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Family matters: A different perspective on change
Family businesses get a bad rap. Their reputation is based on family feuds, eccentric and self-interested leadership, and powerful boards where members blood matters more than brains. Recent research by Danny Miller and Isabelle Le Breton-Miller* suggests, however, that successful family businesses – including icons such as Ikea and Wal-Mart – represent an important set of firms, from which all companies could learn. Not only are family firms a significant force in most Western economies (35% of Fortune 500 firms have a founding family in top management positions on their Boards, 44% in Western Europe (65% in France and Germany), but Miller and Le Breton-Miller report that large family businesses have actually out-performed and survived their non-family peers.
Family Matters
Perhaps the most interesting finding of this research is what the Miller’s didn’t find! Amongst the top family-run businesses there was little talk of competitors, few charismatic leaders, no sophisticated organizational designs, hardly any grand strategic plans, minimal diversification and an absence of discussion on profit.
“These were meat-and-potatoes companies that knew exactly how they wanted to distinguish themselves, worked assiduously to do it, and were not tempted by distractions. We found little evidence of fads of any sortâ€.
The researchers draw on the metaphor of ants (family-run business) and grasshoppers (non-family business): while the grasshopper looks for quick results, one shot transactions and competitive relationships with outsiders, the ants work to build enterprises that will generate results over the long-term and are underpinned by strong sets of collective values which foster collaboration.
The Four C’s of Successful Family Businesses
The researchers found that to be successful the ant-like family firm adopts four driving priorities.
- Continuity – successful family businesses concentrate on pursuing a long-term substantive mission which keeps family members focused on building competencies over years (through, for example, lengthy executive apprenticeships and tenures) and keeps them from being distracted by short-term setbacks.
- Community – they build a cohesive team by embracing strong values and socializing persistently - in doing so they manage to elicit loyalty, initiative and collaboration from their employees.
- Connection – they generate mutually beneficial connections with suppliers, customers and other stakeholders building relationships over many years.
- Command – family ownership provides the freedom to act independently – without constraints from shareholders.
These four Cs provided the building blocks, but the best of the family businesses were driven by some combination of two of them, with the two others playing supporting roles. Family firms focused on brand building, such as Levi Strauss and Estée Launder, placed more emphasis on continuity and community. They gained their advantage by engaging in long term investments to build and protect their brands, and by developing cultures that both defined and taught the brand internally. In contrast, deal-maker family businesses such as J.P. Morgan and Bombardier focused on emphasizing command and connection¸ which encouraged entrepreneurial deal making as well as maintained and nurtured powerful networks.
These balancing acts are, however, difficult to sustain – too much attention can be given to one of the four priorities to the detriment of the others and the result is what the researchers call the Icarus Paradox – “the very practices and capabilities that create success can often pull organizations towards dangerous extremesâ€.
Not So Special, But Very Important
Whether or not these four core priorities are distinctive of family businesses is not really the issue, at least not for those interested more generally in managing successful change. More critical are the questions they raise for change agents.
- Is there evidence of these 4 Cs in your organization or do you have a different set of underlying priorities?
- How do these priorities shape your organizations approach to change?
- How might adopting a combination of priorities like the 4Cs alter your organizations approach to change?
- Would a longer-term focus encourage you to embark on more radical initiatives?
Whether you operate in a family-run business or not the answers to these types of questions may prove to make a fundamental difference to the scale, scope and success of your next change initiative.
* Managing for the long run: Lessons in competitive advantage from great family businesses by Danny Miller & Isabelle Le Breton-Miller (Harvard Business School Press)
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