Knowledge Succession: The Real Transfer of Power

by Joe Paul

I have often heard founders of family businesses say, “I am worried that my successors will try to change the company before they really understand it.” This tells us that there is knowledge in the head of the founder that they don’t know how to get into the head of their successor. Their concern also tells us that there is more to succession than dealing only with stocks, management, and taxes. When planning for succession it is important to consider three other issues that are often neglected. They are the succession of authority, relationships and knowledge.

The succession of authority is about transferring the responsibility for final decisions. In family businesses, true authority is often kept in the older generation even after stocks and overt management responsibilities are passed on.

Mismanagement of the succession of authority can create the unique leadership complications that are common to family businesses.

The succession of relationships is about the formal and informal grouping of people to think about things, reach decisions and make things happen. This relational aspect of succession involves many questions. A couple of examples are, “Will the existing advisors’ relationships with each other and with the outgoing leader survive the succession process?” And, “Will a group of siblings function adequately in a brand new set of relationships (as defined by their parents’ estate plan) that suddenly turns them into business partners?”

And the third neglected aspect of succession concerns knowledge. It is about passing on the ideas that really make things work, the ideas that define the identity of the company, and the ideas that explain why and when you do what you do. A brief reflection will quickly reveal that the transfer of knowledge cannot really be separated from consideration of relationships and authority. But in this very brief discussion I want to draw your attention to the succession and continuation of knowledge in your business because it may be what really decides the fate of your succession process.

Ultimately, it is someone’s ideas that give a company its competitive advantage. Much of the basic knowledge about your company’s processes, products or services is available to anyone in your industry. This basic industry knowledge gives you no real competitive advantage in mature markets. Competitive advantage comes from proprietary knowledge and definitive knowledge. Proprietary knowledge such as specialized software, or patents can be purchased. It creates real advantages, but they are often temporary because if they work for you, others will eventually replicate or purchase this knowledge. Your most durable advantages come from what I refer to as your capacity to create and sustain definitive knowledge.

It is the part of what you know that is hard to buy, sell or copy. It is what sets you apart. Definitive knowledge comes from factors like your unique insights into the needs of the customer, the culture you know how to create in your business, or the details of your products, processes or services. Whether it is explicit (knowledge you are able to write down and learn by reading) or tacit (hard to write down and based on experience and intuitions), it is definitive knowledge that gives your company its competitive edge. (One way to think about the difference between tacit and explicit knowledge in a company is to imagine that you could somehow make everyone in your company absolutely conform to their job descriptions. If that really happened most companies would come to a grinding halt in the first day. Explicit knowledge is what they need to know as described in their job description, tacit knowledge is everything else.)

Now when you begin to look at your company in terms of managing the succession of knowledge, you need to think about three basic questions: “What is the knowledge that makes a difference?” “Where is the knowledge that makes a difference?” And, “How well does it flow to where it needs to go?”

The answers to the first two questions can be found in three pools of knowledge:

  1. The brains of your individual employees. 
  2. The subsystems (groups of people, and institutionalized structures and processes) of the family business. These subsystems would include family members who work in the company, teams of non-family managers, the Board of Directors, divisions, branches, departments, etc. (When thinking about these pools of knowledge don’t overlook informal sets of relationships that don’t show up on any organizational chart! People sometimes need to get together to accomplish tasks in unofficial ways that the leader knows little about.) 
  3. The surrounding environment. This very large pool of knowledge would include customers, suppliers, competitors, related industries, seemingly unrelated industries, trade groups, etc.

The answer to the third question about the flow of knowledge will be found in what goes on between these pools of knowledge. Consider the knowledge your best customer has about your company that stimulates them to make referrals to you. That intangible asset that is so valuable to you is about both what they know, and how smoothly that knowledge flows to others. An important thing to remember is that the flow of knowledge is directly related to the level of trust between the people. Low trust relationships are expensive and not very productive (Remember the part about the succession of relationships?). One of the most productive things a leader can do to increase the flow of knowledge is to help increase the trust between people.

Can you identify the definitive knowledge about customers, suppliers, products, services or processes that distinguishes your company in the market place? Would your key managers give the same answers as you do? Would your successor? Don’t be surprised if the answers are not on the tip of your tongue. Sometimes this kind of knowledge falls into the category of things “you don’t know that you know” (tacit knowledge). It can be so much a part of who you are that you have never put it into words. But I can almost guarantee that it will make a difference when you can.

I invite you to do an informal “knowledge inventory.” Use the following questions to identify part of the definitive knowledge that makes your company unique. It is certainly not an exhaustive list but it is bound to open up productive conversations. First write down your own answers. Then ask your managers, advisors, employees and family members to independently answer the questions. And, perhaps most importantly, ask those who will be or may be your successors to answer them.

  1. What knowledge do we have about trends in the marketplace that give our company its competitive advantage? 
  2. What do we know about people that gives us an edge? 
  3. What do we know about our own operations that sets us apart from our competitors? 
  4. What do we know about leadership that attracts smart people to our company? 
  5. What do we know about strategic alliances that our competitors do not seem to know?

See how your answers compare to those of your managers, advisors, or even line staff for that matter. Do not be surprised if the answers differ. Encourage people to talk about the similarities and differences that come up. These differences will often lead you to new knowledge or useful insights about your company, supplier, customer, or competition. A funny thing about intellectual assets is that sharing them in the right context often leads to having more than you started with.

What are you doing to leverage the knowledge in your company? What are you doing to acquire new ideas? Is it realistic to assume that the definitive knowledge of today will still be definitive tomorrow? The shelf life of knowledge differs from one industry to another. What do you know about the expiration date of today’s best ideas? What are you doing to assure that your successor knows how to deal with these questions?

These are all questions that need to be part of your succession planning.

This article appeared in the Aspen Family Business Group’s Spring, 2000 Newsletter.