by Danny Klinefelter, Texas A&M University Extension economist
A CEO and successor must work together in the present to cultivate a future.
Successfully transitioning management involves three critical and often simultaneous processes: successor development; the transfer of management responsibility and authority; and the exit of the current CEO.
Businesses that have effectively made the transition have completed the following 10 steps:
- An assessment of the needs of the business for the present and the future. This includes determining the management skills and attributes necessary to keep the business thriving.
- An assessment of the strengths and weaknesses of the current CEO. This includes an assessment of the CEO’s ability to teach and mentor the successor in the areas identified in the business assessment.
- An objective assessment of the strengths and weaknesses of the successor.
- Open, honest and mature two-way communication.
- The creation of a management development plan that addresses the successor’s strengths and weaknesses; experience; respon-sibility; training; and honest/objective evaluation and feedback.
- Planned experience, exposure and networking opportunities for the successor, not just outside the business but also outside the industry.
- The development of a common vision for the business, now and in the future.
- An ongoing delegation of responsibility and authority, with a specific time line.
- Including the successor in the development of the business plan and in the strategic planning and decision-making process.
- Implementing a plan for what the current CEO is going to do next.
Develop the skills. In addition to teaching how to manage the daily 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 part determine their success. 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 environment and 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’s external environment. If it doesn’t, the business will be falling behind even though it may be moving forward.
Pull it all together. One of the key components of educating the successor and increasing his or her understanding of the business and how it works is developing a business plan. It’s not just a tool for guiding the business; the process, discussions and information involved in preparing the plan are a critical element in the development of the successor. Every facet of the business has to be explored. A well-prepared business plan:
- improves internal and external communication lines.
- evaluates the feasibility of plans and their sensitivity to different assumptions.
- helps discover and anticipate problems and limitations, as well as discover and evaluate opportunities.
- forces management to take an integrated approach to address production, operational, financial, marketing and human resource issues.
- requires an assessment of capabilities and a clarification of goals and direction.
- makes realistic projections for the operation.
- increases the involvement of and interaction between the current CEO and the successor, as well as the rest of the management team.
- 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.
Learn from history. If successors are going to develop and improve their decision-making skills, they need to learn from their mistakes. An important part of that process is performing autopsies on the results of key decisions. This requires digging deep enough to determine why things turned out as they did. It involves what was overlooked, what should have been done differently, etc.
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 and lenders to landlords, customers, labor and even family members.
The success of negotiations will affect prices, the acquisition of resources, relationships and terms of arrangements. It is critical to a successor’s professional development that he or she be included in these negotiations even if at first it is only as an observer.
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 serves as the executive secretary of the Association of Agricultural Production Executives (AAPEX). Contact him at (979) 845-7171 or