the company and had to approve the CEO's recommended strategic plan and capital expenditure budgets. He was also disciplined enough not to throw his weight around and overrule the CEO's managerial decisions and actions, even when long-term employees came complaining about something. As a result, he did not undermine his CEO.
A variation on this theme is for the entrepreneur to turn over the CEO position to another individual in the business who is better suited to handle the CEO position. This was done reasonably successfully by Howard Schultz at Starbucks who turned the business over to Orin Smith. However, after Smith retired from Starbucks, the next successor, Jim Donald, came from outside the organization and was later fired, with Schultz returning to the position of CEO. Schultz later stated that Starbucks would never again hire someone in that position from outside the organization who did not deeply understand the company's distinctive culture.
Change Behavior, Skills, and Role . Finally, a CEO may choose to make the personal and managerial style changes necessary to be able to take the organization to its next growth stage successfully. This can also involve a redefinition of the CEO's role. We will provide more detail on the specifics of leadership transitions in the context of leadership development – the subject of Chapter 9.
As described earlier in this chapter, a critical ingredient in the success of such an attempt is the CEO's willingness to live with less control over the organization and its activities. Our experience in coaching CEOs through this transition is that it is possible, but it is not easy.
Cultural factors can play a role in a CEO's willingness to give up a degree of control. In many Asian counties, founders and CEOs (both men and women) are expected to be “strong” individuals, as they typically are. The cultural expectation can lead to a situation where the CEO makes all of the major (and probably many, if not most, of the minor) decisions. This can result in the CEO being the only strong individual in the company, surrounded by “helpers” or people capable of executing tasks and decisions, but not making them. This makes the company totally dependent on the CEO and results in a self-fulfilling situation where the CEO does not expect others to be capable of making decisions and therefore makes them himself or herself. Similar expectations and behavior are also found in various Latin American countries, including Mexico.
Such a situation does not exist only in Asian and Latin American countries; there are many examples of this behavior in the United States and Europe as well. For example, in one medium-sized bank in which we worked as consultants, the founder was an exceptionally strong and dominating individual, and had “trained” other managers not to challenge him. They simply waited for him to make decisions, which they executed. After his retirement, when the next president took over, he had different expectations, and wanted a true managerial team. It took about two years to change this “obedience culture” in which people simply followed orders.
Still another factor that might limit a CEO's willingness to reduce the degree of control exercised over operations is personal experience. Some CEOs have tried to reduce their level of control, but the results have been disappointing. Other CEOs have not tried to do it themselves, but have observed others try with unsuccessful results. These are powerful barriers to changing leadership practices. For example, one CEO, who headed a residential real-estate development company we worked with for many years, had observed only negative results in decentralization of operations. He was therefore very reluctant to follow the same organizational strategy in his firm. He ultimately became convinced that a variation on this was a necessity for his company to facilitate further growth, which, in turn led to positive results.
The CEO who elects to stay with the company and delegate authority to managers now faces another problem. As more than one CEO has asked us, “What do I do now? What is my role?” It is likely to be more than a little discomforting for a person who has been hyperactive and involved in virtually all phases of an organization's activities to find that all tangible roles have been delegated and the only thing left is to be responsible for intangibles. These intangibles include ultimate responsibility for the company's vision, organizational development, and culture management.
The entrepreneurial CEO has become accustomed to being the most versatile person in the orchestra: the individual who could play violin, bass, trombone, drums, or harp. He or she could even be a one-person band. Now, however, the CEO's job is more like that of an orchestra leader. The CEO may not be at all sure that he or she likes or values this new and unfamiliar role. It does not seem to be productive in a concrete way.
In fact, this new or redefined role is indispensable. The CEO needs to focus on ensuring that the company has a clear and well-communicated vision. People need to know where the company is going and, in this sense, the CEO is the person who is responsible for charting and then working with his or her team of senior executives to keep the organization on course. The CEO is responsible for championing a holistic view of the development of the entity to ensure that there is a focus on creating strengths, overcoming limitations, and identifying areas for improvement. This function is known as “strategic organizational development.” Again the CEO is not responsible for the specific organizational development initiatives; he or she is responsible for orchestrating the process. Finally, the CEO needs to focus on ensuring that there is a clear definition of the corporate culture, as well as a method for managing it. In all of these areas, the CEO is responsible for articulating the “what” (is done), but not the “how” (it is being done).
A CEO may not be equipped to handle this new role because he or she does not adequately understand this new role or have the skills required to effectively perform it, or both. Moreover, many CEOs cannot admit weakness by letting anyone guess that they know neither what to do next nor how to do it. Some try to bluff their way through by acting in an executive manner and issuing peremptory edicts. Others try to cope by becoming hyperactive, burying themselves in their work. Often, however, this is merely make-work or busy work, an attempt to fool themselves into believing that they are still doing something valuable. A CEO who does not know what to do next but is afraid to admit it and seek help is setting the stage for future organizational crises.
At this stage of the company's development, the CEO's role involves becoming a strategic leader. The focus needs to be on the future direction of the enterprise and its long-term objectives, versus doing work or managing day-to-day operations. There needs to be a focus on managing the organization's culture and on serving as a role model for others. Each of these aspects of the CEO's new role requires the ability to think abstractly or conceptually about the business rather than merely in terms of concrete products.
The Need for Organizational Transition
In addition to making personal changes, CEOs and other senior managers must face the challenge of managing organizational transitions. It is obvious that a company with $100 million in annual revenues is fundamentally different from one with annual sales of $1 million. It follows, then, that as an organization grows, it needs to develop new systems, processes, structures, and ways of managing the business (that is, it needs a different infrastructure). Through our work and research, we have identified a specific progression of infrastructure development that needs to occur to support organizational success. This progression is embedded in a “stages of organizational growth” framework that will be the subject of Chapter 3 and Chapter 4.
Building a sustainably successful business, then, involves understanding and effectively managing these stages of growth. The remainder of this book is intended to provide CEOs and their leadership teams with the information that they need to effectively develop and manage their company's infrastructure.
Transitions Required for Continuing Success: An Overview Case Example
As an introduction to the remainder of this book and
