells of Lincolnshire, which was established in 1780 by Richard Pennell and is, I believe, the oldest family-run garden business in the UK. Do let me know should I be wrong.

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