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Make Change Your Family Business Tradition
By Craig E. Aronoff, John L. Ward
Palgrave Macmillan Copyright © 2011 Family Business Consulting Group
All rights reserved.
The Challenge of Continuous Renewal
Since its inception in 1992, a newsletter that we publish, the Family Business Advisor, has frequently included a feature called "Century of Success," which tells the stories of family businesses that have lasted more than 100 years. One of the most constant themes that emerges from these stories is this: Family businesses that endure over a long period of time are those that do not just learn to respond to and adapt to a changing environment. They also learn to take the initiative and create change, as necessary, in anticipation of what they expect to take place in the world around them. The ability to be resilient in the face of change and the ability to initiate change within the organization itself have enabled these business families to overcome setbacks and thrive. These are families that recognize how vital change is to ongoing success.
We mean it when we say these families learn both to respond to change and to create it. In their early years, not even the most enduring family businesses necessarily understand the importance of change. Consider the Bissell family in Grand Rapids, Michigan, for example. Melville Bissell invented the famous Bissell carpet sweeper in 1876, and he and his wife, Anna, created a company, BISSELL, Inc., that has lasted to this day.
But before 1952, when the founders' grandson, the third M. R. "Mel" Bissell, took over, the company was stagnating. Sales had reached about $5 million at the turn of the century and stayed there for over 50 years. The company was marked by paternalism, little innovation in products or marketing, and a dedication to providing family members with job security. Over a period of five years, Mel Bissell introduced vacuum cleaners, carpet shampooers, and other products. A new controller and a new data processing system enhanced management, and outside advertising and public-relations agencies beefed up marketing. Mel hired able non-family executives and expanded production. Annual sales had grown to $25 million by 1970, when Mel turned leadership of the company over to his cousin, John M. Bissell.
John continued to initiate change. Much to the shock of family members, John, with Mel's support, encouraged some family executives to leave the company to make way for more competent non-family executives. Policies were established to set standards for the entry of family members into the business. Under John's leadership, the company grew to more than 3,000 employees and annual sales exceeding $400 million. John retired at age 65, becoming chairman of BISSELL and setting the stage for even more change.
By daring to break from tradition, Mel and John Bissell helped assure the continued success of the firm their grandparents founded. They paved the way for BISSELL, Inc., to become a diversified, international corporation. In so doing, they made change a way of business life. At the same time, they respected the past. As John once put it, BISSELL "keeps the best of the old but stays vibrant and growing by remaining open to new ideas."
Recognition of the need for change did not come intuitively to BISSELL, Inc. It took vision to see the need and required skillful leadership to help the organization institutionalize change as part of an ongoing business strategy.
This book is about helping you and your family business do what BISSELL and other enduring, successful family businesses have done: make change your tradition. If you are the leader of a family business or expect to assume leadership in the near future, this book will help you manage what we think is your number-one challenge: preserving the best of the past while creating a company that is able not only to accept but to initiate changes that enhance business and family adaptability, sustainability, and success. You will learn how leading change in a family business is different from leading change in a non-family corporation, and you will be shown skill-building ideas and techniques for creating and responding to change. This book will also help you think about change and how to use it so that your business can grow and succeed. And it will help you manage change that is thrust upon you.
If you are a CEO nearing the time of generational transition, this book will give you a new appreciation of the importance of change and show you how you can support your successors as they move to initiate changes to advance your company. When John Bissell determined that certain family executives needed to be eased out of the business, former CEO Mel Bissell supported him by taking charge of the actual terminations. Consequently, ensuing ill will was aimed at Mel, not the new CEO. While we would hope that your support of a successor would not have to be so drastic or controversial, the Bissells offer an excellent example of the concept.
If you are a non-family executive and a successor is taking over, you may feel particularly vulnerable. You have given many years of service to the company and much loyalty to the senior generation. Now new leadership means change, and you may feel threatened, wondering how the changes will affect you. It is our hope that this book will offer insights that help you contribute to change rather than becoming change's victim.
Perhaps you are a member of the board of directors of a family business. If so, you play a crucial role as an advocate for continued business success. Your insights on matters of business and your understanding relationship with family owners can be important elements of the change process. This book should help you understand more fully how change relates specifically to a family business and increase your value as a board member in supporting change.
