Succession planning: Strategy first, people always

Fast Company

06-05-2025

In my many conversations with manufacturing industry leaders, succession planning consistently emerges as a critical challenge. When business owners start thinking about succession, it's often because a founder or CEO is contemplating retirement or exit. That entrepreneurial, innovative, and sometimes scrappy leader might not represent the personality needed for the next phase of the business, which might require different skills in building organizational structure, scaling operations, or moving into new markets.
At my firm, we use the mantra 'Strategy first, people always.' Succession planning only works when we start with a clear understanding of business goals and stakeholder objectives. In many cases, these are businesses owned and managed by the same people or perhaps the same family. This strategic alignment ensures that succession planning connects with overall business goals and future direction.
When talent strategy flows directly from business strategy and is driven by business leaders collaborating with human resources (HR), we see much better engagement and outcomes. Business leaders need to own these conversations about cost reduction, market expansion, technology transformation, and the talent implications that flow from these strategic imperatives.
'The share of externally hired CEOs surged in 2024, representing 44 percent of all new S&P 1500 CEO appointments,' according to research by Spencer Stuart. 'While outsider appointments increased in all segments of the S&P 1500, mid-cap companies led the way, with 58 percent of new CEOs hired externally and only 42 percent promoted from within the company.'
When considering external candidates, it's crucial to build relationships early while carefully considering potential impacts on company culture and morale. External candidates can bring fresh perspectives and new ideas, particularly valuable when the business strategy requires significant transformation. The key is to ensure any external hire aligns with the organization's values while bringing the necessary skills and experience to drive future growth. It can be a very rocky road when you get an external hire wrong. Assessing candidates leveraging tried and tested assessments can help avoid costly mistakes.
TIMING AND TRANSITIONS
Every succession plan needs a schedule, and timing is critical. Plan well in advance—there are numerous examples of companies that started too late and faced significant challenges. Consider the age demographics across the leadership team and the whole organization. Having most of the leadership team near retirement age means potentially recruiting for multiple positions simultaneously, a challenging scenario that can destabilize the organization.
With leadership transitions, it's not simply one out, one in. Create overlap periods for knowledge transfer when possible, allowing the incoming leader to understand the nuances of the role and build key relationships. Always maintain contingency plans for unexpected departures; succession planning isn't just about planned transitions.
CULTURAL FIT AND CHANGE MANAGEMENT
Culture is fundamental to business success, often stemming from the founders' vision. The challenge lies in preserving cultural strengths while enabling necessary evolution and fresh perspectives. My experience shows that successful transitions depend on clear communication and shared accountability. While leadership teams often share similar views on challenges and opportunities, they frequently lack the frameworks to discuss them openly.
Creating structured opportunities for dialogue can surface these shared insights and concerns. What often appear as personality conflicts usually stem from different working preferences and communication styles. Understanding these differences early allows for smoother transitions. I find that a focused approach using targeted assessment tools and direct business-focused conversations can create alignment in as little as four weeks.
Succession planning isn't a one-time exercise. Regularly evaluate your succession plans and measure their efficacy. Update plans based on changing business conditions—unexpected market disruptions can shift the demand for certain leadership capabilities. The COVID-19 pandemic, for example, underscored the need for leaders with strong digital transformation and remote team management skills.
Monitor potential successors' progress regularly and adjust development plans as needed. The health of the succession pipeline needs constant assessment, with corrective action taken when gaps appear. This ongoing review process better ensures that the organization maintains readiness for both planned and unplanned transitions.
BETTER PLANNING, BETTER OUTCOMES
This succession challenge is particularly acute in the electronics manufacturing industry. It's my observation that many electronic manufacturing services (EMS) groups are run by executives in their fifties, sixties and even seventies, where choices narrow to succession or exit.
Any exit strategy may be seriously impacted by a lack of succession planning or real bench strength across the leadership team inside organizations. One of the biggest mistakes I see organizations make is that they have a one-for-one approach with limited optionality.
This approach is fraught with risk. You need to have at least three to five candidates who you're nurturing. Here's why. Burnout is real, and many leaders suffer from significant health issues at the age that they are ready for CEO positions. Missteps are real. I've seen candidates make significant missteps in business, which takes them out of the race. Finally, some candidates just decide they are out and the role is too much to take on.
THE GOOD NEWS
My colleagues and I have observed that EMS organizations with strong succession planning tend to command a premium in valuations. They stand to win more business based on team quality and culture and may gain increased wallet share from existing clients who have confidence in the leadership pipeline. This reflects the market's recognition that strong succession planning correlates with better business outcomes and reduced organizational risk.
Making this investment matters to both the top and bottom lines. Through conversations with industry analysts, I've seen how organizations with strong succession planning consistently outperform their peers. They are better positioned to handle market transitions, more attractive to potential clients, and more resilient in the face of leadership changes.