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positionsandthosewho makeupthe shareholdergroup.Manyheirsresistthisasa
prerequisitetosuccessintheirleadershiprole.Theywouldratherjustrunthebusiness
and be judged d by y the e financial l outcomes. . But there e is s ample e evidence that active
leadership of these additional stakeholders s is essential l for success s (as s discussed in
Chapter11).Asaresult,besidesovercomingthenaturalresistancebysuccessorsto
assumemoreandnotlessresponsibility,individualconsultationmaybedirectedattheir
takinginitiativesthroughthefamilycounciltopromotetheengagementofotherfamily
membersincommittees,communityrelations,familyphilanthropy,andboardservice.
D
YADIC
C
ONSULTATION WITH THE
CEO
AND
S
UCCESSOR OR
S
UCCESSORS
The task here is often to help establish a timeline for r the e transfer r of power r while
acknowledging thatsuccession is bestconceived of asa processrather thanan event.
Organization-developmentconsultationmayfacilitatearenegotiationofgoalsandrolesas
thesuccessionprocessdevelopsandthetransferofpowerbecomesmoreimminent.Also
appropriatemaybethird-partycoachingandoversightofthesuccessor-in-development
thatinstillsaccountabilityafterthetransferofpowertothenewCEO.
G
ROUP
C
ONSULTATION WITH THE
F
AMILY
OR
S
HAREHOLDER
G
ROUP
Interventionswiththefamilyorshareholdergroupoftenhelpthemdeveloppolicies
thatguidetherelationshipbetweenabusinessanditsowningfamilyandaimtojointly
optimizeallthreesubsystems:thefamily,shareholdergroup,andmanagement.
Shareholderloyaltyandpatientcapitalareveryimportanttofamilybusinesses,and
yet there is s a a natural tendency y for r suboptimal differentiation between owner and
managerroles.Afamily-participation policymaybepartofadocument,sometimes
calledthe“familycharter”or“familyconstitution,”createdbyfamilyfirmsprimarilyto
regulate the relationship between the ownerand d managementsubsystemsbefore e a
possible leadership p vacuum engulfs s the family y business in n the transition across
generations.
I
NTERGROUP
C
ONSULTATION WITH THE
F
AMILY
AND
N
ONFAMILY
M
ANAGEMENT
Change and d development t approaches s for the e organization here e aim primarily y to
increasethestabilityofthefirmandthefamilybyhavingprofessionalmanagersassume
increased responsibility during leadership succession in the e family y firm. . By y raising
awarenessandpromotingunderstandingofthecriticalroleofnonfamilymanagement
inthegrowthandprofessionalizationofthefamilyfirm,duringapotentiallyturbulent
period, intergroup interventions increase stability. This intergroup work k may y also
clarify the standardsto which managersare held and raise thestandardsfor family
members in the e business. . Recognition of f the different t but complementary y con-
tributionsownersandmanagersmaketotheenterpriseincreases.
Bridginginterventionsbetweenownersandkeymanagerscan enhanceownership
oversightof managementso thatmanagersareheld accountable forcorporate per-
formance and the e pursuit of shareholder interests. Intergroup p interventions s with
ownersandkeymanagerscanalsosymbolicallysupportthetransferofpowerto the
nextgenerationandreassureinvestors(familymembers)thattheenterpriseisingood
304
FAMILY BUSINESS
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hands,evenifthesuccessorCEOisstillintheprocessofacquiringthefullauthorityto
lead.
D
EVELOPMENT OF
I
NTERPERSONAL
S
KILLS IN N THE
N
EXT
G
ENERATION
Thedevelopmentofinterpersonalskillsinthenextgenerationisoftenthesubjectof
consultationonleadershipsuccession.Afterall,inordertosucceed,successorsneedto
earn therespectnotjustofemployeesand customersbutofotherfamilymembers,
often shareholders,who maybeolderorforavarietyofotherreasonshigherinthe
family hierarchy. The incongruence between the family’s s and the e organization’s
hierarchy,thenewnessofthejob,andthenatureoftheparent–childrelationshipall
poseauniquesetofchallengesforeffectiveleadershipbysuccessors.
