Succession Planning Basics: How It Works, Why It's Important

 Suneth Sigera

4/10/2025

Succession Planning Basics: How It Works, Why It's Important

By WILL KENTON Updated November 28, 2022

 

What Is Succession Planning?

The term succession planning refers to a business strategy companies use to pass leadership roles down to another employee or group of employees. Succession planning ensures that businesses continue to run smoothly and without interruption, after important people move on to new opportunities, retire, or pass away. It can also provide a liquidity event, which enables the transfer of ownership in a going concern to rising employees. Succession planning is a good way for companies to ensure that businesses are fully prepared to promote and advance all employees—not just those who are at the management or executive levels. https://www.investopedia.com/contributors/53661/

            Figure 1 - What is the Succession Planning. 

Key Takeaways

• Succession planning is a business strategy for passing leadership roles on to one or more other employees.
• The strategy is used to ensure that businesses run smoothly after employees retire and leave the company.
• Succession planning involves cross-training employees to help them develop skills, knowledge, and an understanding of the business.
• Plans can be long-term, which are meant to account for future changes, or for emergencies whenever anything unexpected arises.
• There are many benefits to succession planning, including inclusivity if companies have a strong plan to diversify their workforce. ( Online)

                Figure 2 - Key Takeaways.

Understanding Succession Planning

 Succession planning is a contingency plan. It is not a one-time event. Rather, it should be reevaluated and updated each year or as changes dictate within the company. As such, it evaluates each leader’s skills, identifying potential replacements within and outside the company and, in the case of internal replacements, training those employees so they’re prepared to assume control.

In large companies, the board of directors typically oversees succession planning in addition to the chief executive officer (CEO), and it affects owners, employees, as well as shareholders. A larger business may train mid-level employees to one day take over higher-level positions. For small businesses and family-owned companies, succession planning often means training the next generation to take over the business.(Online)

                Figure 3 - Understanding Succession Planning.

Benefits of Succession Planning

There are several advantages for both employers and employees to having a formalized succession plan in place:

• Employees know that there is a chance for advancement and possibly ownership, which can lead to more empowerment and higher job satisfaction.
• Knowing there is a plan for future opportunities reinforces employees' career development.
• Management's commitment to succession planning means that supervisors will mentor employees to transfer knowledge and expertise.
• Management keeps better track of the value of employees so positions can be filled internally when opportunities arise.
• Leadership and employees are better able to share company values and vision.
• A new generation of leaders is needed when there's a mass exodus of people from the workforce into retirement. (Online)

                Figure 4 - Benefits of Succession Planning.

References 

https://www.insperity.com/

https://www.insperity.com/blog/benefits-of-succession-planning/

https://www.istockphoto.com/photos/succession-planning

https://www.investopedia.com/contributors/53661/

Figures

Figure 1 - What is the Succession Planning. 

Figure 2 - Key Takeaways.

Figure 3 - Understanding Succession Planning.

Figure 4 - Benefits of Succession Planning.