Train tomorrow’s successors today

by 25 Jun 2008

Irrespective of whether you run a small business or a global organisation, succession planning is an issue that many people find difficult to manage effectively. Teresa Russell talks with an international thought leader and an Australian franchise about building tomorrows talents

As the population ages and a large number of baby boomers approach retirement, the development of future leaders has become a hot issue in management and HR circles.

If you observe how long it takes some organisations to appoint a new CEO after the incumbent leaves (often with little notice), it is clear that many boards grapple with the issue of succession planning. Further down the organisational tree, the picture is sometimes even worse.

Matt Gay is co-author of Building Tomorrows Talent – a practitioner’s guide to talent management and succession planning – and president of the USconsultancy Building Tomorrow’s Talent.

“A lot of organisations can find it difficult to identify the key roles in an organisation,” he says. “It depends on which lens is used.

“If you’re a shareholder, a succession plan for the CEO’s role is important, whereas customers may think that the key role in the organisation is the call centre director or the customer service manager. The most important roles are not necessarily the highest paid ones,” says Gay.

Gay says that any plan that looks further out than the next 24 months is not a succession plan, but a talent pool.

“Businesses change over two years. You must focus on the short term. Although it’s an uncomfortable thought, some roles may not be required in two years. A succession plan should address the roles that are going to be needed in the future,” he says.

“A succession plan is not a process, but a solution. It can only be judged as effective when a person who was targeted for promotion into a role actually is promoted,” says Gay.

He believes that HR’s role should be to help an organisation assess and calibrate talent accurately. (See box). This is achieved through talent reviews and defining leadership competencies and attributes that a truly successful individual displays at that particular company.

Examples include high-level strategic thinkers, great team builders, someone comfortable with taking change – or even just someone who gets things done.

Gay says that a common mistake occurs when organisations evaluate talent against current conditions, rather than according to projected future conditions.

“There is often a gap between what leaders need to be doing today and what they will need to do in the future,” he says.

The Future

Gay notes that in the past companies have been successful because of the products they made or the services they provided.

“Future competitive advantage is not going to be gained from just a product or a service, but also from a competitive advantage with talent,” he says.

He believes that within the global community, organisations are now more open to where an employee can live, how they are compensated, rewarded, attracted and retained.

“In the last ten years, we’ve been asked to do more with less. It’s getting to the point where we have to do more with nothing,” says Gay, referring to the cost impact of senior roles that some organisations no longer want to bear.

“These roles are starting to be contracted out, so that organisations don’t have to wear the high ongoing costs and all the extra benefits of permanent senior executives.”

Franchise Succession Planning

Mortgage Choice, one of Australia’s top ten franchisers, has a national network of more than 449 franchises, supported by group and state offices. The franchisees write about one of every 20 Australian residential loans, receiving commission from an extensive panel of Australia’s leading lending institutions.

Kelvin Bartholomeusz, their national franchise recruitment manager, says succession planning is discussed with franchisees once they reach a certain level of performance.

Succession planning for Mortgage Choice franchisees means designing an exit strategy for them. “Our franchisees need to plan how and when they will exit the business. They must structure, build and maximise its value as early as possible to make the exit as easy as they can for all parties,” says Bartholomeusz.

Mortgage Choice aids the succession plans of its franchisees by giving them the knowledge, skills and tools to get their businesses in shape as early as possible.

“Motivated people need to be kept interested,”says Bartholomeusz. If the plan is to hand the business on to another family member, the inheritor of the business must be vetted by Mortgage Choice, which has veto power in such arrangements.

“The income we get on the transfer fee is of little consequence to us,” says Bartholomeusz. “The new owner’s ability to increase the growth of the loan book is the most important factor.”

The company will also help franchisees source a buyer. “We currently decline more than 50 per cent of applicants who want to buy or start a franchise because they don’t have the necessary ability and skills to grow the business. We decline them for their own good,” he says.

There are many issues that franchisees need to address to ensure their business is ready to be sold or handed over for management by someone else. Towards the top of the list is a rigorous business plan and well thought out and documented business processes. Branding is also important. A franchise may have been promoted in the owner’s name, which is not ideal for maximising value at the time of sale.

“Succession planning for franchisees is fundamental to building the foundations for a healthy group. If you chase the quick dollar as a franchiser, you won’t have a long-term business,” concludes Bartholomeusz.

Case Study - Franchisee

Vincent Camilleri spent most of his working life in the public service as an operational auditor. He completed an MBA at the age of 50, then opened a Mortgage Choice franchise in Altona, in Melbourne’s southwestern suburbs.

Camilleri’s oldest son, Luke, joined his business when it was still operating out of the family’s garage, working for “room, board and a bit of pocket money”.

Then his second son, Carl, joined two years later to help open their first shop front in Altona. “I wrote three times the amount of business in my third year than I did in the first two years combined,” says Camilleri. He now employs all four of his children and three other staff and his is one of the top ten Mortgage Choice franchises in Australia.

Camilleri believes that succession planning increases both the viability and marketability of his business. He is planning to gradually withdraw from the business and take on a more managerial role three days a week.

His oldest son, Luke is now deputy director and his other three children will spend 18 months in various company roles in order to learn the business.

“One of the greatest challenges facing the business is the lack of formal qualifications of my children,” he says. Camilleri has had a business coach working with Luke for two years, while his other sons are planning to study.

“Once you identify a gap, you can fill it with study or someone else [who has the skills],” he says.

“The key to a successful succession planning strategy is to put efficient processes, structure and workflows in place. You can’t run your business like it’s a corner store. If you do, all you have is a job to sell. You may as well go and work for someone else,” concludes Camilleri.