D
ESIGNING AND
F
ACILITATING
W
HOLE
-F
AMILY
F
ORUMS AND
A
PPRECIATIVE
-I
NQUIRY
P
ROCESSES
Large multigenerational families s sometimes use e a family forum called d a a “family
assembly,”whichiscreatedtooperateparalleltothefamilycouncil.Familyassemblies
includespousesandchildren,and areanothervehicleforeducationoftheextended
family,communication,andtherenewaloffamilybonds.Theroleofafamily-business
consultantfacilitating thisforumisthatofeducator,neutral thirdparty,andshuttle
diplomatwhenappropriate.Familyassembliescreateparticipationopportunitiesforall
family members atleast t once e a year, often n scheduled to o coincide with h the e annual
shareholders’meeting.Thesmallergroupofmemberswhomakeupthefamilycouncil
canworkonbehalfoftheassemblyduringitstwoorthreemeetingsperyearandthen
reportonitsprogressduringtheannualfamilyassembly.
Appreciativeinquiry
5
alsoholdsgreatpotentialasamethodthatenhanceswhole-
familymeetingdeliberationsandthehealthyestablishmentofboundariesinthefamily–
ownership–managementsystem.Inanenvironmentwherethequalityofrelationships
inthefamilyismorelikelytobestrainedastheresultofthecomplexsetofdemands
imposed bymultipleroles,itspositivebiasprovidesasound alternativeto thetradi-
tionaldeficitorproblem-focusedmodelsofchange.Ihavefoundappreciative-inquiry
processesparticularlyuseful duringprecariouscircumstancesthatputsurvival ofthe
familybusinessatriskandaspartofadevelopmentalprocessforfamilycouncilsand
familyassembliesthathadrecentlyconfrontedsignificantconflictorsignificantlossin
thefamilyortheenterprise.
Examplesofappreciative-inquirytopicsexploredbyseveralfamilycouncilandfamily
assemblyretreatshaveincludedthefollowing:
l
“Familyshareholdersareoperatingwithfullinformationandenjoyingfullvoice.”
l
“Thisisatrustingandlovingfamilyenjoyingenlightenedleadershipandthegiftof
awealth-andjob-creatingenterprise.”
l
“Thesaleofthebusinessrealizesshareholdervaluethroughliquidityandcreatesa
positive-sumdynamicfortheextendedfamily.”
5
Barrett,F.J.&Cooperrider,D.L.GenerativeMetaphorIntervention:ANewApproachforWorkingwith
SystemsDividedbyConflictandCaughtinDefensivePerception.In:Cooperrider,D.L.,Sorensen,Jr.,P.F.,
Yaeger,T.F.,&Whitney,D.,eds.AppreciativeInquiry:AnEmergingDirectionforOrganizationDevelop-
ment.ChampaignIL:StipesPublishing,2001.
CHAPTER12 CHANGE
,
ADAPTATION ANDINNOVATION
305
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Thesearchforabrighterfutureamongextendedfamilymemberscancreatea
foundationforsignificantimprovementinafamilybusiness.Inconjunctionwitha
reviewofleadershipsuccession,competitiveandstrategicconsiderations,andthe
governance of the family–business relationship, , it constitutes a a holistic and
respectful approach to increasing the effectiveness s of the complex x organization
calledafamilybusiness.
COMMITMENTPLANNING
Asimpleorganization-developmentmethodhasbeenquiteusefultoleadersofchange
indiagnosingthenatureofexistingcommitmentandthengainingthecommitment
requiredforevolutionofthecomplexfamily-businesssystem.Theabsenceofsucha
commitmentconstitutessomeformofresistance,passiveoractive,tochange.
Commitmentplanningconsistsofidentifyingallkeyindividualsinboththeorga-
nizationandthefamilyandthenaskingthefollowingquestions:
1. Basedonwhereheorshestandstoday,whatisthiskeyindividuallikelytodoabout
theplannedchange?Blockit?Letithappen?Helpithappen?Makeithappen?
