Succession planning means different things to different people, but it can be broadly defined as a process of developing high-potential employees to fill future strategic roles within the organization. Many organizations engage in succession planning activities informally or not at all, especially if they are small to medium-sized businesses.

However, lacking an official succession plan opens up a company to substantial risk and danger. Many baby boomer leaders act like they’ll be working until they die, but if something happens and they have to leave the organization suddenly, without an adequate knowledge transfer what will happen to those key roles? There is grave potential for at least a moderate disruption of business.

Why Succession Planning is Good for Everyone

Obviously, senior-level talent is essential to keep an organization meeting its current goals, but growth plans should be considered as well. As a company expands and offers new products and services, it will require more fully trained employees to guide its hand.

Formal succession planning not only provides a ready pipeline, but communicates details about that pipeline to the organization so talented candidates can be placed in the best possible role. And frequently, these roles are difficult to fill externally.

Formal succession planning is also one of the most effective ways to motivate and retain your best employees. Employees who understand that they are being groomed as future leaders experience increased loyalty to and respect for the organization.

By focusing on these individuals’ career development and customizing a plan for each person that might include classroom training, cross-functional assignments, and temporary project leadership, companies appeal to a universal hunger for new skills, challenges, and innovation. They also show high-potential candidates that they are valued and worth the investment of time and resources.

Setting the Record Straight

According to Stephen Miles, founder of the Miles Group, there are many myths surrounding succession planning that must be debunked before the process will be taken seriously. These include:

External candidates are more promising: Corporate boards often prefer the devil they don’t know to the devil they do. Also, some find it difficult to imagine someone at the top after seeing her operate in a lesser role for years. Yet, time and time again we see that external candidates are far riskier.

The successor has to be ready now: The particular context of a leadership situation goes a long way toward determining how “ready” the successor needs to be, and the only way you’ll know someone is truly ready is in hindsight.

Succession planning is single-person event: Although companies usually focus on the CEO, the best succession planning involves a constant assembly and reassembly of a leadership puzzle. The composition of other leaders, as well as external factors such as company strategy and economic conditions, affect the way the puzzle is solved.

What worked in the past will work in the future: What a company needs in the next six months and beyond may be drastically different from what was needed even in the last quarter. An individual who sees the company and its industry through a new set of lenses may be best prepared to recognize and seize new opportunities.

We have a great internal candidate so we’re all set: While many companies automatically view external candidates as more attractive, others myopically focus on their own people. It’s good governance to conduct an external recruitment market scan that identifies the key candidates within the industry, find the adjacent and best athletes across industries, and compare all those candidates to internal ones.