7 Attributes of Enduring Family Businesses

There are c. 200,000 family owned businesses in Ireland.

Recently I was contacted with a query on support for family businesses, and it led me to think about the many family owned companies we work with in Celtar. The high proportion of our family business clients is not surprising.

Family owned and managed businesses have their own unique characteristics, a shared history and experience, loyalty and deep commitment.

In any SWOT Analysis there will be recognition of specific Strengths associated with a family enterprise. In the next column these self same Strengths can also be identified as Weaknesses.

As specialist SME advisers we have worked with first, second and third generation family owned businesses. These include business services firms, specialist contractors, distributors, a private hospital, manufacturers, tour operators, a materials handling company and many more.

Consulting firm McKinsey produced a paper called “The Five Attributes of Enduring Family Businesses” in 2010 (I have added two more attributes). They noted that one-third of the companies in the S&P 500 and 40% of the 250 largest companies in France and Germany were family businesses. Of course the term “family business” does not necessarily mean “small business.” While many of the conclusions McKinsey drew were applicable only to the largest multi-generation companies, there are lessons that apply to family businesses of all sizes and types. In this blog, I’ll describe McKinsey’s key success attributes along with some comments from our experience in Celtar.

1.  Governance and business growth

“As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. The generations that follow the founder, for example, may insist on running the company even though they’re not suited for the job. And as the number of family shareholders increases exponentially generation by generation, with few actually working in the business, the commitment to carry on as owners can’t be taken for granted. Indeed, less than 30% of family businesses survive into the 3rd generation of family ownership.

“To be successful as both the company and the family grow, a family business must meet two intertwined challenges: achieving strong business performance and keeping the family committed to and capable of carrying on as the owner.”

The number of family members owning or working in the business should not, in fact, increase “exponentially generation to generation.” Inevitably there will be conflict about future direction of the company if there are too many family shareholders. From experience some may look to sell up and asset strip the business, others will take a longer view and wish the company to continue growing, and trading whilst maintaining family ownership.

2.  Recognising the need for external talent

“Family businesses can go under for many reasons, including family conflicts over money, nepotism leading to poor management, and infighting over the succession from one generation to the next. Regulating the family’s roles as shareholders, board members, and managers is essential because it can help avoid these pitfalls. Large family businesses that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose…….long term survivors usually share a meritocratic approach to management.”

For business survival and growth, family members must accept that the best people to manage the business are not necessarily members of the family.

3. Raising capital, effects on ownership

“Maintaining family control or influence while raising fresh capital for the business and satisfying the family’s cash needs is an equation that must be addressed since it’s a major source of potential conflict, particularly in the transition of power from one generation to the next. Enduring family businesses hold family councils and regulate ownership issues – for example, how shares can (and cannot) be traded inside and outside the family – through carefully designed shareholder agreements. Raising capital from Venture Capital firms will dilute family ownership and lessen family control.

4.  The struggle for talent

“Family businesses, like their non-family peers, face the challenge of attracting and retaining high class talent to key management positions. In this respect they have a handicap because non-family executives might fear that family members make important decisions informally (over meals in the family kitchen?) and that a glass ceiling limits the career opportunities of outsiders.”

Family businesses do have a problem retaining and attracting talented managers. Non-family executives fear that their contributions are not recognised, and that they are “out-of-the-conversation” when important decisions are taken.

5. Too risk averse?

“Too much prudence can be dangerous. Family owners, who usually have a significant part of their wealth associated with the business, face the challenge of preventing an excessive aversion to risk from influencing company decisions. Excessive risk aversion might, for example, unduly limit investments to maintain and build competitive advantage and diversify the family’s wealth.”

Many Irish family businesses will have invested in our property boom/bubble, so in fact more prudence should have been employed.

6.  Develop your own talent – succession planning

Working in the family business has become a more attractive option for many sons and daughters, as the recession hinders career development and limits job opportunities.

We advise that the family members work elsewhere, possibly the UK, before they join the family business. Away from the family enterprise they learn professional management skills and different approaches – and thus bring new ideas and outside experience to the family firm when they join 4 or 5 years later.

7. Values of family businesses can be different

A fair share of family owned businesses offer a higher then average commitment and loyalty to staff.  I have observed business owners of small companies taking hits in their pockets instead of taking the option to make staff redundant. Larger companies can appear heartless in making redundancies when their sales fall and profits decline. Small family owned businesses are often different. This difference is based on close relationships with individuals built up over years and of working together to serve customers.

