John Ward is Wild Group Professor of Family Business at IMD in Switzerland and Professor of Family Enterprises at Kellogg School of Management. www.johnlward.com
According to recent research, family firms have stronger 'people' values than non-family firms and are more likely to put customers and employees ahead of profits. This doesn't mean they lose any competitive advantage, argues John Ward
Much research has long shown that positive organisational culture creates superior financial results. Important recent research shows that family businesses have more positive cultures. What makes family business culture so positive and successful?
I believe the answer is that family companies emphasise – are, in fact, built on – different values. The essence is that successful family firms have deep seated values that both strengthen their strategy and motivate their people.
Because the family's values are very personal in nature they provide meaning. Because the values have evolved from the early entrepreneurial success of the company they relate to the keys of competitive advantage.
Strong positive culture
Business culture is the shared values, beliefs and symbols that influence the company's behaviour. Positive culture gains employee commitment and loyalty; positive culture serves the strategy effectively. The stronger the positive culture the better the company's performance.
Strong culture comes from long experience with consistent values that are frequently reinforced by the example of the leaders. Effective culture cannot be fabricated, cannot be designed and imposed for current commercial needs. Effective culture must have deep roots. Its advocates have to be very sincere. It must be natural and consistent. The more leaders giving the same genuine message, the better.
In family firms the culture has evolved over a long time. The owning family is nurtured in the values from birth. Usually there are many family members in senior management who provide the model.
As a family firm's culture usually comes from the founder's days, the values are closely connected to his or her inherent beliefs about human nature and what's right or wrong. Founders are powerful and the businesses they develop are personal, not abstract. Their strategies are a reflection of themselves and of what they believe in.
It's no wonder that the best selling books studying the best performing companies emphasise culture. And it's no surprise that most of the role model examples they provide are family firms (ie Cargill, Tata, BMW, Roche) or companies no longer family-controlled but with multiple generations of family ownership (ie Johnson & Johnson, Toyota, Hewlett-Packard, Cadbury Schweppes, IBM).
Valuable values are those that serve the company's current strategy and are able to help assure continuity in a changing environment. For example, values that serve strategy are those that reinforce low costs (ie frugality) or sales growth (ie hard work) or quality work (ie excellence) or good relationships (ie trust). The most relevant values depend on the nature of the strategy – a selling organisation, a service organisation, or an efficient operations company or a high value added design company.
Values that help assure continuity include, for example, perseverance, long-term orientation, or the customer comes first. All these adaptive values provide the company with direction and effectiveness, as well as future thinking.
To gain the commitment, dedication and passion of the employees the company's values have to relate to them as individuals. The values need to give a personal sense of meaning, of purpose. Some examples include honesty, personal responsibility, mutual respect, fairness, courage, loyalty. Many family companies earn deep meaning and passion from the very goal of the company. For them, profit is a means, not the goal. The goal is continuity or making a difference. An attractive purpose, along with the value of honesty, serves to create a belief in the company by the employees.
What's the difference?
The difference is that the values of family firms are more personal, they connect more to the employee, and they are easier to identify with. They are also easier to consider when recruiting new employees.
My research shows that non-family firms have more commercially oriented values; family firms have more community oriented values. One would expect, then, that family firms' cultures are more motivating to their employees, gaining more commitment and dedication. But how do the family firms' values tie to strategic strength? Values such as entrepreneurship, innovation and quality provide the strategic direction.
The personal, fundamental values typical to family firms also underpin the behaviours to succeed in the marketplace. For example, efficiency comes from discipline, frugality and hard work. Quality comes with empathy, reputation and sincerity. Innovation comes by curiosity, courage and tenacity.
Another finding in the research is that family firms' values statements are more permanent. One reason for the permanence of family firms' values is the longer tenures of leadership of family firm leaders.
From examining family firms' values statements it is clear that they are quite selective in how many core values they list (see table).
Beliefs behind values
Culture also includes the beliefs that form the values. If the values derive from deeply held beliefs about humanity the values will be stronger, more consistently lived and more difficult to change.
Our research into the underlying beliefs of family members who own family firms shows some interesting insights on how business-owning families think differently and why family business values are different – especially more communitarian, more future oriented and more motivating. Compared to executives in non-family firms, family firm executives are different in four areas of beliefs:
- Family firm executives think more about the future and the past and less about the present. Hilti and Roche, well-recognised for their company cultures, stress their long-term ownership vision.
- Family firm executives believe more in the inherent goodness of people, rather than the neutral or negative. Nordstrom's four generation department store company's values are based on the "goodness of people".
- Family firm executives are more collectively oriented and less individuality oriented. The well known special culture at WL Gore is based on collaboration with almost no hierarchy or structure.
- Family firm executives are more likely to put customers and employees ahead of profits. As has been the motto for 50 years at Enterprise Rent-A-Car: "Put customers and employees first and profits will follow". Sam Walton, the founder of family controlled Wal-Mart put the first focus on "concern and respect" for the people.
These underlying distinct beliefs bring us full circle. The beliefs give constancy and consistency to values that are personal and fundamental. These beliefs and values create strong employee motivation and commitment and provide a point of view that encourages closeness to the market and the ability to adapt to change. Because the beliefs and values come from the owning families' long history and are further strengthened by long tenured leadership and family member succession, the values are stronger and more consistent. They are also stronger because a family-controlled business has more tradition and artifacts to reinforce the values. Their values make the difference.