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Navigating the “Chaotics” of the economic crisis. Are family business values the answer?

Family owned and managed businesses are often run very differently from businesses that are not family owned. This is not a negative thing considering family businesses seem to be surviving the current turmoil better than most; however this economic situation is unprecedented in both scale and impact so even strong family businesses need to understand how to successfully navigate today's un-chartered and turbulent economic landscape. To do this you need business enterprise sustainability (BES). 

BES advocates many of the values most closely held by family owned and managed businesses. It is a comprehensive strategy to maximise the underlying value of companies in the extended long-term. It requires companies to take a long-term outlook, while still optimising performance and value in the short and medium term. This kind of outlook ensures long-term company value is never compromised, something very important to family businesses. 

The theory involves a number of components, including a responsive, robust and resilient business strategy at its core. Critical to such a strategy are the preservation of well-maintained assets, ongoing replenishment of innovative products and services, and a favourable reputation with customers, employees, distributors and suppliers, governments and other key stakeholders in the business.  


Too often, business leaders, whether family or non-family owned, confuse high growth with high performance. They take unwise risks in their businesses to maximise short or medium-term profitability, while at the same time, jeopardising the company's long-term viability. They destroy mid-term or long-term value through their overly ambitious short-term growth plans such as unwise and expensive acquisitions in an effort to increase shareholder value in the short-term.  

Certainly growth is important to the sustainability of any business, but longer-term sustainability should override any short-term or even medium-term ambitions. This is especially important in turbulent and unpredictable environments where chaos, if not managed well, could cause irreparable harm and even sink a business permanently.


BES does not advocate a conservative, risk-avoiding approach to strategy, but rather an alert and prudent approach that both protects the business enterprise from disruptive forces, and yet advances its interests. The aim of this approach to business risk is to minimise the likelihood of greed overtaking the more sober management of business affairs. 


The need for this guidance has never been greater. "The old orthodoxies will not serve us well in the future" warned British prime minister, Gordon Brown at the G20 Summit. Throughout the history of business there have always been levels of turbulence - this is normal, and is part of a normal economy. And in the normal economy of the past, broad economic swings lasting several years were an essential feature. Over the past 50 years, we've come to count on two essential swings that mark a normal economy. First is the upswing that has historically lasted on average between six and seven years, often referred to as the "bull market." Second is the market downswing, lasting an average of ten months, often referred to as the "bear market", or sometimes as the "market correction".

              

These two swings were largely smooth and somewhat predictable in their movements, but there are always exceptions. Most notably in recent years is the stock market crash that happened on October 19, 1987, also known as Black Monday. By the end of October 1987, all major world markets had declined substantially. However, it only took two years for the Dow Jones to recover completely and by September 1989 the market had regained all of the value it had lost in the 1987 crash. Even during these two years, while businesses continued to battle competition as always, there was confidence that the upswing would return. Once it arrived, it became substantially reliable, if not substantially predictable, that the upswing would continue largely unabated and uninterrupted until the swing would fall once more. Then the cycle would begin again. 


Today's economy, with its heightened turbulence, is markedly different. The current economic situation is more than just the lowest point of a normal business cycle because business cycles show some predictability, at least at macro level. There are more big shocks and many painful disruptions still to come, causing heightened levels of risk and uncertainty for all businesses. On top of the everyday challenges of dealing in a perpetually competitive arena, and the usual business cycles, business leaders need to recognise a heightened stream of major and minor disturbances challenging their business planning.


The heightened turbulence is the new normality. It challenges business leaders to better understand, fully accept and then create new strategies to deal with it. Understanding and action are paramount if we are to succeed in the years ahead.


John Caslione is the co-author of a new book, Chaotics, a practical operations manual designed to enable political and business leaders to successfully navigate today's un-chartered and turbulent economic landscape. It is launching on Monday 22 June 2009. 

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