Business and Financial Watch

Archive for the ‘Family Business’ Category

Succession planning is a process for identifying and developing internal people with the potential to fill key leadership positions in the company. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become available. Taken narrowly, “replacement planning” for key roles is the heart of succession planning. Effective succession or talent-pool management concerns itself with building a series of feeder groups up and down the entire leadership pipeline or progression (Charan, Drotter, Noel, 2001). In contrast, replacement planning is focused narrowly on identifying specific back-up candidates for given senior management positions. For the most part position-driven replacement planning (often referred to as the “truck scenario”) is a forecast, which research indicates does not have substantial impact on outcomes.

Fundamental to the succession-management process is an underlying philosophy that argues that top talent in the corporation must be managed for the greater good of the enterprise. Merck and other companies argue that a “talent mindset” must be part of the leadership culture for these practices to be effective.

Research indicates many succession-planning initiatives fall short of their intent (Corporate Leadership Council, 1998). “Bench strength,” as it is commonly called, remains a stubborn problem in many if not most companies. Studies indicate that companies that report the greatest gains from succession planning feature high ownership by the CEO and high degrees of engagement among the larger leadership team

Companies that are well known for their succession planning and executive talent development practices include: GE, Honeywell, IBM, Marriott, Microsoft, Pepsi and Proctor and Gamble.

• Research indicates that clear objectives are critical to establishing effective succession planning. These objectives tend to be core to many or most companies that have well-established practices:
• Identify those with the potential to assume greater responsibility in the organization
• Provide critical development experiences to those that can move into key roles
• Engage the leadership in supporting the development of high-potential leaders
• Build a data base that can be used to make better staffing decisions for key jobs

In other companies these additional objectives may be embedded in the succession process:

• Improve employee commitment and retention
• Meet the career development expectations of existing employees
• Counter the increasing difficulty and costs of recruiting employees externally

There appear to be two main factors affecting the development of family business and succession process: the size of the family, in relative terms the volume of business, and suitability to lead the organization, in terms of managerial ability, technical and commitment (Arieu, 2010). Arieu proposed a model in order to classify family firms into four scenarios: political, openness, foreign management and natural succession One of the largest trends in family business is the amount of women who are taking over their family firms. In the past, succession was reserved for the first born son, then it moved on to any male heir. Now, women account for approx. 11-12% of all family firm leaders, an increase of close to 40% since 1996. Daughters are now considered to be one of the most underutilized resources in family businesses. To encourage the next generation of women to be valuable members of the business, potential female successors should be nurtured by assimilation into the family firm, mentoring, sharing of important tacit knowledge and having positive role models within the business

Successfully balancing the differing interests of family members and/or the interests of one or more family members on the one hand and the interests of the business on the other hand require the people involved to have the competencies, character and commitment to do this work.

Family-owned companies present special challenges to those who run them. The reason? They can be quirky, developing unique cultures and procedures as they grow and mature. That’s fine, as long as they continue to be managed by people who are steeped in the traditions, or at least able to adapt to them.

Often family members can benefit from involving more than one professional advisor, each having the particular skill set needed by the family. Some of the skill sets that might be needed include communication, conflict resolution, family systems, finance, legal, accounting, insurance, investing, leadership development, management development, and strategic planning.

Ownership in a family business will also show maturity of the business. If all the shares rest with one individual, a family business is still in its infant stage, even if the revenue is strong

I tend to agree with the comments in that succession is only one of many issues that specifically affect family businesses – they still have to deal with the day to day operational businesses that all businesses have to deal with.

The one thing that I do not agree with is the last comment such that succession problems will only exist after the founder plans to retire. Firstly, many businesses are making the transition from generation to generation many years and in fact many generations after the founder was involved and the whole preparation process for succession can take many years, and is very often a process that is engaged in and only when an appropriate successor has been identified does the plan to step down come into play.

Succession is an emotional issue for the person relinquishing control and can be a real challenge for the next generation but the key thing for anyone entering into a transtionary period/process is for good, open and objective communication with all concerned, clear definition of roles and responsibilities and also a time frame for implementation.

Even then there is no guarantee of success as the current leader still has to step down and cease their day-to-day involvement which, for many of them is not an easy thing to do!

