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Ideas Made to Matter

Change Management

As the pace of change accelerates, how can family businesses succeed?


There is evidence that family companies historically have outperformed and outlived non-family businesses. But how well-suited are the typical practices of family business to the accelerating pace of change and frequent disruptions in business? It is a mixed picture.

In some ways, family companies are well-suited for this new world. Their long-term orientation regarding planning, stakeholder relationships, and investing works exceptionally well in a volatile environment. This recipe can equip family companies to maintain their course and adapt to the turbulence they will face.

But the vulnerabilities of family companies are also pronounced in this environment. In particular, their typical focus on complete ownership and operational control, their challenges attracting top talent, and their slowness in changing things that are outmoded could take them down.

John Davis, a senior lecturer in the MIT Sloan Executive Education family enterprise programs who has spent four decades studying, teaching about, and advising family-owned enterprises, helps family companies adapt in these times of fast and disruptive change. Davis offers four concrete steps for family companies to take advantage of their natural strengths, confront their vulnerabilities, and remain competitive in disruptive times.

Gain altitude and realism

“Today, you are always vulnerable,” Davis said. “Someone, somewhere will eventually do what you do cheaper and faster and maybe better and maybe with technology you don’t use. Industries now mature more quickly and some industries go away. You can’t just be good at operational excellence, you also need to understand your industry, anticipate how it is changing, and recognize when the game you have been playing has moved to a league in which you can’t compete.”

This perspective requires “gaining altitude,” as Davis describes it, to view the constant churn and change in industries. And it requires a realistic assessment of your ability to keep up given the changes in your environment. Effective corporate governance can help provide this altitude and realistic assessment. So can good advisors and periodic learning trips away from the workplace to shake off blinders and get a sense of what’s happening in business and in the world.

Focus on creating value according to your values

In times of fast change, family-led firms must be agile while maintaining a clear sense of what they really want to accomplish. A particular business may serve your purpose for a while and then fail that purpose, either because the particular business becomes less valuable or you become less able as owners to effectively support it. Either way, you need to know when to migrate from one line of activity to others that are more valuable to you.

This is the lesson: to remain healthy across generations, you can’t rely on any particular business forever. (Today, you can’t even rely on one business for very long.)

“Mechanisms for value creation come and go — they always do,” Davis said. “Families need to define what they are trying to accomplish, what their purpose or mission is, and the values they want to use in their business.” They should identify lines of business or opportunities for growing value that align with their mission and values.

Consider the success of Sweden’s Stenbeck family. The founder, Hugo Stenbeck, started out in forestry and agriculture in the 1930s; his son, Jan, sold these interests when he assumed control and moved into steel, automobiles, and telecommunication; and Jan’s daughter, Cristina, followed the same path when she took charge. The Stenbecks now oversee a company focused on entertainment and ecommerce. The family’s particular businesses have changed over time though their entrepreneurial attitude and business approach have remained constant.

Think like an owner

The leaders of family companies tend to think like operators, focusing on how a product is made or a service is delivered. Perhaps more than anyone else, Steve Jobs exemplified this fact; his obsession with detail paid unrivaled returns.

“But family companies need to balance that operator mindset with what I call an owner mindset,” Davis said.

Altitude and a focus on value creation both employ the perspective of owners. Thinking like an owner means evaluating what to own, what capabilities and resources are needed to be successful in any investment or company, and what returns should be received for this effort.

To be a great operator requires a deep passion for and personal investment in the work before you. This passion is precisely what makes some family companies so successful. But the mindset of an owner demands just the opposite: a clinical and dispassionate appraisal of the value being created. Moving between the two mindsets is required but can be a challenging psychological feat. One of the surest ways to enable this shift in mentality is by finding a set of close and trusted advisors.

Get out of bad investments

“Family companies are good at finding and growing new investment opportunities,” Davis said. “But they are also slower to divest investments that aren’t working.”

Davis attributes this difficulty to an inherent and powerful sense of loyalty. “Families generally have a hard time breaking attachments,” he said. “I used to say that family companies are ‘slower but better,’ but in today’s environment, with markets and industries changing so quickly, can a family company be ‘slower but better?’”

He pointed to the Graham family, former owners of The Washington Post, which they sold to Jeff Bezos for $250 million in 2013. The Grahams had owned and operated the Post for nearly seven decades before industry changes forced them to sell.

“They tried everything to stay in the game because it was so deeply wrapped up with their identity,” Davis said. But by holding on to the “Post” for longer than they reasonably should have, they lost billions on the potential sale price. “They simply weren’t being realistic — by assuming ‘We can do it’ they let their pride override a rational assessment of their situation and they probably lost five billion dollars in value,” Davis said.

As with the recommendation to think like an owner, Davis suggests that a properly composed board of directors and good investment policies can help usher out bad investments before they become even worse investments.

Davis teaches “Future Family Enterprise: Sustaining Multigenerational Success” for post-founder families, and “Founder to Family: Sustaining Family Business Success,” for founders and second-generation members. See program details and apply for MIT Sloan’s Executive Education programs for families in business on the programs’ website.

For more info Zach Church Editorial & Digital Media Director (617) 324-0804