In conclusion

The keys to long-term success for a family business are professional management gained from harnessing the experience of outsiders, and keeping the family committed to the responsibilities of ownership.

See the original McKinsey article at

http://www.mckinsey.com/insights/organization/the_five_attributes_of_enduring_family_businesses

To discuss how the issues in this article affect your family business you are welcome to contact me at billy.linehan@celtar.ie

Other resources

http://www.deloitte.com/ie/succession-planning

Deloittes Ireland ‘Planning for family business succession’

http://download.pwc.com/ie/pubs/2012_family_business_survey_findings_for_ireland.pdf

Family business survey 2012 from PWC Ireland

http://www.enterprise-ireland.com/en/Events/OurEvents/Family-Business-Conference-21-May-2013

Enterprise Ireland are hosting a  “Family Business Conference” on the 21^st of May 2013, in Dublin

http://www.enterprise-ireland.com/en/Events/OurEvents/Family-Business-Conference-21-May-2013/

There used to be a family business centre in UCC, www.ucc.ie , but I can’t find any recent links to it.

And there is a new family business initiative from Plato in Cork which I am researching.

Billy Linehan, Celtar, family business advisers Dublin

Where Is the Monkey?

  This well known analogy is worth reviving and sharing.

Allied to this topic is a training workshop Celtar offers on Business Effectiveness, how to make clear requests, and how responsibility for actions is passed from one person to another. From experience, you will recognize the situations where colleagues do not take responsibility for actions……………………..read on.

 Here is part 1 of the story, email Celtar info@celtar.ie and we’ll send you the rest.

    Let us imagine that a manager is walking down the hall and that he notices one of his subordinates, Sean Fogarty, coming his way. When the two meet, Sean Fogarty greets the manager with, “Good morning. By the way, we’ve got a problem. You see …. ”

As Fogarty continues, the manager recognizes in this problem the two characteristics common to all the problems his subordinates gratuitously bring to his attention. Namely, the manager knows (a) enough to get involved, but (b) not enough to make the on-the-spot decision expected of him. Eventually, the manager says, “So glad you brought this up. I’m in a rush right now. Meanwhile, let me think about it, and I’ll let you know.” Then he and Fogarty part company.

    Let us analyse what just happened. Before the two of them met, on whose back was the “monkey”? The subordinate’s. After they parted, on whose back was it? The manager’s. Subordinate-imposed time begins the moment a monkey successfully leaps from the back of a subordinate to the back of his or her superior. And does not end until the monkey is returned to its proper owner for care and feeding. In accepting the monkey, the manager has voluntarily assumed a position subordinate to his subordinate. That is, he has allowed Fogarty to make him her subordinate by doing two things a subordinate is generally expected to do for a boss the manager has accepted a responsibility from his subordinate, and the manager has promised her a progress report.

    The subordinate, to make sure the manager does not miss this point, will later stick her head in the manager’s office and cheerily query, “How’s it coming?” (This is called supervision!)

    Or let us imagine in concluding a conference with Shane O’Donoghue, another subordinate, the manager’s parting words are, “Fine. Send me an email on that.”

    Let us analyse this one. The monkey is now on the subordinate’s back because the next move is his, but it is poised for a leap. Watch that monkey. O’Donoghue dutifully writes the requested email and sends it to his boss. Shortly thereafter, the manager plucks it from his inbox and reads it. Whose move is it now? The manager’s. If he does not make that move soon, he will get a follow-up email from the subordinate. (This is another form of supervision!) The longer the manager delays, the more frustrated the subordinate will become (he’ll be spinning his wheels) and the more guilty the manager will feel (his backlog of subordinate-imposed time will be mounting).

    Or suppose once again that at a meeting with a third subordinate, Niamh O’Sullivan, the manager agrees to provide all the necessary backing for a public relations proposal he has just asked O’Sullivan to develop. The manager’s parting words to her are, “Just let me know how I can help.” 

    Now let us analyze this. Again the monkey is initially on the subordinate’s back. But, for how long? O’Sullivan realizes that she cannot let the manager “know” until her proposal has the manager’s approval. And from experience, she also realises that her proposal will likely be sitting in the manager’s briefcase for weeks before he eventually gets to it. Who’s really got the monkey? Who will be checking up on whom? Wheel spinning and bottlenecking are well on their way again.