2. Inorderfortheprocesstobesuccessful,wheredoestheleaderoftheevolution
needthiskeyindividualtobewithregardtotheplannedchange?Willitoccureven
ifheorsheisblockingit?Ordoesthispersonneedtoletithappen,helpithappen,
ormakeithappen?
3. Whatcantheleaderdotomovethiskeyindividualfromwhereheorshecurrently
standstowhereheorshemustbeinorderfortheplannedchangetobesuccessful?
Itisimportanttorememberthat,inmanycases,alltheleaderneedsfromothersinthe
organizationorthe familyisneutrality,ortojustletthe changehappen.While the
leaderoftheevolutionwouldclearlyprefertohaveeverybodytryingtomakeithap-
pen,thisisneitherrealisticnornecessary.Certainly,somekeyindividualsmayneedto
be prepared to let, help,ormake some e planned d changestake place—for r instance,
changesin dividendpolicymayneedthesupportofamajorityofshareholders,and
majorchangesinthemakeupofthetop-managementteammayneedatleasta“letit
happen”kindofsupportfromtheretiringortransitioningchairmanandCEOofthe
corporation.
INSTITUTIONALIZINGTHECHANGE
Change has often been defined d ascomprising g an n unfreezing g stage, a “making g the
changes”stage,and,finally,arefreezingstage.Becauseevolutionisoftensodifficultto
bringabout,thelastthinganyleaderwantsisretrenchment,oraslidingbacktothe
“oldways”assoonastheplannedchangeeffortiscompleted.
Inordertobeeffective,then,thechangesimplementedduringaperiodofevolution
needtobeconsolidatedandinstitutionalizedinsuchawaythatwhatwasenvisionedasthe
desiredfuturestatebecomesacceptedasthepresentstate.Themostreliabletoolsavailable
forthistaskareorganizationalstructures,ownershipstructures,compensation,dividend
policies,family involvementand employmentpolicies,afamilyconstitution,education,
financial information,and information systems s servingmanagementand d shareholders.
Researchandpractice(asdiscussedinChapters10and 11)haveidentifiedtwogover-
nancebodiesthatareuniquelyqualifiedtoinstitutionalizetheevolutionaryprocessand
306
FAMILY BUSINESS
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provide continued governance of the family–business relationship:(1) frequent t family
meetings,oran ongoingfamilycouncil,and(2)a a board—statutoryoradvisory—with
independentoutsiders.
Leadersofchangeshouldusethesetoolsthoughtfullybutfreelyandinanongoing
fashiontoensurethattheenthusiasmthatwentintotheevolutionaryprocessdoesnot
vanish afterthecampaign is s over.Consistencyaswell l ascompetencyisrequired in
bringingaboutchangeandadaptation.
THEFUTURE:CANTHEFAMILYBUSINESS
COMPETEANDTHRIVE?
In1998,theFollettCorporationfacedthebleakprospectofdisintermediationinthe
industryithaddominateduntiltheadventoftheInternet.Follettwas125yearsold
andmovingtoafourthgeneration offamilyleadership.RankedamongForbesmag-
azine’s200largestprivatelyheldfirms,itconsisted of640 brick-and-mortarcollege
bookstoresandstrongbrandequity,founded onasolidfranchise withcollegesand
schoolsthatpreferredtohavesomeoneelsemanageandoperatetheirbookstores.
Folletthad enjoyed 45 continuousyearsofsalesgrowth.Itdistributed primarily
college,highschool,andelementaryschooltextbooks;audiovisualmaterials;teaching
aidsforeducators;andsystemsandservicesforlibrariesthroughwholesaleandretail
channels.Itserviced its s 640 0 locations s out of one main distribution n center r and d its
corporateheadquartersintheMidwest.Inthelate1990s,newentrantsintheindustry,
whichperhapshadvisionsofbecomingtheAmazon.comofthetextbookmarket,were
challengingthecompany.While lackingFollett’sexpertise,gained through yearsof
experience and customerorientation,they were backed by money from the public
marketandventurecapitalistswhosubscribedtothee-commercevision.Withnoneed
to show a profit,and d with h every y incentive to grow w marketshare e to o support their
stratosphericmarketvaluations,theydiscountedtextbooksbyasmuchas50percent.
