Employees account for the biggest financial outlay, but are also the most significant strength of a business. Succession plans are critical and perhaps more so for a family business. With this in mind, Simon Brown chatted to us as KPMG Family Business experts on how to manage this process.
Right from on outset, key performance indicators (KPI’s) are important but they need to extend beyond just the financial to other areas in the business and require a solid understanding of the business plan. A further benefit of KPI’s is not only in the employment process but also as a retention tool within the business.
Read the transcript of the interview below…
Key performance indicators
Simon: I want to talk about the key performance indicators. This is what seems to come out a fair bit around this is using these key performance indicators to determine success and effectiveness of succession planning, and I suppose we should start there in a sense. What are KPIs and what are the key KPIs we would be looking at?
Christophe: Why should we need KPIs? I just want to say something – what is succession planning; it’s about succession, and then it’s about planning. What I mean is succession means that newcomers are going to arrive in the company; whether they are going to be from the next generation – so family members – whether they are going to be new managers, newcomers are going to be arriving as management.
What does this mean? It means it would probably create a lot of emotion in the team. That’s why we need a succession plan, because planning brings a lot of rationality behind a project where the calendar goes and KPIs – that’s where we find the KPIs in your question. Succession planning is a project where we need to define where we want to go, which kind of goals we want to achieve, and then which kind of process we’re going to be using to achieve those goals. And the only way we can drive those processes is using KPIs.
The business environment
Simon: And those performance indicators, a good point that’s made in the post that I read, are not only around the company and having a really good sense around what the business is, its objectives, and in essence it’s determined by the business plan, but also the broader economic environment that you’re finding yourself in that may require certain sets of skills.
Craig: Absolutely Simon, each industry, or each family business for that matter, operates in a different economic environment or climate, and those conditions in which that business operates should be taken into account.
So let’s say you’ve got a family business that’s in farming, you’re affected by the weather, you’re affected by exchange rates, you’re affected by global prices, and so on; whereas the fact is in mining it might be very different, or in tourism for that matter. So when setting KPIs, one absolutely has to build in the relevant economic indicators for that particular family business. And not only that, KPIs should be financial and non-financial as well. And we can talk a bit more about that if you wish…
Simon: I want to delve into the non financial there.
Non-financial performance indicators
Craig: So in terms of non-financial, you’d be looking at things like response time, you’d be looking at aspects like quality, you’d be looking at – in our industry in essence – zero failure, brand perception, client service feedback… These sort of things are vital KPIs from a succession perspective, but from a business performance perspective, but are non-financial, and they are almost as important as financial indicators.
Simon: I was going to say, they’re critically important and certainly they play into the financial, so in that sense, very very important. You mentioned in the article, employees are in many cases the biggest financial outlay and a significant strength of a business; or wrong employee, they’re a weakness. My sense is KPIs should be started on day one, probably at that initial interview before you even employ. A, the business has a good understanding, but engage the people who you’re looking to employ around these KPIs.
Christophe: Well you’re right Simon, we definitely think the people in a team are the most powerful strength of any organization, but that’s even more important in family businesses because we need to get family members; we need to get the best people to help and drive the business, and sometimes manage the business, because family members would like to keep the business but not manage it. They would probably hire a high level executive in that role.
They need to explain clearly what the goals of this family business are, and how they can keep the people motivated, and it’s definitely a retention tool to be very clear, honest, and very often to clarify and explain exactly what the family business goals are. It’s so important to attract the best people in family business so we can compete with major organizations.
Retaining staff based on competence
Simon: You mention a very good point there Christophe – it’s about retention. It’s one thing getting the good staff – and I’ve chatted to other guests on previous shows about that – it’s about retaining those staff and perhaps building their skill levels. They might not be exactly the right person at day one, but you want to build those skill sets and get them up to it, and that becomes part of the retention, and it goes back to things are more than just necessarily about financial. It’s about other levels of reward they can get within the business.
Craig: 100% Simon, and in fact it goes to competence, and quite often in family business succession plans it’s not necessarily about competence; it’s more about family. The KPIs need to be driven by competence and that’s the way in which you get by broadly across the business. If succession KPIs or benchmarks are not necessarily based on competence, you may get some levels of employees within an organisation, a family business, that may become disgruntled.
Christophe: Family businesses are always thinking in long term – their strategy is never going to be short term. They are always thinking about longevity, sustainability, and that’s where the KPIs are going to be a bit different from other firms, where they definitely think about staying in the business for the next decade, and not getting a huge short term return on their investments.
Engaging a professional to guide the succession planning process
Simon: Generations rather than weeks or months or years. In closing, I’d like to bring in two of the points, one was competence, one was the farmer. For the farmer, he looks at KPIs and he gets a sense of it, but I imagine this is probably something that quite challenges him in terms of how to set it up, how to put these KPIs in place, determine what are the key indicators to look at and the like, and this is where probably before they even start the employment process to bring in outside third parties, yourselves, or whoever, to help design the structure which will drive it forward.
Craig: Absolutely Simon, and this is where Christophe mentioned right at the beginning – when embarking on a succession plan like this, you need to engage an experienced individual or firm in this space to guide you through it, because this is very often something that businesses haven’t been through, and it’s a critical part of taking a family business into the next generation. There are certain clear guidelines and indicators that are successful in succession planning, and other practices that are not so much, so absolutely, involving a specialist to guide you through it – 100%.
Simon: You’re coming to it with your skill set, but not with necessarily this skill set.
Christophe: To make it very clear – the experienced or knowledgeable professional should help the family business to bring rationality, to provide experience, and then to drive the process through the KPIs – these are the three roles that an external adviser would bring to family businesses or family members.
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