    A fourth subordinate, John Halligan, has just been transferred from another part of the company so that he can launch and eventually manage a newly created business venture. The manager has said they should get together soon to hammer out a set of objectives for the new job, adding, “I will draw up an initial draft for discussion with you.”

    Let us analyse this one, too. The subordinate has the new job (by formal assignment) and the full responsibility (by formal delegation), but the manager has the next move. Until he makes it, he will have the monkey, and the subordinate will be immobilised.

    Why does all of this happen? Because in each instance the manager and the subordinate assume at the outset, wittingly or unwittingly, that the matter under consideration is a joint problem. The monkey in each case begins its career astride both their backs. All it has to do is move the wrong leg, and-presto! — the subordinate deftly disappears. The manager is thus left with another acquisition for his menagerie. Of course, monkeys can be trained not to move to the wrong leg. But it is easier to prevent them from straddling backs in the first place.

Celtar business consultants – business advice from Dublin

Global mega trends

Economics, Society and Business

In a world undergoing change where there are few certainties, it is useful to anticipate and plan for trends. These trends will affect us as individuals and the types of organisations we work with.

As a regular facilitator of strategy planning workshops I am always interested in the analysis of future trends. Today I share with you the views of Professor Joe Nellis of the Cranfield management school.

The trends themselves are unsurprising but the accelerated pace of change is what impresses – and frightens. Our question is what are the implications of these trends?

Professor Nellis divides the trends into three areas; Economics, Society & Environment and Business.

Economics – 3 trends

The massive realignment of economic activity from the West to the East is unprecedented. Today China accounts for less then 10% of world GDP, by 2050 it will be probably be the world’s biggest economy and have a GDP share of 25%. India is also pressing strongly behind China, and of course the US will remain a dominant force.

This economic growth in emerging economies will generate a demand for improvements in living standards. Citizens from emerging market countries look for improved public services; more schools, hospitals, infrastructure and better policing. This demand will result in an anticipated huge growth of the public sector in these countries.

Finally, the third economic trend is the unprecedented rise in the number of consumers in emerging and developing economies. Consumers with similar spending power to that traditionally associated with the West. It is predicted that there will be 1 billion of these consumers with needs to satisfy. Nellis says “such a demand to satisfy has never happened before in such a short time scale”.

Society & the environment – 4 trends

For the first time in the history of the world, people all over the world will be able to communicate with each other. Increasingly people in developing economies are gaining access to technology. In this connected world there will be a massive growth in interactivity. More companies will interact with other companies, and interact with individual consumers. This deepening globalism will, says Nellis “have profound implications for the world of business and society”.

Taking the number of university graduates as a measure of the future talent pool; the developed world produces about 16 million graduates per year. The rest of the world is graduating 33 million students annually. There will be an “exponential growth in the talent pool coming from countries of the emerging markets and the developing world.”

The shortage of natural resources is a trend that is widely accepted. The search for natural resources is intensifying. China is securing natural resources all over Africa to feed its economic growth, in Cornwall tungsten mines are about to open and closer to home there are plans for oil exploration offshore from Dalkey in Dublin.

The last societal trend he mentions is the increase in the lack of trust in big business (and in politicians). Corporate governance is increasingly important for larger companies, and how it can be used “to their advantage and to the benefit of society”. Pay and remuneration must be tied in to performance, and directors must be accountable to shareholders and realise the consequence of their poor decision making. (What measures have been made to recover the 1990s bonuses from Irish bankers? And why are failed Irish politicians being paid large pensions before they reach the pension age of 67?) 

Building trust is about actions, delivering promises and not the empty words from corporate PR and “public affairs” executives.

Business – 2 mega trends

There are “massive issues” to be faced in industry and in business.

The first is the availability of information through search engines on the internet and sites like Wikipedia. How will managers deal with information overload? Can products and services be mass customised for individuals and not only for market segments? The use of information is a huge opportunity for businesses, and “dealing with the overload a significant challenge”.

A combination of all of the above, of the increasingly connected and trading global village is that industry structures will change. New global networks will emerge as well as bigger companies (many of them state owned in emerging markets). Nellis anticipates “different business models and developments concerning the way in which companies interact with each other”.

Big Change is here

How can managers “manage” in this world of increasing complexity? Nellis suggests there is no choice, “if you don’t like complexity, don’t go into management!” The right talent must be recruited to run companies in a much more complex environment.