TheexcessiveoptimismaboutnewtechnologiesandtheInternethadnotyetpeaked,
asitwouldinMarch2000withnewall-timehighsforNASDAQstocks.
“TheInternethasliterallyshakenandtotallytransformedthevisionandstrategyat
Follett,”saidMarkLitzsinger,thefourth-generationfamilymemberelectedchairman
ofFollettCorporation in 2001.“The immediateworrywas s the possibilityof being
disintermediatedinthedistributionprocess—inotherwords,thatoursupplierscould
godirecttoourcustomers,students,teachers,librariansandschooldistrictswithout
anyneedforus.”
6
Follettwasoneofthefirstcompanies to o establish a“clicksand bricks”strategy.
Faced with a challenge, it launched d eFollett.com to complement t the e reach ithad
alreadyestablished throughits640 stores.Thiswebpresenceallowed Folletttosell
businesstobusiness,businesstoconsumer,andbusinesstoeducation.Buttogetthere,
ithadtoapproveasignificantinvestmentinnewtechnologies.Theproblemwasthat
thismultimillion-dollarexpenditure,asizablesingleinvestmentwithoutprecedentin
thehistoryofthecompany,had notevenbeenbudgeted—suchwasthespeedwith
whichchangehadarrived.
Theboard tookupthe requestofthenext-generation membersofmanagement,
whowantedtobeproactiveinthefaceofacceleratedchangeintheirindustry.Ithadto
6
Author’spersonalconversationwithMarkLitzsinger,September2001.
CHAPTER12 CHANGE
,
ADAPTATION ANDINNOVATION
307
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considerthe risksassociated with theinitiative,as wellasthose associated withnot
actingpromptly.Ithadtoensurethatshareholder,andnotjustmanagement,interests
werebeingaddressed.Familyshareholdershad toconfirmastrategicconsensusand
commitmenttothestrategybeforethecompanycouldmoveahead.
Quick approval by y the e board of directors led d to rapid d implementation of the
e-commerce initiative. In n short t order, , Follett had the premier college bookstore
website,wherestudentsandteacherscouldorderalltheirtextbooks,readingmaterials,
andlogowear.
AGILITYINTHEFACEOFCHANGE
Itoftentakesaboldvision,craftedoutofasenseofurgencybythenextgeneration,to
spurrapidaction toward change.Thenextgenerationisoftenmostsensitiveto the
needforchangeimmediatelyafterassumingleadershipfromthepreviousgeneration.
Awarethatthecompetitiveenvironmentdoesnotholdbackoutofrespectforthehard
workdonebyapreviousgenerationofowner-managers,next-generationleaderstake
thebatonandrun.FollettCorporationwasawinnerpreciselybecauseitappreciated
thecompetitivestrengthsthathadledtoitssuccesswhile,atthesametime,attending
tothe need forchangeposed by newcompetitiveconditions.Confronted with the
challengespresented by y e-commerce, , Follett did d not t choose e to sell out, turning g a
successful company into an investment vehicle for r the owning family. Nor r did it
abandon its“bricks”infavoroftheInternet.Instead,whenfacedwithcompetition
fromweb-basedcompanies,itintelligentlyadded“clicks”toitschannelstrategyand
thusretainedcontrolofitsmarket.
Theuniqueand sustainablecompetitive advantagesfamilybusinessesoftenenjoy
can serve them well in competition against larger r and d often better-capitalized
management-controlled firms.Theirspeed and flexibility,long-term strategies,stra-
tegicfocusonsomewhatprotectedniches,customerorientation,frugality,andpatient
capital in the presence of practices s that safeguard d trustand family unity constitute
advantagesthatarenoteasytoreplicate.
