Avoid ‘Institutional Stagnation’ to be Successful
3rd May 2016
BY CHRISTIAN MANCIER, HEAD OF THE GORVINS FAMILY BUSINESS TEAM
Rear admiral Grace Murray Hopper, a computer programming pioneer and the oldest serving officer in the US Navy when she retired aged 79, once said “The most dangerous phrase in the English language is, ‘we’ve always done it this way’”.
Too many family businesses are seen as being conservative, change adverse and stuck in their ways, making them the same as from generation to generation, something I would commonly refer to as “Institutional Stagnation”. The psychology behind this thinking is that with a generational family business no particular generation wants to be the one who is in charge when it all falls apart, consequently making them traditionally conservative and adverse to risk.
Whilst this is perhaps true for some family businesses who don’t survive beyond the second or third generation, some of the most successful family businesses are those within the 3% who operate into the 4th generation and beyond, including some of the best-known companies in the world: WalMart, BMW, Roche and Dior. Contrary to common belief, such businesses are very open to change and are often visionaries in their fields.
The Agility of Family Businesses
The most successful family enterprises concentrate on their core business. That is what they know and what they are best at so they rarely diversify outside of this core business. However, family businesses are often exceptionally agile and innovative within their core business, meaning they are more like the fast moving, nimble speed boat compared to the lumbering, slow turning oil tanker that is a stock exchange listed rival.
If a family business spots a gap in their core market they want to exploit they can simply make an almost on the spot decision to pursue this and instantly create the relevant budget, cash/funding permitting of course. Compare this to the oil tanker approach of a listed company where budgets are created well in advance: deviation from those budgets or creating new budgets may have to wait until the next financial year, with inevitable countless levels of management sign-off and approval before getting the go-ahead on the proposed project. By the time this process is complete the rival family business is already up and running and in the market place with their innovation.
Furthermore, decisions can be taken by family businesses with a long term view compared to listed companies, who have to take decisions with things in mind such as shareholder value, return on investment and a forward plan that is probably on a 5 year rolling cycle.
These factors help dismiss the perception that all family businesses are the same as from generation to generation, failing to innovate and embrace change, and instead these factors often help place the most successful family businesses at the forefront of innovation within their sectors.