Succession Planning in Multi-Faceted Small Business Enterprises

Executive Summary and Background

Experience in organization management triggered this research interest in succession planning and management in multi-faceted enterprises and organizations. Further research confirms that multi-faceted enterprises and organizations lag behind other businesses and industries in the development of robust and successful succession planning and management programs. Through numerous inquiries, the anticipation is that best approaches will emerge that are applicable to both organizations and multi-faceted enterprises.

This will lead to improvement in leadership within these entities and stimulate further research on how to preserve gains and continue improving the process. From an in-depth review of the literature, it is apparent that multi-faceted enterprises and organizations require enhanced succession planning programs in order to counteract the dynamism of market forces and trends. For this reason, managerial leadership is a fundamental element for the success of such organizations. Leadership transition is necessary in order to counterbalance the challenges faced by large enterprises that govern various entities. With multi-faceted organizations expanding in both size and number, good leadership becomes essential.

Effective succession planning — particularly in terms of good leadership — is a major deficit affecting large enterprises and organizations. To help enterprises embrace successful leadership transitions, this study focuses on planning for executive succession in both small and large business enterprises. Succession planning receives extensive interest in the for-profit business literature (Beatty & Zajac, 1987; Brady & Helmich, 1984; Dalton & Kesner, 1985; Kesner & Sebora, 1994; Lynn, 2001; Vancil, 1987). The concept of succession planning spans a spectrum from basic efforts to plan for leadership change to a comprehensive view of organized internal talent development. Some level of succession planning is imperative, as succession plans are linked with higher organizational performance. Evidence further indicates frequently insufficient succession planning; smaller organizations especially may perceive inadequate resources to allocate to such planning and are challenged by thin ranks of internal talent from which to groom a successor (Ip & Jacobs, 2006).

Research interest in small business enterprises is very limited (Allison, 2002; Austin & Gilmore, 1993; Fletcher, 1992; Herman & Heimovics, 1989; Richie & Eastwood, 2006; Santora, Caro, & Sarros, 2007). Succession planning is also difficult in the large enterprise sector because of a shortage of proficient executive directors in the job market (Allison, 2002; Tierney, 2006), lower remuneration, poor organizational infrastructure, an increasing demand placed on executive roles (Tierney, 2006; Von Bergen, 2007), and attributes that make large organizations unappealing to entrepreneurs (Kunreuther, 2003; Von Bergen, 2007).

This study examines succession planning in multi-faceted enterprises and organizations through a variety of questionnaires and interview questions directed toward executive directors and entity leaders. Initial findings indicate that large organizations are more likely to embrace succession planning because they have more resources to apply to this strategy. However, even when succession planning is viewed as significant, organizations are doing little about it. Findings indicate that there is a need to replace executive leaders proactively if enterprises are to remain going concerns in the business world.

Organizational Description and Problem Statement

Organizational Description

The organization examined in this study is an umbrella company that governs six operating entities, each at a different stage of development. The six entities are:

Signature Financial Services — a bookkeeping and accounting firm that specializes in offering customized solutions for home-based, small, and medium-sized organizations that do not require full-time bookkeeping staff.

Ottawa House — a co-working space that allows home-based businesses to take advantage of the amenities associated with having regular office space, without the overhead. This co-working space also facilitates collaboration between business professionals and creates networking opportunities.

Zoom Courier — a locally based day courier specializing in professional appearance, timed guaranteed delivery, and environmentally conscious "green" initiatives.

Granite Towncars — a solution for local transportation needs that fall between limousine service and taxis, offering the flexibility and professionalism of a limousine service without the inconveniences associated with waiting for taxicabs or buses.

Frank Training — a "to the point" business training firm offering team building, management training, leadership development, customer service courses, and a broad array of business-related programs. Frank Training also specializes in the LEGO Serious Play methodology.

Update — a social media company that allows business owners to manage their online social media presence without the cumbersome task of handling it internally.

Problem Statement

As an entrepreneur in a multi-faceted enterprise, there is a strong interest in succession planning. There are many concerns with the kind of management found in multi-faceted organizations, and unless leadership transitions are planned, these organizations will continue to suffer from poor management. There is no distinct, well-communicated succession planning effort across this organization. While various management and leadership development classes and opportunities exist within the organization, employees are uncertain where to look and whom to consult for guidance on advancement. In large organizations, there is often no synchronized or communicated effort to track high performers toward specific management positions. This deficiency of coordination and planning leads to uncertainty and speculation each time a senior leadership vacancy occurs, and this uncertainty permeates both middle and lower management positions.

The pool of candidates for senior leadership positions comes from these ranks, yet there is no coordinated effort to develop lower-level employees into tomorrow's leaders. If this trend continues, organizations will suffer from job dissatisfaction and lose high-potential personnel to competitors. Therefore, introducing succession planning in multi-faceted organizations is necessary to allow for structural changes as entities experience growth through various stages of development.

Project Purpose

The purpose of this study is to examine succession planning efforts at a multi-faceted organization. By identifying the different entities and the succession planning efforts that should be in place, this research seeks to address the barriers and challenges that impede successful implementation. Researching the different entities is essential to developing a solid model for effective succession planning in multi-faceted organizations of all sizes and geographic regions.

Rationale

Based on projection scenarios, the Canadian labour force was expected to grow to between 20.5 and 22.5 million people by 2031, up from 18.5 million in 2010. The general workforce participation rate was projected to fall from 67.0% in 2010 to between 59.7% and 62.6% by 2031 — a level not seen since the 1970s. This means that by 2031, the 55-and-over segment of workers would have grown to 19.1%, with an annual increase thereafter of 4.1%. Most people in this growing population segment hold senior-level positions in organizations. The result of this workforce decline is that it will become increasingly difficult for organizations to recruit and retain proficient employees for middle and senior management positions. Arnone (2006) identified some of the top concerns from business and industry: availability of talent, talent management, retention of key employees, and preserving intellectual capital. Data from Cutting Edge Information's report "Succession Planning for Results" indicates that 67% of organizations surveyed lack a formal succession planning and management process.

In addition, 45% of the world's largest organizations lack a formalized and meaningful strategy for developing their next generation of senior executives. This research study investigated the substantial lack of confidence organizations have in their ability to adequately staff senior leadership positions within the next five years, given assumptions that the required leadership skill sets will become considerably more diverse. According to Arnone (2006), nearly one in five Canadians aged 65 and over remains employed. As this population grows, organizations need to create mechanisms to attract and retain older workers as one strategy for addressing the anticipated labour deficit caused by mass retirements. Multi-faceted organizations may need to apply this approach as part of developing their succession planning and management programs.

According to Norm Devine, consultant for Development Dimensions International (DDI) (personal communication, May 10, 2007), approximately 38% of multi-faceted organizations have formal succession plans. It is apparent that many multi-faceted organizations are treating succession planning as an alternative or supplementary activity rather than focusing on long-term strategies for developing leadership competencies, educational programs, and desirable personality traits. Understanding the dynamics of business enterprises and creating a strategic plan for identifying the essential skills to cope with change will be crucial for the continued strength of the organization. Organizations also need to create growth opportunities to retain competent employees by leveraging their skills and offering more opportunity than they would find elsewhere (Corporate Training and Development Advisor, 2006).

Research Question

When a service-based small business grows through backwards integration, what are the effects on the succession plan as compared to product-based industries or large organizations?