There is perception in the public that the family owned company will unfairly treat the non members of family in the company. This perception is supported by a survey conducted in Surabaya, Indonesia. The respondents of the survey are young job seeker and the goal of the survey is to get their opinion about family business. The survey came with the result that 80% of the respondents believe that there is an unfair treatment between family members and non family members in the company owned and managed by family.

Is that really happened?

That survey only indicated about the perception of the job seekers, and another survey conducted by the Jakarta Consulting Group which the target respondents are the family owned companies and to know how the organization manage their career path of the employee especially the family members. The result showed that 36.8% of the respondents (the family owned companies), the family members directly got the strategic position in the company, 20.7% family members got the special treatment, 16.1% the family members have to follow the regular career management, but with the special policy with the shorter period to follow. And only 26.4% of the respondents have no special treatments to family members regarding the career management.

This survey gave the indication that there is an unequal treatment in the family owned company (family business) between family and non family members and also became a proof of the perception in public about unfair treatment in the family business. This is an important issue for the family owned companies, because the unfair or unequal treatment between family and non family members has showed that the organization have tendency to operated and managed not in professional way.

But balancing competing interests often become difficult in three situations. The first situation is when the founder wants to change the nature of their involvement in the business. Usually the founder begins this transition by involving others to manage the business. Involving someone else to manage the company requires the founder to be more conscious and formal in balancing personal interests with the interests of the business because they can no longer do this alignment automatically—someone else is involved.

The second situation is when more than one person owns the business and no single person has the power and support of the other owners to determine collective interests. For example, if a founder intends to transfer ownership in the family business to their four children, two of whom work in the business, how do they balance these unequal differences? The four siblings need a system to do this themselves when the founder is no longer involved.

The third situation is when there are multiple owners and some or all of the owners are not in management. Given the situation above, there is a higher chance that the interests of the two sons not employed in the family business may be different than the interests of the two sons who are employed in the business. Their potential for differences does not mean that the interests cannot be aligned, it just means that there is a greater need for the four owners to have a system in place that differences can be identified and balanced.

There are some theories and literatures say that the most crucial and important issues in family business is succession. Succession is one of important issues in business organization, especially for the family owned companies, but it may not be the most crucial and important issue in the family owned companies.

Succession will become issue when the founder of the company have plan to retired or pass the company to his/her successors or the next generation. Usually this will happen after the company has stabled, and the next generation will only need to maintain the growth of the company and some development. Before came to that level, the business organization itself as the family owned organization, has some challenges because of the family culture in the organization.

These challenges have to be faced by the management of the company, sometimes the family culture can become the disadvantage for the company. Some issues regarding the family culture in the business organization are: the unequal and unfair treatment between family member and non family member in the business organization, internal communication within organization among the family members, etc

Succession is an issue that came after several others issues in family owned organization/company, because the succession problems will only exist after the plan of retirement of the founder.

In a family business, one or more members within the management team are drawn from the owning family. Family businesses can have owners who are not family members. Family businesses may also be managed by individuals who are not members of the family. However, family members are often involved in the operations of their family business in some capacity and, in smaller companies, usually one or more family members are the senior officers and managers. Many businesses that are now public companies were family businesses.

Family participation as managers and/or owners of a business can strengthen the company because family members are often loyal and dedicated to the family enterprise. However, family participation as managers and/or owners of a business can present unique problems because the dynamics of the family system and the dynamics of the business systems are often not in balance.
The interests of a family member may not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

Or, the interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not aligned.

Finally, the interest of one family member may not be aligned with another family member. For example, a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business.

These are the companies that flow in small scale, a homely and informal. The operation of such enterprise, the challenge is to build a reputation with few resources. For your business to stand out follow these three business tips!

Providing good service custom
Think how it differs to the family business of a national chain, is that personal support to its customers that goes “above and beyond.” As the owner of a family business, you yourself must be encouraged to develop, maintain and strengthen customer relationships. Remember that it is not just to offer a product or service, but to create a memorable experience for your client, who then disseminated in the community.

Know your product
Family businesses are developing very well in its niche market. If you know your product or you can create new ideas and concepts, making its product innovation.

Start a conversation about your business on the web
Family businesses know that the company will be successful according to their relationship with customers. Site tools used to share and discuss information among Internet users may be a means to participate in daily discussions with a wider audience.

Short messages through the media of the web encourage people to share with your network of family and friends the news of your company!