Johan Lambrecht is professor at the European University College Brussels (EHSAL). He is director of the Research Centre for Entrepreneurship at EHSAL
and the Catholic University, Brussels
Every family in business needs to have a good governance structure. Johan Lambrecht describes the best way to achieve success and stability by looking closely, with some examples, at how you can rethink your strategy and mission statements for top results
Corporate governance in family businesses has received a lot of attention. The family charter, family meetings and so on are often recommended for governance. A board of directors with external directors, who do not belong to the daily management and to the family shareholders, is considered necessary for the governance of the business. Entrepreneurial governance is a common characteristic of strong family businesses. 'Governance' stands for the formulation of a real mission statement. 'Entrepreneurial' denotes the realisation of the real mission statement.
What is strategic mission?
The word 'strategy' is often misunderstood. Strategy means 'being different'. To illustrate this, we refer to a photo with a suitable text in the income hall of a family business. The photo shows a field full of red flowers. In the middle, there is a yellow flower that rises above the red flowers. The text above the picture reads in French: Pour se faire remarquer, il faut se distinguer (To be seen, you have to distinguish yourself). Strategy is thus not, contrary to what is thought, about being the best, the biggest or the first. Those who announce that confuse operational excellence with strategy. Porter explains the difference: "Both are essential, but the two agendas are different. The operational agenda involves continual improvement everywhere. There are no trade-offs. Failure to do this creates vulnerability, even for companies with a good strategy. The operational agenda is the proper place for constant change, flexibility, and relentless efforts to achieve best practice. In contrast, the strategic agenda is the right place for defining a unique position, making clear trade-offs."
Let us return to the picture with the field full of red flowers. When an enterprise fills its strategy with the words "the best, the biggest or the first," then it wants to be a red flower. It says that it is not different than the other enterprises, only bigger or better. In addition, "being the best or the biggest" is short-term, because it can and will be copied. Finally, the illusion of a strategy undermines teamwork. There is a high probability that the number of interpretations of "being the best" is equal to the number of members in the management team.
So what is a mission statement? It is the translation in strong words of being different. It is a sentence that indicates the unique direction of the family business. A strategic mission does not consist of convoluted sentences, but of one sentence with few words. For the implementation of the mission statement, it is necessary to remember it. So-called mission statements with numerous sentences remind us of Dilbert, the little cartoon man who speaks ironically about management. Dilbert says that a mission statement with several sentences illustrates the inability of the management to think lucidly. Let us give a couple of examples of real mission statements.
The Belgian family business Colruyt, founded in 1925 and in the third generation, has with "Shopping fast and efficiently against the lowest prices" an unique identity. Colruyt does not want to be the biggest or the best, but the cheapest. The US business Coach, that started as a family business in 1941, profiles itself in the market of leather goods with the mission statement "Accessible luxury". Coach is a luxury brand, but its prices are 40 to 50% lower than those of its industry rivals. In this way, Coach dominates a profitable niche.
How can the family business formulate a real mission statement? It can tap different sources: study of the history of the family business; examination of the competitors; asking the family members, the clients, the suppliers, the staff; analysis of the internal business data that constitute often an unexploited information source; in family businesses, the mission statement is based on the family values. The Belgian grain distillery Filliers, a family business since 1880 and today in the fifth generation, is a good illustration. The Filliers family is devoted to its roots and tradition. Consequently, Filliers cherishes the brand and family name and craftsmanship that are rooted in its mission statement: "Pursuing a brand policy, Filliers, as well as protecting and preserving our know-how in order to transfer the business to the next generation, ensures a healthy and professional structure that perpetuates and safeguards the independence in the future."
Realising the mission statement
Only 10% of the businesses with a real mission statement succeed in realising it. A mission or dream has no value if it is not implemented. We offer three steps for entrepreneurial governance: (1) internal and external communication, (2) measuring and (3) "coherence, consistency, discipline and passion", the four-leaf clover.
Types of communication
Carlos Ghosn, who ran the Japanese carmaker Nissan, revealed one of his management secrets: "Leaders lead. They have to take care of the fact that everyone in the business knows, understands and shares the mission." We add that the leading managers who communicate the mission should believe in it. Otherwise, the mission loses every credibility. The mission has to burn permanently on the retina of the leading managers and the collaborators. In this way, clients and suppliers also become acquainted with the unique character of the business and its reason of existence.
In addition, clients can be an important ambassador of the mission statement. If a family business launches a mission statement, the resistance will be internal. Here's a little anecdote. A family business had a new mission statement. There was a lot of scepticism among its commercial staff. One year of communication efforts had not convinced them. After one year, a seminar was held with the commercial staff and a client. A sceptical salesman asked the client his opinion about the new statement. The client answered that he was enthusiastic about it. Suddenly, the sales staff changed their mind. The client had done more for the understanding and acceptance of the new mission statement of the family business in one minute than management had in one year.
