Matters Column

Family business strategic plan development

December 16, 2016
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Having a good strategic plan can be instrumental to the long-term health of the organization — a statement often made by business experts. If this is really the case, why don’t all organizations have them? It becomes even more surprising when you consider the numbers about succession results that are often linked to strategic planning. These indicate only 13 percent of family businesses remains with the family after 60 years. Succession matters come into play so regularly that 40 percent of businesses are experiencing it. The numbers also show only 31 percent of family businesses have a strategic plan.

So why should these matters of strategic and succession planning loom so large in a family-owned business? The answer is surprisingly simple. It is hard work to address them; both to create the plan and secondly to execute the plan. In fact, the second part is often more difficult. It happens over time, family dynamics continually change and other things get in the way.  Because organization activities regularly are driven by immediate events, the overwhelming behavior is to react immediately — because if you don’t, you’ll lose ground. In today’s environment, the expectation to do something immediately continues to be pushed. We have instant information, trends change almost constantly and people want instant gratification and feedback. 

Strategic plans, on the other hand, require looking down the road and happen over an extended period of time. The results show up gradually — a very clear and different operating mentality. This variation itself is often driven by how rewards are applied. For example, every quarter, all the organizations whose ownership shares are traded publicly come under the gun, especially if they don’t meet the expectations of the stock analysts. The value of the stock goes up and down accordingly, and the pay for associated executives moves, as well. This short-term mentality often gets in the way of doing the right things that could bring stability and growth to the owners and the employees. Even nonprofit organizations suffer from the visibility issues but don’t have quite the same pressure, although their constituents expect results and value transparency.

The fact family-owned businesses don’t have to have all their data in public view can give them a great advantage. But looking down the road and making decisions for the current owners and, perhaps, future owners is not any easier just because the key data is not in the public eye. In fact, it has other elements that require attention for a strategic plan to be successful. The two that immediately come to mind are: operating style and family. Yes, all organizations have people dynamics, but a family-owned business has a multitude of dynamics that need to be addressed and often can’t be handled by the usual business methods.

However, if the planning process becomes ingrained as part of the operating style, the long-term results can be extremely satisfying and valuable for all concerned.

What does it take?

First of all, we need to recognize family-owned businesses usually spring from the efforts of one or two individuals who have some connection to an idea for making something or providing some service. It starts small and grows over time. Much of the work and all of the leadership is done by the people or person who initiated the beginning idea. These people have some skill or insight that allows the business to succeed. During the growth process, various events require developing additional skills along the way to stay on top of the demands and requirements. At some point, decisions are made as to who else is brought in to help the business operate. Other family members frequently are the new resource. However, such additions may occur at a much later date, due to the age or skills of associated family members. But nonetheless, when they become part of the business, it is different than when you hire a new, nonrelative employee.

The original owners, at this point, need to become much more sensitive to how the other family members will impact the business and relate to both existing family members inside the organization and outside, as well as existing employees. When the original owners keep operating as they always have, there is a tendency for things to go awry.  

Integrating new family members successfully doesn’t just happen. When we do strategic planning with organizations, we usually get into the discussion of who will do what, when certain events occur or personnel are transitioning. But this is usually a focus on necessary skills. However, in family businesses, the transition or the “succession planning” has to take into consideration many more elements than skills. It must start with the longer-term view of what the business means to the family and the role the business will play.

The value of strategic planning

In addition to figuring out the role of the business, it is necessary to determine what it should look like and establish the milestones that will indicate how things are progressing. In working through these matters, one of the most critical aspects of strategic planning is the communication that goes with it. People regularly overlook the importance of this process. It is the opportunity for everyone to understand the expectations and prepare for making them happen. It lets the older leadership share their vision, and it allows the younger family members to see how they fit into the future and, perhaps, have a meeting of the minds on personal goals, which may not initially jell.

With the goals on the table, it opens the opportunity to position and prepare those who will be involved, to develop the skills and understanding of what must be done and when to bring about the desired outcomes. Keep in mind, they don’t just happen because they are on paper. You still have the external events to deal with, as well as the ever-changing family dynamics.  In some fashion, the communication also has to include key nonfamily employees, who might bring essential requirements to the table for business success. Retention of these folks may be critical.

The process

Knowing where you are going also allows you to put operating strategies in place to get you there. There will need to be discussions about where families fit in the organization, when they can join the organization, what skills and experiences they should obtain, etc. This may require a lot of work with a SWOT (strengths, weaknesses, opportunities and threats) analysis.

The most important value of a documented strategic plan is you have started an organized journey to achieve your goals. The initiating family members undoubtedly have worked very hard in the business, now they need to work just as hard on the business. They need to let others fight the day-to-day crises, but they must prepare the others to take over and lead the business — no easy task. They will need to change their operating style, manage their egos and personal images, and handle the psychological adjustments that take place when their role changes.

Ardon Schambers is principal at P3HR Consulting & Services.

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