Success Mindset for Family Businesses
A renowned family in the commodities business is in the process of inducting the next generation into the business. The owner wants to induct the son into the business in a high profile role in order to succeed him. The next gen would like to focus on strategy and build the brand, while the father would like him to focus on core functions that can improve efficiency and reduce cost. The son is extremely reluctant to do so, as he feels that he will lose credibility of his key senior management if he takes up a role without establishing himself with successes or experiences under his belt.
Multiple fold growth over the last few decades has spurred the aspirations of businesses owned and run by families in India and at the same time, has made them realize the bottlenecks in the organization, systems and people. The next generation is being inducted into the business as a natural succession.
The growth has brought the business to a different stage, where what worked earlier may not work anymore. Or equally, what worked with the previous generation may not work with the new generation! Perspectives have changed, customers have evolved, competition has taken a new shape, and talent is in demand. How important are these stages? How do we come to terms with realities and take realistic and relevant decisions?
Family Business Evolution Stages
The stages of growth are reasonably well-understood, but the challenges and focus at each stage can be very different. Taking a generic view of growth can sometimes be misleading.
Organizations go through the set up and inception stage to the functioning business survival stage. This requires investment, and focus needs to be on breaking even as a business. It’s a very owner dependent stage.
The first challenge is moving from an organization of only a few people to an organization with a larger employee and customer base. Relationships are important, but the nature of relationships is transactional. Managing the fundamental hygiene of relationships with customers can help organizations become profitable. It’s a people and relationships dependent stage.
Organizations Stay Relatively Longer in the Survival Stage. Ability to Move Ahead can Define the Future
The success stage is a transformational stage, when organizations make a choice to move with big bold bets or steady growth. These could be typical mid-sized companies. The most dramatic shift in a business run by families takes place at this stage. The organization aspires to build process, expertise and capability. High performance needs to be a focus, but legacy processes need to be revamped. External professionals at senior levels are sought to drive expertise, processes and productivity. Invariably, due to lack of systems and processes, attracting talent becomes a challenge. Those who do join are viewed with skepticism and the expectations for very quick results are high. Chances of failure are also very high. The next gen entry into the business at this stage has its own challenges. Their need to establish themselves is high, especially if they are professionally and academically competent and joined the business. The next gen wants to take the business to the next level quickly. There are different perspectives at play. The next gen’s ability to prevail with a wider world view and capability drives the move towards becoming a process and expertise-driven organization.
The take-off stage is an expansion stage. With systems, processes, capabilities and financial sustainability, diversification and investment into newer adjacent businesses and inorganic growth seems the logical next step. This is a stage of a professional, dependent organization. Professionally qualified next gen, or wellgroomed next gen play the key role, and in some cases, external professionals may also be sought to ensure right skill and capability to drive the “take-off” stage.
After the take-off stage, the scale and size of operations demand streamlining and synergy. This is a resource maturity stage. Ownership and management may also become independent. Capability and expertise inmanaging the complexities of business drives the dependence on the top leadership, rather than ownership.
At the “Global Corporation” stage, the scale and challenges of operations make them transnational corporations governed by shareholders and the board and managed by a global talent pool. This effectively means that except for the family stake, brand and in certain cases values, the business is run by a professional board and management that may or may not have any family members involved.
Perspectives and Mindsets at Different Organization Evolution Stages
Each of the growth stages has a prevailing need and consciousness that aligns with Maslow’s theory around hierarchy of human needs. Richard Barret & Associates also adapted and evolved this theory to organization “consciousness” that aligns with organizational growth stages.
The mindsets are critical pointers to the perspectives and decision-making in various growth stages of an organization.
Personal investment de-risking mindset: In the inception stage of an organization, profit and growth are the core focus areas and owners could be seen as driving very high control. This is the personal investment stage; therefore, the mindset is geared towards de-risking the personal investments.
Commercial mindset: Survival stage is dominated by a commercial mindset, where the immediate financial and business considerations influence all aspects of an organization. This is a relationship-driven stage with a significant dependence on individual relationships, and the owner is at the center of these relationships. A midsized automobile manufacturer influenced by investors is facing this challenge in overcoming the stage two mindset. Unwilling to let go of operational control of business, they are looking for a roadmap to do so. However, without a mindset shift, this might not fructify.
Transformational mindset: Success stage of growth is focused on high productivity and efficiency and transformational mindset. Systems and processes in various functions and across functions are required to be a system-driven organization.
If the organization is able to establish systems and processes that allow them to compete with the best, a significant shift takes place. The organization is then able to attract the best, is able to renew itself, and goes into a phase when steady growth is not a challenge anymore. Quality, productivity, efficient processes, etc. start a virtuous cycle of satisfied customers, interested investors and employees keen to work with the organization.
Expansion mindset: Over the last decade or so, familyled businesses in India have seen opportunities expand manifold. The markets have opened up, and aspirations have soared. The mantra for growth has seen family businesses take audacious business calls. While the local markets have opened up, Indian companies have geared up to take on global markets, acquiring companies in developed economies to gain access to those markets. M&M, Apollo Tyres, Wipro, HCL, Avantha Group, etc. have succeeded in expanding through acquisitions. There are examples where sound financial and business synergy logic have led to acquisitions, but there was not enough management bandwidth to ensure integration. Apollo Tyres has shifted its corporate HQ to London and inducted global experts in management to drive this mindset.
Empowering mindset: Mature and successful companies are able to provide empowerment to customers, suppliers and employees. The organization is governed more by principles, strategies, processes and policies. The owner leads the organization through professional capability. Aditya Birla Group, Wipro, etc. could be viewed as having an empowering mindset.
Global mindset: Sustainability of the business, society and planet becomes pronounced in this stage of an organization. Toyota, P&G, Walmart, Tata Group, etc. operate at this level
Understanding and Assimilating the Differences
The above mindsets exist in some form in all organizations, and the key nuance to understand here is that there is always a predominant mindset that drives decision-making; it does not mean that mindsets are mutually exclusive.
Knowing the mindsets and actively allowing the next stage mindset to germinate either through next generation family or external professionals is what is required. The family hires external professionals to bring in the mindset and fresh perspective to take the organization to the next level, but ironically, deeply engrained beliefs by owners don’t allow the shift to take place.
Organizations should do critical self-evaluation to test this hypothesis. This may actually give a cue to move stages and related mindset and “consciousness”.
The maximum failures are encountered in the shift from stage 2 to stage 3 (survival to success or commercial to transformational).
A deeper understanding of the organizational stage and related cultural realities can help family businesses to take the right decisions.
It is a Journey
Just as self-awareness is the first step to making any change in an individual’s attitudes and behaviors, awareness of the stage and accompanying predominant mindsets can help owners take an informed decision to initiate transformation, even if it seems conflicting!