How Homebuilders Can Be Proactive About Succession Planning

Regardless of company size, homebuilders need to be prepared for the day a talented manager decides to move on. Here's how.

By By Susan Bady, Senior Editor, Design | July 31, 2007
Why Managers Leave
Star Search

Charlie Scott had been with The Estridge Companies, a Carmel, Ind., home building company, for 19 years when he decided it was time for a life change.

"I didn't see myself being a home builder in my 60s and 70s," says Scott, an executive vice president for Estridge. Knowing that he and his wife would soon become empty nesters, Scott wanted the flexibility to travel more often, particularly to their second home in Colorado. When he ran into Keith O'Brien of Woodland, O'Brien & Associates at the International Builders' Show several years ago, the puzzle pieces fell into place. Woodland, O'Brien & Associates, based in St. Paul, Minn., is a customer satisfaction research and development firm.

"Keith mentioned that John [Woodland], the other partner and founder, was probably going to retire before he did," Scott says. "I told him I would like to move into a consulting role where I could share what I've learned and help the industry. He was real happy about that because he and John had started talking about succession plans, and said they needed to find a Charlie Scott-type person."

Scott and Paul Estridge, president of The Estridge Companies, have been friends for 40 years. Estridge was aware of Scott's long-term plans and wasn't surprised when he gave his official six weeks' notice. In April 2007, Scott became a partner and principal of Woodland, O'Brien & Associates, and has an office in Carmel.

Ironically, Scott's former employer is now his client. But both men are positive about the change, believing they have an opportunity to be better friends because they no longer work at the same company.

"To think that people are going to be with you forever is just an absurd expectation," Estridge says. "Whether it's a superintendent or a salesperson, or an executive or a controller or a CEO [leaving], those things happen, and we have to look at it as being an opportunity for other people to step up and grow and learn to do more."

What's the Plan?

All too often, succession planning is considered only for the president or CEO, but front-line and functional managers also need to dedicate time and energy to developing their people, says Ted Bellamy of the Daniels Group, a Denver-based search firm. "I'd argue that it's a manager's most important job," says Bellamy, "but unless the senior managers demand it, proactive development of people is not likely to happen. We've come across builders who think strategic development can be taken care of during the annual review."

Most home builders typically are in denial about the need for a succession plan, says Bill Carpitella, CEO of the Sharrow Group in Rochester, N.Y., an executive search firm that specializes in the home building business.

"Whether it's overtly or passively, they just assume that everybody else who was underneath that individual is going to pick up the sticks and make it work," says Carpitella. "Typically there's very little discussion about what that looks like or what's in it for them to do that, and the levels of stress and dissatisfaction go up."

Carpitella believes it should be part of a manager's job responsibility to identify individuals within the organization who can take their place. "They need to talk about the gap between where that individual is today and where they need to be and put some activity together that will bring that person closer and closer to that competency level," he says. Managers should also be proactive about looking for potential successors outside the company and building a relationship with at least one or two such individuals, he says.

Bigger builders tend to be more cognizant of the need for a program that encourages the ongoing development of future leaders, says Professional Builder columnist Paul Cardis of AVID Ratings Co., a customer satisfaction research firm in Madison, Wis. Such a program, says Cardis, may include mentoring, direct training and cross-training in the other functions of the organization.

"But size does not mean sophistication, and there are number of very, very sophisticated smaller companies," he says. "It goes to the core of being able to delegate. The only way that owners and top executives will be able to offload responsibilities — which make them productive as well as enabling them to grow the company — is to create leaders."

The process is formal at some companies and informal at others. Estridge's philosophy is to hire talented generalists who can be trained and mentored to step up in the event that a key manager leaves. "We sharpen each other's saws and blades," says Estridge. "When that becomes the culture, you don't need any kind of formalized structure."

For a small builder like The Green Company in Newton, Mass., hiring from outside may be the best option. Several years ago, the company used a search firm to fill three middle-management positions. "It's tough in a small company where you don't have regular openings," says CEO David Caligaris. "There isn't a logical successor for every single [manager]."

On the other hand, because there are only 55 employees, it's easier to give them a first-hand look at how the company works.

"We have meetings where a lot of people are involved and have exposure to the decision-making process, and the personalities at the higher levels of the organization ripple down in terms of how problems are solved," says Caligaris. "So there's a learning process that goes on with that, and I think it's a very important aspect of grooming people in a very subtle way."

