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Succession Planning

Reviewed by Annapoorna | Updated on Jan 29, 2021


What is Succession Planning?

Succession planning is a method to pass over leadership positions, often a company's ownership, to an individual or group of employees. Often known as "replacement preparation," it ensures companies keep operating smoothly after the most influential people in an organisation move on to new opportunities, retire, or pass away.

Succession preparation may also include a liquidity event that enables ownership to be passed to growing workers in a continuing concern.

How does Succession Planning Operate?

Succession planning assesses the abilities of each leader, identifies possible replacements both within and outside the organisation and, in the case of internal replacements, preparing those workers to be prepared to acquire.

Succession planning cannot be a one-time event; succession plans must be re-evaluated and eventually updated periodically, or as the organisation decides changes.

Furthermore, businesses may want to create both an emergency succession plan, in case a key leader has to be replaced suddenly. Alternatively, it must develop a long-term succession plan for potential leadership changes.

The board of directors, and not just the CEO, will usually oversee succession planning in large companies. Often, succession planning of major companies concerns not just owners and workers but also shareholders.

Succession planning also means for small companies and family-run companies preparing the next generation to take over the business. A bigger company could fund mid-level workers to take on higher-level positions one day. In small companies, the owner himself may alone be responsible for succession planning.

One form of succession planning in a business partnership has each partner buy a life insurance policy which names the other partner as the beneficiary. Therefore, if a partner dies at a time when the surviving partner may not have enough cash to buy the share of ownership of the deceased partner, the proceeds from life insurance will make the purchase possible.

What are the Two Arms of Succession Planning?

The two arms of succession planning are hiring and training. These are described below.


Succession preparation starts with good recruiting practices to choose applicants who will increase the ranks as time goes on. For example, an experienced person from another organisation may be courted and groomed for a position at the executive level.


Training covers professional development, information about the business and certifications. The preparation may involve making staff in all the major departments cross-train and shadow various roles or jobs. This method will help the person get rounded up well and understand the company on a granular level.

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