Or perhaps you are a member of a business-owning family but are not involved in the day-to-day operations of the business. Still, you may care deeply about it and what the business means to the family in terms of legacy, relationships, community standing, and financial well-being. It is our hope that this book will help you understand the necessity for change in the business—and the risk that accompanies change—so that you can offer encouragement to family members who are actively managing the company. They will need your support in making appropriate changes, but they can also use your ideas about how to lead change while preserving the valuable heritage of your family's business.
Sometimes the issues surrounding change are confused with succession issues. The senior-generation CEO may be seen by the next-generation successor as resistant to new ideas or new risks and as unwilling to let go. At the same time, the successor may be viewed by the CEO as too hasty to make changes or as insensitive to what the business stands for in the family and in the community. A struggle ensues. A CEO already reluctant to pass on a life's work to the next generation may dig his heels in even harder.
But change is a given. It is a fact of life. Industries are consolidating. The marketplace is becoming more global and increasingly electronic. Product life cycles are becoming shorter and shorter. Competition is intensifying. And the pace of change is ever accelerating.
The world that today's senior generation grew up in offered a considerably different business climate than we are experiencing now. From the beginning of the Industrial Revolution until as late as the 1970s, the prevailing view of business was that you found a need, developed a product or service to meet the need, and protected your niche by consistently improving your product or service. Management focused on control and assuring consistency. Typically, the proprietor's oldest son was expected to sit at his father's elbow, watching and learning how he did things and then do them the way Dad did.
But this is the post-industrial era, or in more popular parlance, the Information Age or the New Economy. Rapid change quickly depreciates the value of everyone's knowledge. While the older generation has valuable lessons to offer the younger generation, one doesn't learn to lead a dynamic business at anyone's elbow. After young potential leaders have left home for education and experience and to gain a broader perspective, a battle with their parents over the need for change in the company is not an unusual occurrence.
In the past, it was possible for a family business leader to build one strategic success and make it last for the 20 or 25 years of his or her tenure. That is no longer possible, and therein lies a major challenge: today's family business leaders, if they lead for a generation, must lead an organization that has two, three, or four waves of strategic renewal during their tenures. In other words, the leader of a family business typically will stay in place for more than 20 years, but the business's strategy now has to change several times during the course of those two decades.
More than ever before, family businesses must be prepared to reinvent themselves to meet the demands of rapid change and evolving competition. As organizations, they must be innovative, adaptive, and flexible. Management today means effectively managing change, and that is the primary responsibility of the successor CEO.
This book will help you make a distinction between change issues and succession issues. More important, we hope it will serve your company as a tool in the process of change and help you incorporate change as a company tradition. We encourage you to share this book with all the key players in your company so that they can join the crucial process of making change your tradition.CHAPTER 2
Change in a Family Business
How Hard Can It Be?
Accepted wisdom suggests that family businesses are more flexible, more innovative, and more responsive to market changes than publicly held companies. Family firms don't have to answer to outside shareholders. They can move quickly. They can turn on a dime.
But having the potential to move quickly and actually doing it can be another matter entirely.
When it comes to change, family businesses present a paradox: in some ways, it is easier to change a family business; in other ways, it is much more difficult.
Family businesses are more suited to change for a number of reasons. Owners can make decisions quickly, if they so choose. They don't have to play politics, fighting their way through a maze of bureaucrats to get action. They should be able to withstand the dissatisfactions that occur with change because they are the owners and their jobs are secure. And in a good working environment, non-family employees will trust the owners' decisions and not fear for their jobs.
On the whole, family firms are smaller and more entrepreneurial. The owner of a family firm can influence the business's culture more quickly and more pervasively than can the leaders of large, unwieldy organizations.
Despite the existence of assets like these that support the ability to change, we believe that the process of change in a family business is not only different but can be much more difficult.
IMPEDIMENTS TO CHANGE
To establish the conditions for creating a culture of change, family business leaders must understand just what makes change so hard in a family firm. Here are some of the impediments to change that characterize family-owned companies. As you consider them, you will see that some of these obstacles are also the very strengths that make a family business successful, which makes change an even more complicated affair:
* Longer tenure of CEOs and other top leaders. While the leader of a non-family company may be CEO for an average of six or seven years, the leader of a family firm may run the show for a whole generation. Long tenures offer advantages. Mature family firms with long-tenured key executives understand the cycles in their industries and have learned how to cope with downturns. They can resist short-term temptations—such as overcommitting to growth in boom times—and take the long view.