Gone are the 50 year economic cycles identified by the Russian economist Kondratiev. There has been a major seismic shift, the cycle of economic change is now much shorter, 10 to 15 years. Challengingly, a manager’s career will endure several seismic shifts. Previously managers would have lived through for example one or two economic cycles of ‘growth to recession’. Organisational change will need to be delivered quicker, and better.

Short term focus will no longer suffice, “a successful manager must stay focused on the horizon”. The pace of change is accelerating as has never happened before. “Address these long-term drivers of change now”, Nellis asserts, “or you may be heading for extinction”.

The question facing leaders is how can an organisation take advantage of these global movements?

Joe Nellis, Professor of International Management Economics, Cranfield School of Management, www.som.cranfield.ac.uk/som/

Billy Linehan of Celtar has much experience in strategic planning with clients, facilitating workshops in planning for change. Based from Dublin, Billy has a long term interest in future thinking and is available to work with you in anticipating future trends and how they will affect your business or organisation. Contact Billy at billy.linehan@celtar.ie to benefit from the input of an external adviser into your strategic thinking and business planning.  

How to Get Started, Implement and Deliver Results
in a very difficult environment.

I see that change management consultants Eddie Molloy, Ian Kierans and the Advanced Organisation team are holding a new training programme for senior managers in the coming months.

 Eddie has received national attention on TV, RTE radio and the Irish Times for sharing his articulate perspectives on the need for transformation in the public sector. He and his expert team have also worked extensively in the private and NGO sectors.

Having a attended a similar programme four years ago, I can testify to its value in terms of understanding the dynamics of change – and it’s effectiveness in ensuring the delivery of results.

To quote Eddie on today’s environment

“In the 30 years I have been assisting companies with managing change, I have never seen so many organisations across all sectors facing such difficult situations. To survive most of them need to change – radically and quickly.

Change rhetoric is commonplace today. However to make change a reality remains a complex job that requires a mix of capabilities from ‘hard’ ones (e.g. rigorous programme management, restructuring, process reengineering) to ‘soft’ (culture change and stakeholder engagement).

If your organisation is faced with managing significant change and you are serious about getting real results then this programme would be invaluable to you and senior colleagues.”

For full details including modules, possible dates, prices and method of booking email ed@advancedorganisation.com

Also see

www.advancedorganisation.com

Useful information from Celtar, advisers for business

Contact 086 608 6991

Research shows many sales behaviours are ineffective

It’s been said that if you want to recruit good sales people “hire optimists”. Working with many sales managers over the years, we have debated what makes a “good” sales rep many times.

Here’s a look on the right behaviours for sales people – and the wrong behaviours!

I refer to an interesting piece of research on improving sales people’s performance, most recently a commentary from HBR adding to earlier research from Cranfield – links below to the research report and HBR site.

Cranfield worked with data, provided by sales consultancy Silent Edge, analysing the performance of 800 sales professionals observed in live sales interactions.  The report identifies eight sets of behaviours in sales meetings.  By understanding these behaviours, managers could effect changes in their current sales force and recruit better team members in the future.

The bad news is that only three of the eight behavioural types, a mere 37% of the sales force, were effective.  However the good news is that behavioural tendencies can be managed over time encouraging sales people to adopt behaviours of the most effective types.

Lynette Ryals, Professor of Strategic Sales and Account Management at Cranfield School of Management, co-authored the article with Dr Iain Davies, a lecturer at the University of Bath. 

“The most exciting part of our results is how the behaviours of these sales people are linked to their success” says Professor Ryals. “This is an important report for companies wanting to improve their sales performance.”

“The results of the research are ground-breaking,” claims Silent Edge’s CEO Russell Ward.  “For the first time organisations are able to identify what types of behaviours they have in their sales forces giving managers invaluable knowledge to develop their teams.  This is where Silent Edge is leading the market and we’re helping our clients achieve incredible performance improvements using our innovative evaluation and development tools.” 

The eight behavioural types are

The best

Experts

Closers

Consultants

The rest

Storytellers

Focusers

Narrators

Aggressors

Socialisers

To identify the behaviours of your sales team read the article in the Harvard Business Review here: http://bit.ly/d8We4F or read the full research report here: http://bit.ly/h0GMTz

 Sources

Cranfield University School of Management

Silent Edge, UK based sales training consultancy www.silentedge.co.uk