This is the recurring situation I go through when I am contacted by family business owners to help them with certain issues they are facing. In the initial meeting, I am normally presented with a mix of operational issues. As I always do, I sit down, listen and write the main points of what is being said. I then explain that these operational issues are symptoms and not the cause. The cause is that their business has grown organically over the years, without having a real strategy. I get blank faces.
I start explaining that they have to ask themselves more fundamental questions as to why there are struggling with certain parts of their business and less with so with other parts. Could it be that certain markets they are involved are not as attractive as they were in the past? Do they know what is happening in these markets? Who are their competitors and what are they doing? The feedback I get is constantly inward looking and the discussion evolves around this and that person, that certain family members need to be more committed and that employees are so difficult to handle.
The meeting normally ends whereby we agree that I will be sending them a proposal of how I can help them get to the bottom of their issues and in a substantial amount of instances the feedback is that they might consider my proposal only after sorting this and that operational issue. This is when I normally smile and sigh and wish them good luck. In such instances, it means that they have understood nothing from what I said.
So the question is: Why is it so hard for Family Businesses to think and plan strategically?
All businesses – family-owned or otherwise – find it difficult to continue long term. There are many reasons for this. Change is constant – businesses mature; markets and technology change, eliminating the need for various products and services; suppliers and customers alter the rules of the game or competitors quickly copy successful strategies. More often family businesses discover the family is the stumbling block for proper strategic planning which leads to constant change and adaptation. This can occur for many different reasons: unresolved personal conflicts, lack of trust, difficult family relationships or family demands on the business. Conflict is a natural element of human relationships. Unfortunately in some families, conflict becomes the regular pattern of interaction. Working together intensifies family interactions and can exacerbate family problems such as sibling rivalry or competition between the generations. When a family allows unresolved or recurring conflicts to diminish communication and trust in the family, it becomes difficult for family members to share ideas, discuss issues or make decisions effectively.
Many family business people resist family business planning and even fail to develop a systematic framework for thinking about the future strategy of their families and businesses. This is also so in Malta. As can be seen below, the PwC Family business survey in Malta found that some 52% of family businesses in Malta have no formal strategic plan for their business.
Planning supports successful management succession, ownership transition, effective governance and profitable business strategies. A planning process to guide and coordinate both company and family
actions is critical. First, a planning process will encourage the family to examine its values, needs and goals on a regularly scheduled basis. Too often, families fail to appreciate the critical role that their commitment plays in family business success and how that commitment may change. Family business managers need to review and revise their business strategies constantly to meet increasingly dynamic marketplaces. Second, development of an effective planning process will help the family focus on the business and create new strategies to revitalise the company and promote future growth over years and generations. Business families must appreciate and address business goals and needs. A written and formal business strategic plan will increase the chances that they do this.
Hence, planning plays a critical role in a family business, but many obstacles can get in the way. For example, formal or even informal attempts at planning are often perceived as a threat by the senior generation of family business leaders.
Many senior family business leaders view planning as a straitjacket that will constrain instinctive survival skills and limit business flexibility. Some senior family business leaders, may also feel that exploring family topics interferes with what should be a natural process. They resist the idea of formal planning because it is time consuming, seems to involve too many unknowns and it may expose conflict by initiating discussion of sensitive topics. They often fail to see the need for developing strategic plans because it was not part of their own experience or past success.
The nature of any formal planning process requires that these senior family business leaders share decisions and private financial statements – with others in the family and the businesses company. For many senior family business leaders this means sharing power and information that they would rather keep to themselves. Others object to planning because they think the future is too full of uncertainties to make the effort worthwhile. Businesses risk being hurt by rapidly changing markets, an unpredictable economy and the next generation’s unclear interests if there is no reliable planning process.
This type of thinking fails to recognise that all family and non-family stakeholders play a role in family business decision-making and action taking. It also falls short to understand that it is in the interest of the family business itself to get serious on strategic planning. In many instances, members of the next generation who support transferring ownership and leadership simply do not know what the family expects from
them. Their family’s expectations can overwhelm them with self-doubt about their capability to lead the family enterprise to its next level.
So in my opinion proper strategic planning in family businesses has at least a dual role:
(i) To constantly assess the position of the family business and how it is managing to adapt to the ever changing external environment.
(ii) A plan as to how power is to be shared and how differences in differences in individual’s goals will be handled. Families normally also fail to calculate the impact that the spouses of family business leaders may have on the business and the planning process. If a spouse has developed a comfortable lifestyle based on the CEO’s full engagement in the business, a CEO’s retirement may create friction for the family and
the business if specific payment and consulting agreements are not spelled out. So, for example, has the family spelled out whether the founder will let go or continue to consult for the business once he or she completes a career?
Strategic business planning for family businesses involves more than just a thoughtful review of business challenges and opportunities and the family’s exploration of its expectations and talents. It is a way of learning and thinking about the possibilities for both the family and the business systems.
P.S. May I please remind you on my upcoming Webinar on Family Businesses. Click HERE to register.
One thought on “Strategic Planning & Family Businesses”
Pingback: The Lack of Strategic Planning in Family Businesses – Silvan's Business Insights – A Business Blog for SMEs & Family Businesses