During a recent webinar on Accountability, we asked attendees “What is keeping you up at night?” Leadership Transitions received the highest number of clicks. Low or declining profits came in second with Missed Deadlines as third and Mergers/Acquisitions fourth. The results didn’t surprise us, in fact, these concerns are very much in line with the organizations that we talk to daily. In this blog, we’ll explore the topic of Leadership Transitions and how it impacts your company.
Leadership transitions come in many shapes and sizes, yet they all carry the weight of impact on an organization. When a leadership role changes due to retirement, promotion, voluntary/involuntary termination, or Merger/Acquisition the change can be felt both internally by your employees and externally by your clients and prospects. It’s not just a matter of an individual leaving the company with someone different assuming the responsibilities. This type of transition is much more than just finding a replacement. Too often companies look to fill the role as quickly as possible without giving thought to the effect on competitive advantage and organizational capability.
An organization faced with this situation needs to ask the following three questions:
“Which skills will we lose?”
“Which skills must the incumbent have?”
“Which skills are no longer required for the future?”
It’s important to note that skills are not limited to just technical ability, they include the all-important “know-how.” Individuals also possess “deep smarts” which is the collective insights and expertise used to make judgment calls or swift, smart decisions. Accumulated knowledge about the industry, company, employees, clients, vendors, strategic partners, etc. is not something that can easily be transferred or replaced. In many cases, there is barely enough time to wrap up loose ends before an employee leaves the company, let alone the opportunity to properly train/develop the person assuming the role with the critical deep smarts. Now more than ever, companies need to perform an assessment to determine what deep smarts, skills, and capabilities are needed now and in the future for the company to be positioned to execute its strategic initiatives and sustain competitive advantage.
More than just a bump in the road, leadership can send your competitive advantage into a downward spiral. First, let’s define “competitive advantage” as it applies to business. An organization’s competitive advantage is established and sustained by the unique approach that it uses to develop and deploy its resources and capabilities. Resources are the productive assets that a firm owns; and are categorized as human, intangible, and tangible. Capabilities are what a firm can do, and when you combined with resources, creates organizational capability (Robert M. Grant). Some companies choose to compete on cost while others compete by being different. Walmart is an example of competing on cost; whereas, Apple competes by being different than others in the same industry.
Many times, a leadership transition brings changes to the overall approach that the company will take. This can be positive or negative depending on how an organization is able to navigate those changes both internally and market facing.
Organizational capability is unique from one firm to the other and is very difficult to replicate. The processes, organizational structure, motivation, and organizational alignment of a firm help shape the effectiveness of the interplay between resources and capabilities. A change in any one of these areas could dilute the ability of a firm to successfully compete with other companies. Conversely, the ability of a company to leverage the unique strengths of the firm has the potential to not only establish but also sustain a competitive position in the marketplace (Robert M Grant). It is critical to have a plan in place to successfully navigate any change to this workplace recipe. This includes how an organization reacts to changes in leadership. Without a plan, a company can get stuck while the competition moves forward.
A change in human resources capabilities (skills, knowledge, motivation, communication, collaboration, decision-making ability, etc.), deep smarts, etc. places additional near-term burden and potentially long-term burden on the organization and all stakeholders. Change that is not managed appropriately leads to increased employee turnover, frustration, ineffective leadership, and the list goes on. Having a champion to help navigate these dynamics can position your company for success well into the future.
Leadership transition is complex, and we hit on just a few areas it can impact. Join our upcoming webinar, Taking Leadership Transition into the NextGen as we discuss what role business value and state and local tax exposure can play in your transition plan.