Thedot-comsthatmadeheadlinesinthelate1990swerepursuingstrategiesthat
wereintenselydigital.Butasaresultof allthecashgenerated byinvestorswithan
appetitefordigitalcompanies,theyweremorefocusedonraisingequitycapitalthanon
satisfyingcustomerneeds.Giventheabundanceofreadilyavailableinvestmentcapital,
afocusoncreatingvalueforcustomersseemedarchaicandirrelevant.
Ofcourse,theenthusiasmfortechupstartsdidnotsuspendthelawsofeconomics
forlong.Othercompetitiveadvantagesrootedinunique(non-Internet)organizational
capabilitiessoondemonstratedtheircapacitytomakeadifference.Asaresult,many
familybusinesses—eventhoseatthecrossroadsbetweengenerations,whichoftenare
matureand/ordecliningbusinesses—gotanopportunitytoreinventthemselvesand
setoutonanewgrowthpathforthenextgeneration.Someofthesecompanies,like
Follett,consolidatedtheirtraditionalstrengthsandthenrejuvenatedthecompanyby
reengineering the processes thathelp them integrate their suppliers and d their cus-
tomerswith thebusiness.By implementing newdigital strategies,they added value
throughchannelssuchase-commerce.
Other family businesses (like Cemex, which h is s discussed d later in this s chapter),
investedinpeopleandorganizationalcapabilitiessoastoconsolidatetheirrelationships
withtheircustomers andreinforcetheir high h level ofservice and customer-support
orientation.Bytakinguniquesteps,leadersofthesebusinessesguidedtheircompanies
308
FAMILY BUSINESS
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to the lower r right-hand d and upper right-hand d quadrants s in the matrix shown in
Figure12.3,therebyreinvigoratingtheirbusinessandimprovingitscompetitivefitness
throughvaluecreationforcustomers.
COMPETITIONANDVALUECREATION
AsdiscussedinChapter6,family-ownedcorporationscancreatecompetitiveadvan-
tage by adopting a unique combination of seven sources of value—physical l assets,
financial resources, product price/performance, , brand d equity, , organizational l capa-
bilities,customer–supplierintegration,andthefamily–businessrelationship.
The capacity y of family businesses to deploy a a unique combination n of assets s or
competenciesinordertogainacompetitiveadvantageisrootedintheuniqueprofile
ofafamily-controlledcompany.Positiveinteractionsbetweentheowningfamilyand
thebusinessmakecertainstrategiesandmanagerial practicesmorelikely,lesscostly,
andeasiertoimplementandsustainovertimethantheywouldbeinlarger,nonfamily
companies. When this positive, unique family–business interaction contributes to
patientcapital andinnovativestrategiesand supportscontinued customerfocus,the
enterprisingfamilyendsupwithabusinessthatisbuilttolast.
TAPPINGTHENEXTGENERATION
Overthegenerations,youngerfamilymembershavetendedtobemorefascinatedby
andmoreinclinedtoacceptnewtechnologiesthanhavetheirolderrelatives.Members
ofbusinessfamiliesarenoexception.Iftheirchosenprofessionismanagement,next-
generationmembersaremuchmorelikelytowanttoengageinstrategicplanning,to
redesigninformation/financialsystems,andtopursuenewproductsande-commerce
opportunities.Donext-generationmembershavetomigratefromthefamilybusiness
figure
12.3
TheBusinessRejuvenationMatrix
Degree of Customer Focus
Enterprising Businesses
Business Reinventors
Dot-Coms
Mature, Declining, or
Cash-Cow Businesses
Degree
of
Innovation
100%
0%
100%
SOURCE:AdaptedfromSlywotzkyA.,&Morrison,D.,HowDigitalIsYourBusiness?NewYork:CrownBusiness/RandomHouse,
2000.
CHAPTER12 CHANGE
,
ADAPTATION ANDINNOVATION
309
toaFortune500companyinordertopursuetheirdreams,orcantheirskillsandvisions
beusefullytappedbythefamilyenterprise?
