family business chapter 8

Family companies are often reluctant to go global because of:

A conservative approach to fiscal management A propensity for risk avoidance The large size of domestic markets

Following generations

Adapt the firm to changes in its competitive environment Must be active stewards of the enterprise and the owning family's legacy

The Present State

Assessing the current situation is the key task when facilitating an evolution Assessment must include an evaluation of readiness for the particular change that is being contemplated

Common Traps for the New Leader

Assuming that succession to a new management and ownership position vests the leader with the authority to lead Becoming isolated from important others in the family and in the business Being distracted by key managers or other significant players in the family organization who have their own agendas

The Change Formula

C = D × V × FS >> RC

Changing the culture requires leadership that:

Challenges the status quo Has an external (customer/competition) perspective Has the capacity to forge a new direction Can generate a sense of urgency

Competition and the Value Chain

Competition encourages firms to create new links in the value chain

Next-generation members in a family company are an important asset in the adaptation of the business to new competitive conditions:

Contributors to the creation of loyalty and goodwill Leaders of change, promoting dissatisfaction with the status quo and communicating a vision of a better future ahead. Accommodate the growing diversity of preferences of wealthier family members and inspire shareholder loyalty

Company cultures are often composed of unique values that define the company's commitment to:

Customers and shareholders Employees and suppliers The communities in which the business operates

The Future State

Define the future state before beginning the process of change The scenario should be precisely defined Write one scenario for the business and another for the family The scenario should be concrete and honest A precise definition helps prevent uncertainty and resistance Positive prospects allow the leader to pull rather than push toward the future state

D=

Dissatisfaction with the status quo

Assessment approaches include:

Employee, family, and customer satisfaction surveys Educational sessions with top managers and family members "Open-ear" meetings with sections of the organization

Agility in the Face of Change

Family businesses use agility to respond rapidly to changing business needs Next-generation leaders are often sensitive to the need for quick action toward change Other competitive advantages allow family businesses to rejuvenate themselves

FS=

First steps in getting from "here to there"

Use governance bodies to institutionalize the change

Frequent family meetings, or an ongoing family council A board with independent outsiders

Common Traps for the New Leader

Having to always have the answer to any problem Keeping the existing management team too long Attempting too much too soon or too little too slowly Being overly cautious or overly rebellious, depending on the new leader's historical relationship with the previous CEO-parent

RC =

Natural resistance to change

Value Creation and Next Generation

Next-generation leaders are more likely to accept new technologies that create value Complementary skills and perspectives often help older businesses update or create new sources of value A difference in vision across generations can cause tension A good leader recognizes the need for change to maintain competitiveness

The States of Evolution

Present state Transition state Future state

Digital strategies create customer value by:

Reducing costs Providing differentiation and customization Improving delivery times Digital strategies also increase inventory turnover and enhance return on capital

v=

Vision of desired future

The Transition State

Work in this period consists of forming action plans The leader must decide where to begin the change process: With top management? With family? With ownership? With systems that are most ready? With new teams, units, or governance bodies? With temporary project teams? With the best practices for family business continuity?

Founding generation

build from scratch and ensure survival

A strong culture

can be a barrier to necessary change

C =

change

Culture

collection of beliefs, values, and ground rules that influence company behavior

Second generation

grow the enterprise by rejuvenating and changing

family companies:

minimize risk by making alliances with foreign family companies

Businesses with a strong culture

perform at a high level over a long period of time

For the successor charged with becoming the leader of the evolution, few characteristics are as practical and influential as:

self-awareness and self-management

Young leaders who have been charged with changing the firm's culture soon realize that they are the primary instruments of the change—that

the nature of their relationships with others and the outcomes resulting from those relationships are very much dependent on their own actions and behaviors

Family unity and business opportunity are good predictors of the use of the best managerial and governance practices;

these practices, in turn, are good predictors of family unity and the family's perception of growth opportunities