Someone recently contacted me and told me to write on the importance of Strategic Planning for Family Businesses. I thank him as he inspired me to do so.

Strategic planning for family-owned businesses differs from planning for other types of companies largely because the family firm must incorporate family issues into its thinking. Family concerns and preferences can influence the choice of business strategy and often make the family reluctant to embrace more formal goal-oriented discussions and decisions.

I personally advocate the need for a formal approach to strategic planning. Many contend that strategic planning is merely one quick vehicle to “strategic thinking”—conscious regular attention to key issues affecting the future of the business. They argue that formal planning is not necessary if “strategic thinking” is present, especially for smaller firms. I prefer a formal process for three reasons: First, not all family businesses are small. Second, for most family businesses, strategic planning is the necessary groundwork for active “strategic thinking.” Third, formal planning meetings and review help to promote the healthy, open, shared decision making so much needed and so often missing in family businesses.

The overall results from various researches about family business just keep highlighting the dire need for Strategic Planning. International research indicates that a family that perpetuates its company from generation to generation is rare. On average only 13% last through the third generation. There are several possible explanations for the high failure rate. First, many family businesses are small and lack the staff and financial strength of larger companies. Second, the family itself can become a stumbling block as problems like sibling rivalry and generational succession creates big issues, whereby family specific issues like retirement or divorce, often tempts business owners to harvest the company’s profit rather than to reinvest it in additional business growth. Third and most important, many owners of family businesses lack a conceptual framework for assessing their company and planning for its future. They often do not take advantage of modern analytical tools that can help them to conquer the challenges of family business continuity. The most critical of these tools is planning—to guide both the company and the family.

So what is strategic planning?

The term strategic planning typically refers to the process of developing a business strategy for profitable growth. It is designed to create insights into the company and the environment in which the company operates. It provides a systematic way of asking key business questions.
Such an inquiry challenges past business practices and opens the way for choosing new alternatives. The result should be a well-prepared strategic plan—usually a written document—that spells out specific steps to improve customer satisfaction, increase profit and revitalize and prepare the company for the next generation. The plan also states the chosen mission of the business, identifies the direction of future growth and describes programs that can help to achieve that growth. It thus indicates ways in which the business can compete more effectively.

I will now elaborate on what I believe are the foundational steps or the initial building blocks that family businesses, possibly with external professional help, should go through to then build a strong strategic plan.

1. Let’s start with the Family: In a family business, the ideal starting point for the planning process is the family itself. The first step is for the family to establish its level of commitment to the future of the business and to planning as a way of securing that future. Is the family willing to sacrifice short-term material gains in order to invest money in the company? Will family members spend the time it takes to build a business? Can they work together? Do offspring have the necessary qualities of leadership? Are parents willing to let go of the company when the time comes?
   If family members reach a consensus on these issues, then there is a fair chance for success.
2. Assessing the Firm’s Business Health: Next to the family’s commitment, the foundation for planning lies in a financial and market analysis of the business. Such an analysis is common in firms that practice strategic planning. It shows whether the company is gaining or losing market share, using cash efficiently or inefficiently, and increasing or decreasing its productivity. Such analysis has an additional significance for the family business. Among other uses, it reveals whether the family is reinvesting sufficiently in the business to help ensure a vital future or whether it is financing personal needs at the expense of the company.
3. Identification of Business Alternatives: The next step is to identify possible business alternatives: increase the quality of service, hire strong managers to generate sales or improve productivity, and so on. At this stage, family businesses can consider some of their possible uniquenesses or advantages. Truly clever strategies capitalise on market insights and the relative competitive strengths that the individual business enjoys.

What I really find so hard, is that many times the planning process outlined often seems threatening to family business owners. Many think of planning as a straitjacket that will constrain their instinctive survival skills and limit business flexibility. The nature of the planning process also requires these independently minded business owners to share decisions—and private financial statements—with others in the company. These statements represent power and information that many family owners would rather keep to themselves. Others object to planning because they think the future is too uncertain to make the effort worthwhile. Rapidly changing markets, an unpredictable economy, and the unclear career interests of offspring are just a few of the unsettled issues that they foresee.
Perhaps the greatest threat is the association of planning with change. This association seems to create nearly unresolvable dilemmas, because change requires compromises. More than this, mature business owners who owe their personal wealth and life-style to a strategy that they have built or designed will be reluctant to change the successful formula.

However, formal planning helps to prevent family businesses from compromising their future and their potential by articulating assumptions and perceptions. Planning encourages commitment from family members as a part of the process. It provides techniques that help managers to assess the company’s rate of reinvestment and assure that the business is retaining sufficient cash for a solid future. The very nature of strategic planning requires a variety of people to be involved. Those who report directly to the chief executive will contribute to the business plan. Members of the immediate and, often, the extended family will be involved in the family strategic plan. As a result, the planning process increases business knowledge throughout the company and the family and provides outstanding training for offspring, who are the successors and future leaders of the company.
Planning provides one other key benefit. Because it requires the participants to answer tough questions about competition and reinvestment, the planning process helps all managers and family members to develop a common understanding—that is, the same assumptions—about the world in which the company operates. Consequently, at the very least, business planning should encompass everyone who reports to the business owner and every family member with a key management role in the present or future. Such a common understanding is critical, because conflict in family businesses is often caused by differences in basic assumptions or values, especially among family members involved in guiding the business’s direction.

There are many challenges to sustaining a family’s emotional investment in an enterprise from generation to generation. Deliberate strategic planning is one key to success. It helps to create motivation that can sustain the family and business through inevitable differences in individual perspectives. Good planning releases energy that the family can use to fulfill the dream of many family businesses: creating and sustaining a healthy family enterprise for the next generation.

At EMCS, we specialise at helping family businesses, become more professionally structured and to become disciplined enough to come together and work on a strategic plan for their business. Rather than allowing them to be always involved in the engine room, we guide them to get out on deck and see where their business is heading and where they would rather guide it, within a strategic planning framework. Feel free to contact me on silvan.mifsud@emcs.com.mt to have a chat.