Thebusinessreasonsforwelcomingthenext-generation’sideasisthattheircom-
plementaryskillsandperspectivesarepreciselywhatthefamilybusinessoftenneedsas
it struggles to update e itself f to o continue e to create value for its customers. . Sidney
PrintingWorksinCincinnati,Ohio,isacaseinpoint.Insteadofdashingofftowork
fororstarttheirownonlinecompany,fourth-generationfamilymembersjoined the
familycompany andprovided thefirmwith the skillsitneededtobecomeastrong
contenderinthenewcompetitivereality.Inadditiontoprintinglabels,signs,maps,
andproductliterature,SidneyPrintingWorkscouldnowassistcustomerswithweb
materials,help themsubmitdesignsdigitallyforproduction in multiplemedia,and
customizeandarchivethosedesignsformultipleenduses.Anacknowledgmentofthe
valueoftheinnovationscontributedbythefourthgenerationwasthecreationofanew
businessunitcalledSpringDot,Inc.
7
Indeed,ifthereisadisagreementworthhavinginafamily-controlledcompany,itis
thedisagreementaboutvisionandfuturedirectionforthefirm.Implicitinthediffi-
culty of conversing aboutthisissue across generations is thetension between fully
appreciating and d respecting g whathasmade e the e business successful l so far and d fully
acceptingthatchangeisunavoidable.Leadersmustrecognizethatunlessthefirmis
willingtocreatethevarietyrequiredtothriveinthepresenceofacceleratingchange,it
willbeovertakenbythecompetitionandeventuallydriventoextinction.TheFollett
Corporationboardofdirectors,forexample,realizedthatthiswastheissueatstake.
Of coursethe disagreementcould conceivablybecome morea battle of egosor
power than n a a legitimate e difference e of opinion regarding the best strategy for the
continuedsuccessofthefamilyfirm.Keepingthedisagreement“ontask”istherefore
of the e utmost importance. . A A recent disagreement t between n a a father and d a son at
CablevisionSystemshasbroughtalotofconsternationto familymembersandnon-
familyshareholdersinthefamily-controlledfirm.Cablevision,basedinBethpage,New
York,hasannual revenues s of$5 5 billion and employsabout20,000people.Besides
offeringcableservicetoapproximately3millioncustomersinandaroundNewYork
City,itownsMadisonSquareGarden,theNewYorkKnicks,RadioCityMusicHall,
andRainbowMedia,acablenetworkunitknownforitsBravo,Classic Movie,and
IndependentFilm channels. Butthe issue thattook center stage atCablevision n in
January 2005, was a disagreement t in n the boardroom m between Charles s Dolan, 73,
chairmanofCablevision,andhissonJames,45,presidentofthecompany,overVoom,
theirsatelliteoperation.Voomhadlost$661millionin2004aloneandJameswanted
to prevent t continued d red ink k by selling the satellite e assets. . The board agreed,but
Charlesdidnot.Heconsideredtheprospectsinsatellitemuchbrighterthanincable.
The tension between these two leaders remainsand d hasmade e other corporate ini-
tiativesdifficultandrelationswithshareholdersanightmare.
Butthistensionisnotnew,anditisnotexclusivelyaproductofe-commerceornew
media. As discussed in Chapter 5, when Samuel Curtis Johnson III was a young
chemistworkingin the company’slab,hetriedto convincehisfather,HerbertFisk
Johnson,thathehadtheformulaforabreakthroughproduct—aninsecticide.Hisidea
wasrebuffedon severaloccasions,becauseofHerbertFiskJohnson’sbeliefthatthe
companyshouldsticktothewaxbusiness.Afterseveralmoreattemptstoconvincehis
7
Callison,J.,AFamilyLookstotheFuture,TheCincinnatiEnquirer,June13,2001.
310
FAMILY BUSINESS
father of the invention’svalue—and d notoblivious s to o the oft-repeated words s ofhis
father,“Remember,son,weare awax company”—young SamuelCurtisreportedly
addedatinyamountofwaxasaninertingredienttohisformulationfortheinsecticide.
