Successful management transition involves three critical and at times simultaneous processes: successor development, the transfer of management responsibility and authority, and planning the exit of the current CEO.
Ten lessons I have learned from the businesses that have been successful in completing these processes are that they have done the following:
1. An assessment of the needs of the business, not just for now but for the future. This includes a determination of the management skills and attributes that will be needed.
2. An objective assessment of the strengths and weaknesses of the current CEO. This includes an assessment of the CEOs ability to teach and mentor the successor in the areas of need identified in the business assessment.
3. An objective assessment of the strengths and weaknesses of the successor.
4. Open, honest and mature two-way communication.
5. The creation of a management development plan that addresses the successors strengths and weaknesses, experience, responsibility, training, and honest/objective evaluation and feedback.
6. Planned experience, exposure and networking opportunities for the successor, not just outside the business, but also outside the industry.
7. Developed a common vision for the business.
8. An ongoing delegation of responsibility and authority, with a specific timeline.
9. Involved the successor in the development of the business plan and in the strategic planning and decision making process.
10. Implemented a plan for what the current CEO is going to do next.
Develop the skills. In addition to learning how to manage the day to day operations of the business, successful transitions require passing on the "strategic smarts" and "strategic thinking skills" to the successor. To be successful as a CEO the successor also has to learn to become a leader, not just a manager. Leadership revolves around vision, ideas and direction, and has more to do with inspiring people than with day-to-day implementation.
Top managers recognize that their ability to attract and motivate people will in large measure determine how successful they are. A leader is great, not because of his power, but because of his ability to empower others. When it comes to managing people, the top managers see themselves more as the head coach than the boss. J. Paul Getty once said "It doesn’t make much difference how smart, how much knowledge or how much experience an executive possesses; if he is unable to achieve results through people, he is worthless as an executive."
Leaders must be able to judge the strengths and weaknesses of the business, to assess the opportunities and threats in their environments, and most importantly, to identify which issues are most important and deserve their closest attention.
It’s important to recognize that in order to stay ahead, the internal rate of change in the business needs to exceed the rate of change in the business’ external environment. It doesn’t, the business will be falling behind even though it may be moving forward.
One of the key components of educating the successor and increasing their understanding of the business and how it works is the development of a business plan. It’s not just a tool for guiding the business; but the process, discussions and information involved in preparing the plan are a critical element in the development of the successor. The reason is every facet of the business has to be explored. A well prepared business plan serves several purposes and accomplishes several things:
• It improves internal and external communication.
• It evaluates the feasibility of plans and their sensitivity to different assumptions.
• It can help to discover and anticipate problems and limitations, as well as helping to discover and evaluate opportunities.
• It forces management to take an integrated approach to addressing production, operational, financial, marketing and human resource issues.
• It requires an assessment of capabilities and a clarification of vision, goals and direction.
• It makes projections more realistic.
• It increases the involvement of and interaction between the current CEO and the successor, as well as the rest of the management team.
• It builds the commitment to something specific. The most successful businesses also recognize that the business plan isn’t a once and done document. It has to be continuously monitored against actual results and regularly updated to reflect changing conditions and circumstances.
Learn from history.
If successors are going to develop and improve their decision making skills, then they need to learn from their mistakes. An important part of that process involves performing autopsies on the results of key decisions, whether things went well or poorly. This requires digging deep enough to determine why things turned out as they did. What was overlooked, what assumptions were wrong, what should have been done differently, were there mid-course adjustments that could and should have been made, and if external factors or conditions were the cause, are there any leading indicators or more detailed information that needs to be considered in making future decisions? Most important, what did they learn?
Another increasingly critical part of a successor’s education is the development of negotiation skills. The ability to negotiate touches almost every facet of a business, from dealing with input suppliers, lenders, landlords, customers, labor and even family members. The success of negotiations affects prices paid and received, the acquisition of resources, relationships, and terms of arrangements. More now than ever and likely even more so in the future, top managers have to be skillful negotiators. It is critical to a successor’s development that they be included in these negotiations even if at first it is only as an observer.
Editor’s Note: Danny Klinefelter is a professor and Extension economist at Texas A&M University specializing in agricultural finance and management. He is the director of The Executive Program for Agricultural Producers (TEPAP) and Executive Secretary for the Association of Agricultural Production Executives (AAPEX).