If there is a sufficient number of small projects in the pipeline, employees are sometimes given the opportunity to manage one. "They still have a functional responsibility within the company, but also a bit more general management responsibility for an individual site. It's a good way to give them more operational exposure," he says.

Bob Piper, senior partner with The Talon Group, a Dallas-based search firm, says a succession plan should designate two or three people within the company who can back up each key executive and manager. It also should designate backups for the backup people. "That gives a company marching orders or at least an indication of a planned intake of people if they see they don't have an adequate number of backups for particular positions," Piper says. Executives can then choose to either hire new managers or recruit employees at lower levels who can work their way up the ladder.

In addition to a succession plan, builders should create a "success profile" for every position in the company, he says. A success profile is broader and deeper than a job description, describing the behavioral characteristics the individual should possess, such as alignment with the company's mission.

Build a Sturdier Bench

Author, speaker and management expert Bruce Tulgan, founder of RainmakerThinking in New Haven, Conn., says some organizations take a two-dimensional approach to succession planning — which is to say they have a plan on paper. For each important role, a potential successor is named and becomes, as Tulgan calls it, "the bench strength."

But what usually happens is that the plan is filed away, and by the time it's needed the people on the list no longer work for the company. "It's got to be three-dimensional, meaning you really need to be engaging your would-be successors on a regular basis," says Tulgan.

Some larger organizations have fast-track programs. Tulgan's view is that such programs make a company "vulnerable to the training and development investment paradox, meaning that you train people, you develop them, they become more and more valuable and then they can use your investment as leverage to make demands and sometimes go sell themselves to your competition."

A better approach, he says, is to identify those individuals who are the bench strength for each manager.

"You need to be talking to that person, if not every day then every other day, or once every week or two weeks. Tell him or her, 'Here's what we need from you; what do you need from us?' And you need to be putting that person in the way of developmental learning opportunities — transferable skills as well as technical skills — and exposing him or her to senior leaders in the organization, organizational supporters and coaching-style mentors." Try out the individual in ad hoc leadership roles. "Give that person a project to lead. Put that person in charge for a day and see how he or she operates."

Charlie Trevor, associate professor of management and human resources at the University of Wisconsin in Madison, believes much of the succession planning process is intuitive. "Even in a small company, it requires people at the top levels to systematically review the potential of those beneath them," Trevor says. "It forces them to take stock of the talent they have, if they plan on filling [positions] from within." It's also likely to force top management to think more about providing developmental experiences for those who might one day be promoted, such as rotating them through job assignments to attain certain skill sets.

Education and coaching need not be industry-specific, says Trevor. For instance, it might include interpersonal communications, public speaking and leadership skills. The management candidate may also be asked to serve on committees or task forces within the company that are handling special issues. "The idea is to give them more and more exposure to a wide variety of things, since what managers do is generally not narrow," he says.

How do you spot individuals with leadership potential? Referring to Patrick Lencioni's book "The Five Dysfunctions of a Team: A Leadership Fable," Cardis says great leaders are not only trustworthy themselves, but also instill trust in others. Other characteristics include accountability and the ability to allow for healthy discourse — even conflict.

"The one word that I would use is integrity," says Estridge. "[Other] people are attracted to that; there's a natural leadership movement that starts to take place. And I think good leaders are selfless. They don't seek popularity; they get out in front and take people in a direction they might not feel comfortable going in."

Bellamy points to refined "soft skills," such as the ability to lead, mentor and develop people. "People who are skillful in those areas tend to be successful in different types of environments," he says.

The Green Company's Caligaris believes technical expertise is less important than how well a candidate fits the personality and culture of the organization. An individual who is a good fit "will do a far superior job, even if they don't have the technical background on their resume," he says. "We just did Myers-Briggs testing, and you could see the similarities in personality across the company."

Exit Strategy

When Charlie Scott told Paul Estridge he was leaving the company, Estridge asked him to break the news to colleagues. "Paul had me arrange a dinner with the vice presidents," says Scott. "Then I did an internal e-mail to all of the employees, which he let me put in my own words. Often I think the anxiety of the company owners or principals gets so high that they make it a bigger deal than it really is. And Paul didn't look at this in any way, shape or form as being a failure on his part; I think he looked at it as being a success."