Thistimehe receivedthego-ahead forhisnowwax-basedproduct.SCJohnson:A
FamilyCompanygrewfrom$171millioninannualrevenuesto$6billion,withthe
lion’sshareoftheprofitsandmuchofthecapitaltoreinvestingrowth,comingfrom
thenewinsecticideproductsRaidandOff!
THRIVINGTHROUGHCOMPETITION
Competition today is all about t procuring and d deploying g new w products and new
product/servicecombinationsinnewsupply-chain channels,includingtheInternet.
Businessesareeffectivelycreatingnewarrangementsandnewlinksinthevaluechain
daily.Almosttwodecadesago,glimpsesofthisdevelopmentcouldbegleanedfroman
influential article in theHarvard BusinessReview,which reported on three family-
controlled companies s that operated on n a a high-trust t model supported by y detailed
procurementandinventoryreplenishmentpolicies.Thesefamilybusinesses—Milliken,
LeviStrauss,andDillard’s—agreedtoupdateandcoordinatetheirprocessesinorder
toincreasethevalue-addingcapacityoftheentirechain.Theelectroniccoordination
washandledthroughanelectronicdatainterchange,orEDI,system.
8
Faced withincreased competition andsmallermargins,thecompanieswanted to
reduceoverallinventoriesandinventoriesofobsoleteitemsandtheirassociatedcosts,
increaseinventoryturnovers,andstillhaveproductsavailableforcustomers.Theidea
was to have e Dillard’s s immediately and automatically update the e number r of stock-
keepingunits,orSKUs,inthechain.InformationaboutthepurchaseofapairofLevi
StraussbluejeansinanyDillard’sstorewouldberecordedatthecashregisterandthen
sentviatheEDInetworktoLeviStraussandMilliken,whichwouldproceed,basedon
agreed-uponreplenishmentpolicies,tomanufactureadditionaljeansandfabricforjean
production,respectively.
Cemex,afamily-controlledcompanyfoundedin1906inHidalgo,Mexico,isthe
largestcementcompanyintheUnited Statesandoneofthetopthreeproducersof
cement worldwide. It has reengineered d internal l and customer relations processes
through CEMEXNET.Thisdigitalnetwork,coupled with thenewworkforce skills
neededtomakeitworkandanewlogisticsinfrastructurewithsmallerdecentralized
plants, have enabled d thecompany to reduce the timeneeded to deliver r cementin
traffic-congestedMexicoCityfrom3hoursto20 minutes,onaverage.
9
Becauseits
customers,usuallygeneralcontractors,facetremendousunpredictabilityintheirwork
schedulesfromsourcestheycannotcontrol—forexample,environmentaland work-
place regulation by the government, weather conditions, union n requirements, and
trafficcongestion—theyappreciatethereliability andshorterleadtimesthatCemex
canofferthem.Decreaseddeliverytimesallowcontractorstoplaceanorderforcement
onlywhentheyneeditandstillnotleavecrewsidle,therebyreducingtheircosts.For
itstrouble,Cemexisrewardedwithahighersellingpriceforitscementandready-to-
mixconcreteandreturnsoninvestmentthataredoubletheindustryaverage.
8
Abernathy,F.,Dunlop,J.,Hammond,J.,&Weil,D.,AStitchinTime.NewYork:OxfordUniversityPress,
1999.
9
Slywotzky,A.&Morrison,D.,HowDigitalIsYourBusiness?NewYork:CrownBusiness/RandomHouse,
2000.
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ADAPTATION ANDINNOVATION
311
BecausethisorganizationalcapabilityisnowembeddedinCemex,thecompany
hasbeenabletoacquirecompetitorsthroughouttheworldandquicklyrealizegains
from implementing a digital strategy y that t allows these plants to achieve better
returns. Cemex x manufactures and d distributes s cement in 30 countries and d sells
cementin60others;worldwidesalesreached21.7billionduringthefiscalyearthat
endedJune30,2008.Ifanasset-intensive,low-marginbusinesswithslowgrowth
ratesandahighlycyclicalmarketdemand candoit,otherfamily-controlledcom-
paniescanaswell.
