Naveen, L. (2006). Organizational Complexity and Succession Planning. Journal of Financial and Quantitative Analysis, 41(3), 661-683. Doi: 10.1017/s002210900000257x
Introduction
Succession planning is required for the start or growth of an organization, one of the sources of planning in a company is coming up with a business plan. This assist to provide a road map for uplifting the management. The roots of this succession planning lie inside kinship study and anthropology. It has not received much attention as most people expect it is unarguably a critical problem to every individual, organization or tem when considering how it focuses on the future. This review is a step towards understanding the succession process of firms in summary.
Publicized chief executive officer (CEO) transition from large firms always capture the attention of academic scholars. Board members of a company’s develops strong interest in finding and installing a suitable individual for replacement of the outgoing CEO.Most of the large organization incur expenses to recruit them and this succession practice has slight attention in finance literature. There are little studies that have been done to understand various components or any process that guide in planning succession. The most common succession heighted is the relay succession which involves selecting of an heir apparent in few years’ time before the outgoing steps down. This shows that succession are mostly relayed on the firm .Many of the firms have plans for succession by identifying a successor and this has become a common norm in majority of industries.
Relay succession mostly happen in larger firms, certain industries and diversified organizations in which human capital is not easy to transfer across the firms. It is expensive for a firm to recruit a new individual and transfer expertise and knowledge hence prefer a person within the company to avoid huge expenses. Succession planning is gets related with high possibility of voluntary and inside succession and low possibility of forced and outside succession. Besides this, succession planning can be associated by managerial enactment and dependency of stock price performances. Finally there are proves that succession planning assist in mitigation on the horizon challenges.
Factors affecting Succession Planning
Process of succession process and the surrounding and firm continuity is a necessity for transferring of responsibilities. Firstly communication is a factor that is necessary for succession choice. It enables flow of information, cohesion and understanding of the firm. Importance of communication helps to avoid mistrust, conflict and insufficient communication for making the succession be successful. Another factor is the transfer of responsibility. There is a requirement to transfer responsibility of activities to successors and requirement for the incumbent to state his or her retirement plan. This will show strong agreement among the respondents who planned the retirement period is needed to be stated in succession plan. Furthermore, succession planning involves many activities that requires to be examined independently from others and defining roles of the retiring incumbent. Process of succession planning have some components such as succession communicating decisions and developing vision
Cost and Benefits of Relay Succession
The best way to ensure new recruited individuals have skills is to be in a possession of succession formal process like the relay succession. An heir is brought before an incumbent retires and he works with the incumbent in order to gain important knowledge upon the period of designation as the new successor and incumbent will still remain as a chairman for certain period. A more important consideration in the identification of a successor is the capital amount being posed by the candidate for a position, this is due to opportunity and costly error being missed during the time. The best way a firm can reduce succession cost is to identify and offer training to a better successor from within a firm. Another benefit is that promotions that are internally will encourage the administrators to finance firm’s specific human capital.
Succession planning and type of Turnover
According to the characteristics of relay succession, there are two hypothesis that follow according to the natural surroundings of the process of succession. In case a firm organizes relay progression, it would therefore more possible for an insider to be appointed as a successor mostly be the heir apparent. Succession planning should consider an orderly changeover and this will be involved with an ordinary succession than the forced one. The possibility of forced costs is required to be low in firms that perform relay succession planning.
Trends in Relay Succession.
The entrenchment theory suggest that outgoing individual fails to elect a possible successor in order to make it impossible to be replaced. This rise in control entrenchment over a period of time may lead to a reduction of succession positions. Control of firm ownership, size and accounting performance hence the market to book ratio significantly does not differ within the firms that do not have or possess plans of succession. A decrease of relay succession in a given period could be attributed to more occurrence of forced gross revenue as the successor could be removed out before an heir is identified. However the tenure of retiring and age of retiring workers do not change in overtime according to the findings. Some of the factors that have effect on succession planning such as firm level of diversification or extent of homogeneity of an industry could transform over in time. It is possible for a quick change of surroundings to make succession planning to be less attractive. If the changes of environment is quicker, then the number of risk if a company is possible to rise over certain period. Controlling of the industry homogeneity and size of a firm, the possibility of succession planning reduces while risks increases. This shows that firms may move away from succession planning by responding to changes of the surroundings.
Determinants of succession planning.
The study focuses on few explanatory variables and simply describe the features of a firm when determining succession planning.Perfomance is one of the characteristics that determines succession planning. A strong performing firm would possibly do their succession internally to avoid disruption and ensure the best option for continuing success of a firm. Conversely, poor performance will not create much faith in ideas made by incumbent leaders, thereby destructive succession to recruit outsider is more likely to take place. Size of the firm will also highly determines the succession planning of a firm. Majority of large organizations have more opportunity to develop and train the management and mostly have more experienced candidate. Finally the sector of the firm is another determinant to be considered in succession planning. Some sectors are inclined to consider talent highly and be ready to invest in retention and development.
Impact of Succession Planning.
Succession planning process in an organization is essential because it helps in identification of main roles and mapping ways of ensuring a firm has right employees with experiences, capabilities and right skills.oganizations prepare this phenomenon for next generation of leaders to continuation. Planning of succession is also important because it is expensive to execute the process. Most important strategy is development of current talents and recruitment of top talent. An. effective succession planning assist the firm to save benefits and this creates positive performance in terms of saving money on recruitment and external training of an individual compared to promoting a successor from within the firm. Competency gaps are also identified where there may be gaps concerning what is required by employees and what they are aware of. Gaps are based on current requirements for certain position and absence of employees with better skills and looking for the future in determining the necessary new competences.
Conclusion
The roots of this succession planning lie inside kinship study and anthropology. It has not received much attention as most people expect it is unarguably a critical problem to every individual, organization. Most of the large organization incur expenses to recruit individuals and this succession practice has slight attention in finance literature. There are little studies that have been done to understand various components or any process that guide in planning succession. It is expensive for a firm to recruit a new individual and transfer expertise and knowledge hence prefer a person within the company to avoid huge expenses. . Importance of communication helps to avoid mistrust, conflict and insufficient communication for making the succession be successful. The best way a firm can reduce succession cost is to select and train a suitable successor from within the firm. Succession planning should consider an orderly changeover and this will be associated with a normal succession than the forced one. Succession planning process in an organization is essential because it helps in identification of main roles and mapping ways of ensuring a firm has right employees with experiences, capabilities and right skills. Organizations prepare this phenomenon for next generation of leaders to continuation Some of the factors that have effect on succession planning such as firm level of diversification or extent of homogeneity of an industry could transform over in time. It is possible for a quick change of surroundings to make succession planning to be less attractive. An effective succession planning assist the firm to save benefits and this creates positive performance in terms of saving money on recruitment and external training of an individual compared to promoting a successor from within the firm.