But unless a leader has created a culture of change, little innovation may have taken place beyond that which the CEO introduced during his or her first few years of being in charge. The same can be said of other key leaders. While longer top executive tenures can create stability in family firms, stagnation can also result.
Researchers have found that CEOs too long in the job become set in their ways and views, no longer grow in knowledge, and are increasingly unmotivated and out of touch. They become bored and fatigued, not because they are too old but because of the length of time in their position. Two characteristics we frequently find in successful family firms are a mandatory retirement date and a conscientious effort by the CEO to be accountable to others who challenge the currency of his of her thinking.
* Love, respect, and loyalty. Typically, the successor to the chief executive in a family business is the son or daughter of that chief executive. The CEO is both the parent and the mentor of the heir apparent. Not wishing to appear unloving, disrespectful, or disloyal, members of the next generation may be reluctant to push for change. Or if they do, they may be seen by the parent/CEO as "wet behind the ears" or as naively spouting theories they learned in business school. In some cases, the parent may feel a sense of betrayal and be suspicious that the son or daughter who initiates change is trying to push the parent out.
In short, successors-to-be are required by the demands of competition to be champions of change at a time when they are still naturally subordinate and still lack credibility in the face of highly credible, powerful people whom they love and whose approval is very important to them. No wonder change is so difficult!
* Tradition and past success. When tradition becomes "the way we've always done things around here," without a genuine examination of what a company's current values and practices are or should be, tradition acts as a leash. It holds a company back. When certain practices and ways of doing things have made a company successful, there's a temptation to continue doing things the same way. Family members may be inclined to say, "Why wreck a good thing?" Or, "If it ain't broke, don't fix it." But if your business continues to do things in the same way, those traditional practices may keep it from being successful in the future. The lure of doing things "the way we've always done them" may prohibit family managers and key non-family employees from anticipating the need for change. Such a danger helped give rise to the popular newer mandate, "If it ain't broke, break it!"
Success not only leads to the institutionalization of traditions that may, over time, prove ineffectual, it also leads to complacency. If yours is a healthy family business, you may believe that the way to stay healthy is to keep on doing what you're doing. But the strategy that made your company successful during the past generation is unlikely to keep it successful for the next generation.
The hardest time to make changes is when things are fine. Why, you may wonder, should you put yourself through all the stress and risk and ambiguity of making changes when things are going so well? Keep in mind that it's easy to accuse others of "fearing" change when they seem resistant to it. But in our view, complacency is also a way of resisting change and is a greater enemy of change than fear.
* Hero worship. When a company has been run by a powerful, charismatic leader, family members and non-family members alike tend to want to remain loyal to that leader's vision or way of doing things, despite a need for change. At one major family-controlled firm, the third-generation CEO's challenge in following a heroic predecessor was symbolized by the fact that his father was known as "John God" while he was called "John Boy." When a CEO is so revered, changing strategies and practices that he or she put into place is particularly difficult for a successor. But when business conditions required it, "John Boy" made such changes and his father supported him.
* Family culture. A family business's culture usually grows out of the values and beliefs of the founding family. Family members who are not involved in the daily operation of the business, in an effort to remain consistent to what they believe are family values, resist change in the business. They identify the business with the past—with the parent-founder and with the family. They confuse their love for the parent-founder with the values and practices in the business. When the successor recognizes the need for change in the business and tries to initiate it, non-active family members view such efforts as a threat to their identity. They ask, "What's she doing—rebelling against our father?" Or, "Is our brother on some kind of ego trip?" Or, "Why is he taking away something that was so good?" Thus the successor is not trusted if he or she sees the need for change. Even brothers and sisters may be resistant to change as a result of lingering sibling rivalry.
A different problem altogether occurs when successors are so steeped in family culture that they cannot see the need for change. For example, when a son embraces the past with great devotion, as expected in some cultures or societies, he will not be able to see the necessity of change or the way to change.
* Key non-family employees. Non-family executives may be fearful of what a change in leadership will mean. They have been loyal for a long time to the outgoing CEO and may be just as loyal to his or her policies and practices. Like inactive family members, they may see change as signs of disrespect or rebellion. Even more, they may be concerned about retaining their jobs.
Excerpted from Make Change Your Family Business Tradition by Craig E. Aronoff, John L. Ward. Copyright © 2011 Family Business Consulting Group. Excerpted by permission of Palgrave Macmillan.
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