Some businesses measure not to know. They unload tables with figures. This multitude of data blinds and does not yield knowledge. How should you measure? Firstly, a number of ten measures with targets should be determined, that enable the follow-up of the realisation of the mission statement. They should reflect the strategic mission. Someone who does not know the mission should be able to derive it from the measures. We write a number of 10 measures. Too many measures cannot be remembered and measuring is then useless. Targets for measures can entail a precise figure or a positive growth of the measure.
The presentation of the measures is also important. The leading managers should have an eye for the whole. Graphs say much more than tables. The measures do not need to be complicated. We can give the example of a family business that focuses in its mission statement on family businesses as the most important clients. To measure this, the family business compares two pie diagrams. In each pie diagram, the family business/non-family business are the pie pieces. One pie diagram indicates how many per cent of the clients are a family business (for example 50 %). The other pie diagram shows what the family business clients represent proportionally in the profits (for example 70%). The business realises its mission when the share of the family business clients in the profits is larger than their share in the total number of clients (like in our example, 70% compared with 50%). It is good to discuss the results of the measures with the collaborators. They contribute to the outcome of the mission statement. Measuring and the discussion of the results of the measures aim to support the collaborators with the realisation of the mission statement.
It is striking that the behaviour of businesses deviates from their strategic mission. In this way, they quickly damage their unique identity. To avoid this, businesses have to show coherence, consistency, discipline and passion. Let us unravel the four-leaved clover.
Coherence entails that the "five ps" in the business: personnel, promotion, product, price and place, correspond with the mission. They have to serve the mission. The strategic mission is the touchstone for actions concerning the different ps. The selection, the evaluation and the remuneration of the staff should be in function of the mission statement. We remember a business with a true mission statement.
Notwithstanding, that business did not realise its mission sufficiently. The reason was that its human resources policy was not tuned to the realisation of the mission. Many of its staff did not behave according to the mission statement. They regarded the realisation of the mission as something that was not binding.
Promotion should also be in accordance with the strategic mission. The Rothschild bank understands this. It addresses itself to family groups and wealthy people. That is why Rothschild never uses big promotion campaigns, but adopts an exclusive approach. It makes its presence in the market knowable by sponsoring select activities, like a rally with old timers, sailing competitions or art exhibitions. It also organises samples with the well-known Rothschild wines. If Rothschild advertised through mass channels, it would undermine its selective character.
The place, price and product policy should also feed the strategic mission. We quote again the Belgian grain distillery Filliers: "Filliers is a premium brand. We sell all our end products under our own family name and have not yielded to temptation to distribute under private label. We have also resisted the forced price reductions of the supermarkets in their fight for the lowest prices. This has led to the loss in October last year of our contract with a supermarket. Next, we have increased our price with 15 to 17% and the distribution has accepted that. Eventually, the supermarket that terminated the contract came back."
Another family business that excels in coherent behaviour is the US family business Longaberger, that produces baskets. The founder, Dave Longaberger, insisted that the building be constructed in the shape of a basket. When he announced this plan, he was declared crazy – but the publicity that the business received because of the company building compensated for it.
Consistency, the second clover leaf, means that the leading managers always play the same strategic refrain. It should be possible to derive the strategic mission from their words and actions. Consistent behaviour also means that all leading managers propagate the same strategic mission. We give an example of a business where that was not the case.
That business had a new strategic mission, that put the emphasis on existing clients. They were deemed more profitable than new clients. The number one of the business had explained the choice for existing clients to the staff. The next day, the number two of the business had a meeting with the commercial staff. In his first question, he asked for the prospecting efforts of the sales men to acquire new clients. This question clashed with the focus in the strategic mission on new clients. This is fatal for the strategic mission. The managers should again show the example. When their words and deeds do not reflect the strategic mission, it is difficult to require it from the staff.
Next to coherence and consistency, the realisation of the strategic mission calls for discipline (the third clover leaf). Strategy means continuing the unique direction. Without that, it is difficult for businesses to develop unique capabilities and assets or to build a strong reputation. Frequent reinvention of the business is often a sign of poor strategic thinking. The strategic agenda demands discipline and continuity. Discipline does not mean that the strategic mission has eternal life. When the market topples, the mission should be corrected or be rewritten.
Passion completes our four-leaved clover concerning the realisation of the mission statement. With passion, we mean being driven, personal intensity or working from the heart. Strategy is nothing without the passion of the people who create and implement the mission.