Who Is Going To Wear Your Shoes?

In the broader commercial fraternity the signs are omnipotent. The average tenure of chief executives among the top 100 of Australia’s some 1.9 million trading entities is reportedly 4.6 years. Similar business life cycles now typically expire within 7 years. Accordingly, success in succession planning has become sine quo non.

It could be argued that certain businesses and industry sectors do not fit those moulds. Well, they do! It is simply a matter of scale and time.

Worldwide, the telltale signs were largely ignored by medical general practitioners. They valued their independence and felt confident of selling their practices upon retirement. Sadly, goodwill in medicine does not exist and where it does, little value is assigned to it by other general practitioners. Consequently, all too often, the scenario arose that one Friday night GP’s turned off their surgery lights, closed the door and with it expired a lifetime of service and value. Why?

Because they focused on their profession and their practice, ignoring the business.

In Australia, consolidators, usually business oriented medical practitioners, have bought numerous general practice surgeries, retained the individual or individuals on 3 to 5 year contracts and developed the business. In Western Australia, for example, 47% of general practitioners are today salaried employees.

It is a timely and invaluable lesson for all business owners and managers, who must plan for success and a seamless organisation. The transition of ownership and management should be planned, gradual and disciplined. That maximises business value, client service and staff morale.

The rationalisation of the Australian and New Zealand economies during the past decade has been instrument in effecting significant changes. The shortage of career oriented professionals, tradespeople and staff members throughout the respective nations is exacerbated by the tendency of Generation X’ers not to commit to long-term career paths. They find little or no appeal in the demands of long hours, forsaken weekends and extended trading hours, particularly when the surf is running, rugby is being played or Europe is waiting.

Moreover, few Generation X’ers can readily muster sufficient capital to invest in a business. Extensive debt holds little appeal to a subset of society who live and work for Friday.

Succession planning demands discipline, a focus on the future and a nurturing attitude. It adds appeal to the recruitment, induction and development process. The opportunity to establish and to progressively build up equity in a business fosters better applicants, a more stable workforce, enhanced commitment to the business, increased productivity and perhaps coincidentally, improved value of a business. However, it is a 5 – 7 year cycle.

Effective succession planning cannot be undertaken in isolation. Ideally, it should involve the accountant, financial planner, financiers (bankers, etc), suppliers, family and staff members. Input should also be sought from the professional associations and business brokers.

There is no “perfect” model. The one common component is the lack of time. It needs to begin now.

Succession planning must necessarily be deemed to be a capital item, because its about protection of the capital in the business, including people, and the continuity and growth of those invaluable assets.

However, the issue of success is not limited to the business owners and managers. Staff members move on, the business is becoming more complex, technology is increasingly demanding on going skills development. Career path planning and delegation are two key related issues. Employees typically respond positively to the prospect of “growth” within the business. Delegation of matching authority and responsibility for specific tasks and departments is a motivating experience. Scheduled, periodic skills and interpersonal relationship training fosters and facilitates job growth and rotation.

Just how many businesses allocate a minimum 2.5% of turnover in budget to staff development? It’s natural, immediate and longer-term returns are people with the skills, training, experience and confidence to “step into the shoes” of the predecessor. The progressive payback period is around 3 years.

The issue of success in succession planning puts a different perspective on the phrase “nothing succeeds like success”.

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