Transcript Adapting the family business

ADAPTING THE
FAMILY BUSINESS
WHY CHANGE IS IMPORTANT BUT CHALLENGING AND
HOW TO MAKE CHANGE HAPPEN
Mike Wright
Professor of Entrepreneurship & Director of
CMBOR
Imperial College Business School
[email protected]
© Imperial College Business
School
Change is important to sustain
performance & survival but is
challenging
What are the barriers to change?
What can be done to effect
change?
Themes
• 2 Areas
• Innovation
• Succession
• Influences
• Family culture, values, relationships
• Skills/knowledge
What are the main barriers to
change?
Innovation
• Family culture
• Board slow to react to structural decline
• Aim to keep status quo
• Entrenched founder
• Difficult for next generations to change trajectory
• Family firms most active innovators at early stage
• Problem if skills not transferrable to next generation
• Without new outside innovative experience
opportunities not developed
What are the main barriers to change?
Innovation
• Family culture
• Patient capital & “unchecked” family control allow
experimentation but may tolerate low returns &
ineffective innovation
• Value system to support family needs over
generations can draw resources from R&D
• May be “creative self-destruction”
• family business groups don’t adopt innovations
cannibalizing products of divisions led by family
members, even when financial benefits to most
shareholders positive
What are the barriers to change?
Innovation
• Innovation Strategy
• Often ad hoc and non-sustainable
• Lack of processes and evaluation
• Innovation skills/knowledge
• Altruism relating to family succession can mean
weaker skills developed
• Challenge of attracting people with innovative skills
• Advancement, remuneration….
What can be done to effect change?
Innovation
• Family culture
• Achieve balance between family business’ “traditions”
and “innovative” ideas and practices that enhance
growth, profit & sustainability
• Change mindsets through developing an innovation
dialogue to bridge different [generational?] mindsets
What can be done to effect
change?
Innovation
• Board skills/knowledge
• Professionalization & influential external board
members give clarity on resource allocation
• …..But care in changing family board members with
key tacit knowledge and contacts
• Influence of independent vs. family directors
• ….if non-family board members selected based on
commitment to firm their (critical) contributions can
be viewed in this light.
What can be done to effect change?
Innovation
• Strategy
• Develop outward looking networks
• Traditional benefit from family networks
• Stimulate innovation by accessing new knowledge
• Develop alliances, acquisitions, venture capitalists..
• But… may be contrary to family owners wishing to
retain control [socioemotional wealth]
What can be done to effect change?
Innovation
• Skills/knowledge
• Recruit highly skilled innovative workers [bottom-up]
• Not just small senior set with limited new ideas
• Innovation more likely if family and non-family values
complementary
• Non-family manager as family manager mentor
• Remunerate non-family by bonuses & profit share
What are the barriers to change?
Succession
• Family culture
• Lower performance if new CEOs related to ex-CEOs
• More radical changes with outside successor
• Successful succession impeded if new CEO brings
leadership culture incompatible with family firm
• Conflicts if next generation not capable or not interested
What are the barriers to change?
Succession
• Family culture
• Culture of expectation that next generation will take over
and nothing will change
• Insufficient founder attention to next generation’s
development
• Next generation may not take responsibility for their
level of preparedness
Next generation lacks autonomous
business vision and do not see
themselves as main driver of
innovation.
What are the barriers to change?
Succession
• Skills/knowledge
• Benefit of new outside skills be offset by:
• Loss of founder tacit knowledge and networks
• E.g. Management buyouts and buy-ins
• Loss of family’s tacit knowledge contributes to
failure and family buyback
What can be done to effect change?
Succession
• Family culture
• New generation gives opportunity to change
culture, values & ways of doing things
• Does family culture allow reconfiguration into
separate businesses for different members?
• How to deal with declining parts
• Skills/knowledge
• Next generation gain outside experience
• Skills and contacts
Take Aways & Further Research
• Innovation
• What factors influence development of a culture of accepting
innovation as positive?
• How can innovation skills and processes be widely disseminated
through the firm and not just the family
• How can family firm networks be widened to enable innovation
beyond solely existing areas?
• How can boards be developed with skills to guide innovation?
• How should FFs be structured organizationally to ring-fence
innovative activities
• Succession
• How can succession provide the catalyst for change?
• How can the next generation be prepared to introduce change?