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Leadership transition is a critical phase for any organization, more so in the context of fast growing startup firms. Startup firms are primarily driven by the vision and leadership of the founder/entrepreneur, who builds a winning team during the formative phase of the company and gains confidence and credibility of key stakeholders.

With a strong growth story, led by the founder and his leadership team, any changes in the leadership may get associated with risks such as a loss of organizational momentum, lower morale, lack of trust, and loss of goodwill among stakeholders, which may have widespread implications. Steve Jobs’s announcement of leave of absence led to a 10 percent drop in the stock price of Apple Inc.

It, therefore, becomes important for an entrepreneur to think beyond the formative phase and establish a leadership transition plan to ensure a smoother progress of organizational leadership and its consistent evolution. While succession may not be imminent, as a leader one should be prepared for potential transitions and to “visualize to actualize.” There are multiple aspects that need to be balanced while devising the leadership transition plan, as follows:

Managing emotions/expectations
Leadership transitions are fraught with emotional tensions, and historically, organizations have witnessed exodus of key leaders from the company along with leadership transitions. While managing everyone’s expectations may not always be possible, initiating changes effectively and proactively developing and managing expectations, usually fosters a positive atmosphere for change.

Develop or hire
Both have their pros and cons. The “grow your own” organic strategy is better and motivating for existing employees. However, it requires a comprehensive succession plan to identify and manage talent. “Hire from outside,” on the other hand, is perceived to be more risky, and time/resource consuming, but can bring fresh perspective and momentum to the organization, and is more relevant for re-alignment of transitions.

Aligning transition to organization strategy
Transitions at the leadership level are driven by various motives such as re-alignment, sustaining success, turnaround or even new business development. One needs to understand their current business situation and develop a transition plan that matches and supports the going-forward organization vision and strategy.

You may have heard of organizations that have emerged stronger from transitions and also organizations that lost momentum on account of prolonged leadership gaps.

Most often, it’s the inability of the leader to let go off the day-to-day business activities that delays the transition planning. However, given the high risk and uncertainties that are associated with leadership transitions, corporates must adopt flexible frameworks in their organizations to enable gradual transitioning, through a thoughtful deliberation, stakeholder understanding and collaboration.

Leaner/flexible organization structures
Organizations are moving towards more leaner and functional structures from the conventional rigid organizational structures. Leaner structures also bring in organizational agility, which is more amenable to change and hence enables smoother transition.

Effective communication mechanisms
Inadequate communication, combined with transition, may create anxiety within the company. A well-deliberated and communicated leadership transition planning program reinforces the confidence of all stakeholders in the capability to handle the task of executive selection, on-boarding and business continuity.

Further, while the transition is in process, the leader should effectively use the communication strategies and interpersonal exchanges to facilitate the transitioning initiatives.

Spotting future leaders
As briefly covered in my previous article “leadership deficit” is a key growth challenge faced by companies today. An entrepreneur has the flair to identify and pick potential leaders from the organization and fast-track them.
If managed properly, your company can become the breeding ground of future leadership for the company, which requires considerable mentoring.

Unlocking leadership potential
The identified leaders thereafter also need to be coached to help them think through and prepare for enhanced responsibilities in the organization.
They should be challenged to adjust their leadership/management styles suited to the new role, and eventually also manage to maximize their potential as a leader, invariably with demonstrated strategic and execution skills.

Result-oriented action plan
The first few months for the new leader are critical to build the momentum and establish credibility with the team. A well-articulated action plan, such as a 100 day execution plan, can be quite useful in securing early wins which then lay down the foundation for a strong future.

As a leader, an entrepreneur needs to play a very crucial role in setting the stage for leadership transitioning, and use this as an opportunity to establish a leadership culture in the organization.

At YES Bank, we have developed creative and flexible organizational frameworks, and invested in developing leadership capacity and bench-strength at all levels.

There are numerous examples of home-grown talent who are now leading individual business units within the bank, and I am sure I will see many more such instances in future.

Successful transitioning of leadership, while preserving the values/ethos of the organization, and trust of the stakeholders, allows it to adapt to changing business scenarios, and continuously excel in business endeavors.

I would also like to mention the name of the Tata Group, India’s oldest and best-known business conglomerate, which has successfully executed this in the past, and is now looking for a deserving successor to lead their large and successful business empire.

RANA KAPOOR is the Founder, Managing Director and CEO, YES Bank.

©Entrepreneur January 2011

Tags:
leadership, Rana Kapoor, transition