Professor Joachim Schwass is the author of Wise Growth Strategies in Leading Family Businesses (Palgrave Macmillan 2005) and co-directs the IMD program Leading the Family Business.
Learning from and valuing the past, developing on a personal and business level and striving to embrace new concepts are all key to successful growth strategies for family firms. Joachim Schwass summarises the findings of an exhaustive and revealing study
Why do some family businesses fail while others grow successfully? What are the key factors that contribute to multi-generational success? Finally, is it possible to plan for success? These are the questions addressed in a nine-year study on a special group of family businesses, to be published as a book this August.
Through the nine years of research with leading family businesses of the world several insights emerged. Firstly, the model of the perfect family business does not exist. There is not one single family business out there, which has done everything right for all stakeholders all the time.
But, secondly, some important similarities emerged. The most outward symptom was the capacity, over generations, to adapt to both external and internal changes. External changes are from the market and internal changes are from the family and the business. These family businesses had the capacity to build on the traditions established by generations. The insight from this research was that this adaptability over generations followed a clear logic. This logic, to the outside, is not always easily visible or understandable. But these families applied their own benchmarks and a logic, when seen from the inside, being evolutionary, rather than revolutionary.
This logic found its most apparent expression in a business growth strategy, which was both successfully adapted to the needs of the market, and the capacity of the family to provide effective leadership driving and executing this strategy.
The next step of the research led to the people who developed and implemented this business growth strategy. The award winning family businesses had produced successful leaders in each generation. Was this luck or planning? Leadership was made possible by the presence of a forward-oriented growth mentality deeply anchored in the mind of the family.
Lesson 1 Growth mindset. The finding of this insight became obvious when the reasons for family tree prunings were analysed. Over time, these families tended to separate and actively discard certain members or branches who did not share this growth mindset. In some cases these separations were seen as painful to the family, in other cases they were the result of a positively spirited process. But the underlying motivation always appeared to be the unconditional, emotional attachment to a continuously growing business by some members of the family.
Lesson 2 Leaders submitted themselves to a disciplined process of systematically growing as an individual and growing their role as leaders in the business. Those family members and branches who wanted to stay attached to the business seemed on one side driven by a forward-oriented growth mentality, and on the other side wise enough to see the complexities and inherent risks of a family owned business. The multiple interest levels – family, ownership, management and the individual – need to be acknowledged and each generation has to, yet again, create a well balanced approach towards addressing the needs of these interest levels.
The concept of "wise growth" emerged from these findings. How can this concept provide meaningful lessons to other family businesses and be applied as a strategy tool? The most practical and relevant approach focuses on the systematic development of business leaders from among the pool of next generation family members. Which are the meaningful steps to follow by a family member aspiring to become the business leader ?
Step 1: Understanding leadership.
A fascinating observation is that next generation members entering the family business usually do not perceive leadership as a sequential multi-phase process. Their mental reference point and objective for the role of a leader is the phase of achieved management control. Due to the long tenure times of family business leaders, often the next generation has not experienced and lived through their parent's development phase and therefore sets the expectations and entitlements intuitively – and prematurely – at this advanced phase. This benchmarking leads to an omission in experiencing the earlier phase, which provides the learning and understanding to qualify the successor for the leadership position and management control. A phased development process builds trust between generations. An omission of the experiences of the earlier learning phase is often negatively perceived by the senior generation as "revolutionary" thus increasing the potential for intergenerational conflict.
The need to adapt – and plan for changes – requires a model tracking the evolution through time. The adopted model is based on three main leadership phases from the perspective of the full life cycle of a successor from entering until leaving the family business.
Leadership development in a family business starts earlier and lasts longer than in public corporations, and the interdependence of the four interest levels requires a sequential and focused leadership development process.
Step 2: The "wise growth" strategy.
Growing the family business is both a mindset and an objective, that needs to be implemented over time. It is a fact that the majority of smaller to medium-sized family businesses grow very little. A family with a multi-generational perspective, which includes broad based ownership by all new family members, needs to adopt a growth mentality. Firstly, a growing number of family owners means a growing number of dividend receivers.
Secondly, the market conditions change and adaptation and renewal are necessary. Thirdly, business growth built on a vision developed by each generation, confirms the sense of personal worth and professional achievement. Instead of just inheriting a business and a vision, the successor generation is seen as contributors in their own right – who have developed and implemented their own vision – both by themselves and for others.
The need by the next generation leaders to be seen and recognised as entrepreneurs in their own right is a powerful motivator for business growth in a family business. However, the best practices from the most successful family businesses highlight that business growth should be built on previous generations' achievements and not undertaken at any cost. Particularly for family businesses which are mindful of their tradition, evolutionary "wise" growth usually is more long term effective than revolutionary growth.
The fundamental insight is that business growth is visible as the tip of the iceberg, but underneath is a phased leadership development process, which builds on the mindset of the individual to start with personal growth first. This insight leads to the formulation of a three-dimensional "wise growth" strategy for family businesses applying a comprehensive leadership development approach: firstly, grow as an individual. Secondly, grow the role in the business. Thirdly, grow the business.
The sequence of this three dimensional growth strategy is important. Business growth can be achieved more successfully by a leader who is supported and respected for having systematically climbed the career ladder in the business. This in turn can be better achieved by a person who has demonstrated the desire and capacity to learn and to grow as an individual.
Grow as individual
The first dimension of the leadership development strategy is the explicit intention of the successor to take personal responsibility to grow as a person. The importance of individual growth is probably best reflected in the following statement made by Pietro Barilla, third generation chairman of the Italian Barilla Group, as he was about to retire: "As family members leading a family business we must offer something of ourselves – the best of what we are." The research into the success factors of the award-winning family businesses highlights that the most effective leaders are driven by the desire to discover new and better ways to manage the business.
Grow the role in the business
The research points to a well-structured and manageable process. Firstly, the family sought outside advice regarding career planning, which rationalised and professionalised the career development process. Secondly, the next generation owners have systematically and explicitly developed their own generation's vision for the family and business relationship. Thirdly, over time, the leadership role in the business was critically evaluated and adjusted. The majority of family businesses fail to recognise the important benefits of a well structured process.
Grow the business
It is the logical extension of the growth mentality by the next generation that served to build trust. A particularly clear demonstration of wise business growth is seen in the Zegna Group. The business growth strategy of each succeeding generation maintained the earlier generation's achievements and enhanced them with another distinctive strategic component in the value chain.
Generational business strategies
This example of a vertical integration where each generation adds another component in the value chain is powerful in the sense of demonstrating a most effective linkage of the successful historic achievements with new growth opportunities. The evolutionary approach implies that the previous generations achievements are still valid and recognised, thereby creating a basis of intergenerational trust and family harmony.
This positive spirit facilitates the entrepreneurial growth which in turn validates the achievements of the next generation as successful entrepreneurs in their own right. This example highlights the wise use and leverage of the complexities found only in family businesses in order to create unique and unconventional competitive advantages.
Lessons from the best family businesses imply firstly, a thorough understanding of the complex, evolving and interlinking interest levels, and, secondly, the wisdom to develop competent family leadership as owners and possibly as managers. This wisdom builds on a multi-generational perspective and the commitment to meaningful growth. Finally, the most important lesson from the research is that success can be planned.