Bus 185 Session 6 - Strategy & Leadership Notes

Business Theory

• Core Competencies: What a business does best.
• Strategy: A systematic process.
• Competitive Advantage: An external evaluation tool.
• Environmental Uncertainty: Depends on complexity, dynamism, and richness.

Family Business

• Family Business Tree:
  • Root: Family.
  • Trunk: Ownership.
  • Branches: Leadership.
  • Leaves: Interaction with environment/market.

Terminology

• Strategic Consistency: Defining successful strategic values that work for the firm and using those values to guide important decisions and actions over the long term.
  • The Three ‘Cs’:
    • Clarity
    • Consistency
    • Commitment
• Strategic Flexibility: The capacity of a firm to respond to changes in its environment by committing the necessary resources.
  • Considerations:
    • The amount of time available to respond to a major change.
    • The range of different solutions available.
    • The perspective of the organization with respect to the change.
    • The focus area of the flexibility that was created.
• Competencies (Peeters):
  • Awareness
  • Partnering
  • Experimentation
  • Ambidexterity
  • Decisiveness

What We Know

• Family firms that prospered renewed their business strategies multiple times.
• Increased Strategic Consistency results in better performance, especially in family businesses.
• Family in top management negatively affects strategic direction but is conducive to Strategic Flexibility.
• Success comes from balancing family with business decision-making processes, making Business-First Decisions.

Life-Cycle Analysis

• Strategy: Stewardship behaviors.
  • Do family goals converge or diverge from business goals?
    • Converge = more proactive.
    • Diverge = less proactive.
• Pro-activeness:
  • Opportunity Creation & Exploitation
  • High (goal overlap) to Low (goal divergence) to Med-High (goal overlap) (Massis et.al. 2014)

Life Cycle of the Family Business

• Stages of Evolution:
  • Founder's stage.
  • Growth because of the FOUNDER's GOVERNMENT.
  • Growth because of entrepreneurial contribution of the children: FAMILY LEADERSHIP.
  • Growth because of PROFESSIONAL CORPORATE GOVERNANCE.
• Stages of Revolution:
  • Crisis due to lack of Delegation.
  • Children's income crisis.
  • Father Son: different visions.
  • Death of founder: Power Crisis among brothers.
  • Crisis of ???

Gender & Leadership (EYGM 2015)

• Having women in leadership and strategic roles makes economic sense for businesses.
• Companies with women on the board outperform those without in return on equity, net income growth, and price-to-book value.
• They focus more sharply on governance and reducing risk, which underpin superior financial results.
• Companies with the greatest number of women in the C-suite outperform on return on equity and other financial performance metrics.
• Family Businesses are far ahead of the curve in gender parity in leadership.
• Globally, 70% of the world’s largest family businesses are considering a woman for their next CEO.
• They average five women in the C-suite and four being groomed for top leadership positions.
• More than half (55%) have at least one woman on their board.

Management v. Leadership

• Task v. Process
• Terminal v. Instrumental Goals
• Tactile v. Abstract or Symbolic
• Communicate v. Inspire
• Train v. Mentor
• Systematic Thinking v. Systems Analysis
• Short v. Long-Term focus

Leadership

• Long-term (legacy/reputation)
• Founder-driven in business
• Business leader = family leader
• Strategy (proactiveness)
• Environment driven
• Strategy, vision, objectives, opportunities/threats, succession, investment

Management

• Short-term (day-to-day)
• Family-operated (dominant coalition)
• Decision-making (v. problem-solving)
• Reactive
• Family & operations driven
• Day-to-day tasks, strengths/weaknesses, staffing, cash flows

Family Strategic Planning Topics

• Why is the family committed to perpetuating the business?
  • Why not sell the company?
  • What benefits does the family see in keeping the business?
• How does the family see itself and the company in the years ahead?
  • Does the family envision that many family members will be active in the firm, or will they be passive owners?
  • Does the family see the business creating spin-off ventures for family members?
• How will the family build or maintain strong relationships, resolve conflicts, and work for harmony?
  • How will the family and the business resolve questions of family compensation?
• What are the specific steps required to accomplish the family’s personal and professional goals each year?
  • Is this the year to discuss and establish rules, such as expecting outside work experience?
  • Will the family begin regular “family fun” activities, such as group vacations?

Why Succession Fails?

• Family members delaying the decision to avoid friction among potential CEOs.
• Delaying because no family member or outsider is deemed capable.
• Avoiding the issue to not discuss the eventual loss of a family leader.
• Current CEO refusing to admit the company can survive without them or is afraid of retirement.
• Family owners less likely to have a degree or professional qualification (63% v 33%).
• Plan is more generic than specific in family business.

Succession Planning

• The best time to plan for succession is well in advance!
• What are your family goals for the future?
• What are the plans of the next generation? Who is interested in leading the way? Is there more than one aspiring leader? Who is best equipped to lead? What role will the other members play?
• What if no one is interested in succeeding your business?
• Develop a plan to groom and mentor the future leader(s).

Best Practices

• Start Early
• Create Career Development Systems
• Seek Advice from Experts
• Build Consensus
• Clarify Transition Process
• Balance Exploration v. Exploitation

Ambidexterity (Allison et al. 2014)

• Ambidexterity is the ability to balance Exploitation & Exploration Strategies
• Positive relationship between family firm status and ambidexterity
• Positive relationship between ambidexterity and performance
• Balancing exploration and exploitation activities generally outperform those that do not
• Static v Dynamic ambidexterity
  • Exploitation activities reflect the refinement of existing opportunities, emphasizing efficiency and execution
  • Exploration activities reflect the search for new opportunities, emphasizing innovation, risk taking, experimentation, and flexibility (March, 1991)
• Family firms tend to engage in long periods of exploitation punctuated by radical strategic exploration (Salvato & Melin, 2008)

Long Term Outlook (Brigham et al. 2014)

• A predominant outlook or prevailing tendency regarding “how a family firm’s dominant coalition… uses temporal reference points—past, present and future—as decision criteria or anchors in their decision-making processes”
  • Continuity – bridging past, present, future
  • Futurity – belief in importance of LTO
  • Perseverance – actions toward plan

Steps (Ward 1988)

• Assess Commitment of Family
• Assess Firm’s Business Health
• Identify Business Alternatives
• Select Business Strategy
• Consider Family & Personal Goals
• Assess Family Interests & Capabilities
• Re-evaluate Regularly

The Stepping Stones Process

1. Preparing for the challenge
2. Entering the system
3. Working together
4. Dealing with newcomers
5. Passing the baton
6. Taking the baton forward

Family Council Fishbowl #1

• Conduct a Management v. Leadership Gap Analysis on the family members you would place in your own family business.
• Go beyond the three interviews to try to staff a new start-up.
• Think strategically about the leadership pipeline as your company grows.
• Address Familiness with regard to Strategic Consistency and Strategic Flexibility