About two weeks before his departure, Scott notified trade partners, consultants and other clients in case there were any questions or concerns.

"Even though I physically left Estridge, I feel like I took the company vision with me: 'To serve and enrich the lives of others ... to grow throughout our entire lives.' This was understood and well-received by employees at my going-away party," he says.

Although losing a respected manager is regrettable and a certain amount of grieving is to be expected, if you're prepared for such an event, you can keep disruption to a minimum. Otherwise, warns Tulgan, "there will be total chaos if you haven't been cultivating bench strength and managing people in a highly engaged way. Take a lesson from the Marines: everyone on a fire team needs to be ready to step into that fire-team leader's role and all the way up the chain of command. Short of that, you're going to be doing a lot of triage."

Don't belabor the loss any more than necessary, says Piper. "Speak well of the individual but make plans to move forward quickly," he says. "Set the tone for something new and exciting on the horizon. Most importantly, don't play the blame game. We've seen numerous instances where the exiting employee's stock went down in the eyes of management once he or she decided to leave."

If you anticipate a lot of internal competition for a particular manager's job and perhaps negative repercussions from those who aren't selected, Cardis suggests getting employees involved in the search. Set up a committee of three to five people to make recommendations for a successor. The committee may not make the final decision, but they can conduct interviews and due diligence, and you'll get the message across that the hiring process is objective.

Of course, as Trevor notes, there's a downside to succession planning. "It doesn't come free. You're taking people's time out of whatever job they're doing, and it's going to cost you money if you have to hire a consultant or put them in an MBA program, for example," he says. "And when you develop your employees really well, you're making them more visible to other companies to hire away — though maybe those are the kind of employees you really want to have."

Estridge says it's important for chief executives to encourage key managers to develop the people who report to them. "Don't let [managers] hoard authority and power and influence," he says. "They have to spread that out and share it and teach it so that when they leave, someone else knows how to run the cash register and turn on the stove and cook the eggs."

Related Links:

Society for Human Resource Management – articles, white papers, stats, etc.
Watson Wyatt Worldwide, a consulting firm that develops strategies for attracting, retaining and rewarding employees

Why Managers Leave

  • Insufficient compensation
  • No opportunity for bonuses and other short-term rewards
  • No control over work schedule and location
  • Lack of opportunity to expand technical expertise and "soft" skills (leadership, mentoring, etc.)
  • Dislike or lack of respect for immediate supervisor
  • Dissatisfaction with current responsibilities or lack of desire to take on other responsibilities
  • Concern about long-term viability of position
  • Shift in values between manager and organization

Sources: AVID Ratings; Daniels Group; RainmakerThinking; The Talon Group

Star Search

A search firm can be a very effective tool in finding a successor for a key management position. After all, search firms that specialize in the home building industry are always talking to executive officers and mid-level managers.

"We understand from candidates what motivates them and what drives them crazy," says Ted Bellamy of Daniels Group, a Denver-based search firm. "We talk to these people all day, every day, and we can be a pretty good resource for information."

Just don't expect the search firm to do all the work.

"We're not mind readers," says Bob Piper, a senior partner with The Talon Group, a Dallas-based executive search firm. "The better a search firm truly understands the company is in direct proportion to finding the right person." Finding someone with the right background and experience is easy; determining fit is a completely different art, Piper says.

Look into the search firm's track record of successful placements. Call references and get a sense of the depth of the builder-recruiter relationship. "Were they used just once or is there a history of working together as partners?" says Piper. "After all, they are representing your company to the candidate universe."

How far and how deep is the firm's reach? Are they national in scope? Global? Do they work only on finance-related searches or do they place candidates from all functional areas within the home building industry? And what types of people are they looking for? A firm like The Talon Group, which places mostly chief-executive-level candidates, probably wouldn't be the best choice if you were looking for, say, a project manager.

Bellamy says a face-to-face meeting with new clients is essential.

"It's generally easy to identify technical proficiency," he says. "It's much more difficult to identify a cultural fit between the candidate and the employer. That's not something we can do effectively over the phone."

Bellamy and his colleagues meet with as many senior managers as possible, delving into where the business is today, where they want to go in the future and the role the new manager will play in that transition.

"We want to understand all the forces that are going to impact that person, including market conditions, internal politics, values, culture and product," Bellamy says. "We'll spend a couple of hours visiting model centers in order to understand the type of product they're building."


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