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Spring 2013

September Current Thinking Column

Friday, September 30, 2016

Implications of a Transition Plan on Today’s Operations:

Redefining the Role of the Leader

by Burak Kocer PhD

As we work with family business leaders to plan the transition of a company, one of the main topics becomes redefining the way decisions are made and carried out. In fact, a family business leader’s transition plan would be a void letter if it had no implications on how the company is run today.  Alas, this is a change that is easier said than done and a true test of sincerity for the owner. Quoting Morpheus of the film The Matrix, “There is a difference between knowing the path and walking the path.”

The most explicit impact of the transition plan on the way the company is run today concerns delegation. The mere fact that the founders grew a small startup operation to what it is today gives them every legitimate right to undertake all critical decisions. As the operations expand, the founders hire managers with specific executive responsibilities, yet in many cases, they work so closely with those managers that you would not necessarily call it a “delegation.”

In this article, I would like to discuss three main problems that stem from a lack of proper delegation. Subsequently, I will suggest various ways on how to expand delegation.  

In the absence of an effective delegation:

The owner becomes a part of the decision.

When the owners work closely with the managers, i.e., make decisions together, they eventually become a part of those decisions, which leaves no room for the development of accountability.

There remains no space to grow talented managers.

A founder, who undertakes all decisions regarding the creation of new systems, eventually leaves behind an organization that is incapable of creating anything new in his/her absence. However, this is exactly what is expected from a leader—to not only run a system effectively, but to be also capable of creating new ones.

A leader dealing with numerous key performance indicators (KPIs) cannot see the forest for the trees.

Unlike the number of different horizontal responsibilities that a manager assumes, the number of KPIs that he/she should focus on should decrease with the level of  increasing hierarchy. When a founder strives to manage operational responsibilities, he/she ends up focusing on a vast range of KPIs, which obscure his/her appreciation of the overall situation.

Redefining the Founder’s Involvement in Business

A transition plan should eventually redefine the way in which the founder is involved in business processes today. Here are some suggestions to facilitate this most challenging task for a founder:

1. The best way to emphasize delegation is, to the extent it is possible, limit the cooperation between the founder and a manager to formally defined meetings, rather than informal discussions ad hoc.

2. Changing the meeting frequency from weekly to biweekly or even monthly can help implement the expansion of delegation incrementally.  

3. In order to make delegation properly work, a sound control system should be provided. When redefining the leader’s involvement in the operations, you need to make sure that internal controls are up and running. An internal control checklist is a critical instrument that requires periodic review.

4. Although valuable as time savers, abbreviations sometimes make us forget the real meaning of the concept. For example, KPI stands for key performance indicator and has value in limited numbers. A priority matrix can be utilized to outline monthly, quarterly, and annual review periods for each KPI in order to keep the meeting agenda more concise.

5. Tolerance intervals should be defined for the KPIs not included in the predefined review schedule and should be reported if and when there is a deviation greater than the accepted level. For example, this can be 1% for an indicator and 3% for another.

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