ORGANICCOMPETENCIESANDTHE
BUSINESS’SFUTURE
Family-ownedcompaniesseldom enjoya comparative advantage overtheirpublicly
tradedcounterpartswithregardtophysicalandfinancialassets.Asourceofvaluethat
family firms have more e traditionally commanded is a a unique e set of f organizational
capabilities—people,skills,andsystems—that,in combination,mayproducehigher-
qualityproducts/services,quickerresponsetimes,deeperrelationshipswithcustomers
andsuppliers,moreagilecustomization,andlowertotalcosts.
Innovatingthroughnewdigitaltechnologiesisanotherstrategythatmayopennew
arrangementswithinthevaluechain,suchasthatdevelopedbyMilliken,LeviStrauss,
andDillard’s.Familycompaniescanrestructure channel dynamics,takeonstrategic
partnersinthevaluechain,andgetclosertotheendcustomerinthisway.
Product/serviceperformanceandreputationalsohavebeenadifferentiatingfeature
ofmanyfamily companies.Overtime,a product’sorservice’sperformance creates
brandequity,whichhasbeeneffectivelydeployedbyfamilybusinesses,includingsuch
well-knowncompaniesasMarriott,Kohler,Hallmark,Cargill,TheWallStreetJournal,
Nordstrom,andTheNewYorkTimesintheUnitedStates,andHermés,Roca,Deusto,
Osborne Wines, , El Nuevo Día, , Grupo o Femsa, , Harrod’s, W.L. Grant t (makers of
Glenfiddich),Toyota,andBMWinothercountries.
Sony(whichisnotafamilycompany)providesagreatexampleoftheimportanceof
brand equity to o acompany’s growth h and continued competitiveness. . To o his s board
members’ consternation,ononeofhisfirsttripstotheUnitedStatesAkioMorita,
representing the Sony y Corporation, , turned down an order r from Bulova Watch
Company’spurchasingagentbecausetheagentinsisted thatthetransistorradiosbe
branded Bulova.Althoughtheboard advised himto taketheorder,Moritainstead
committed to several smallersalesofproductsthatwould bebrandedSony.Atthe
time, Sony was an n unknown n brand d in n the e United States—butitsname would not
remainunknownforlong.Yearslater,Moritacelebratedthisdecisionashisbestone
duringhislongandsuccessfulcareeratSony.
Mostintangibleassets,suchasbrandequity,caringandskilledemployees,andcom-
mittedownership,aredifficulttoreplicate.Thus,theyofferfamilycompaniesagreater
probability of sustainability over time. (See Table 12.4 4 for a listof f potential l organic
competencies.)Butnothinglastsforever,sothetopmanagementoffamilycompanies,
withtheassistanceoftheboardofdirectorsoradvisoryboard,shouldreviewcompany
strategyannually toensurethatchangesinthefirm’scompetitiveenvironmentarenot
renderingorganiccompetenciesuselessincustomers’eyes.Onlythecompetenciesvalued
bycustomerscanprovidethefamilyfirmwithcompetitiveadvantages.
312
FAMILY BUSINESS
“INTERPRENEURSHIP”:
INTERGENERATIONALGROWTHIN
ENTREPRENEURIALFAMILIES
Intergenerationalentrepreneurialactivity,orinterpreneurship,wasthesubjectofmy
first book k on n family y business. Smart Growth: Critical l Choices s for Family y Business
Continuity (firstedition,Jossey-Bass,1989)argued thatinterpreneurship keepsthe
family-controlledcompanyyoungandprovidesentrepreneurialopportunitiesfornext-
generationmembers.
10
Interpreneurshipisoftendrivenbynewproducts,product-line
extensions, new markets for existing products, exports,jointventures, or strategic
allianceswithothermembersofthevaluechain.
Intergenerationalgrowththroughentrepreneurialactivityimprovestheoddsthatthe
familyenterprisewillcontinueacrossgenerations.ButasintheCablevisionstorydiscussed
above,disagreementsaboutvisionoftenmakethiskindofgrowthadifficultproposition.
AnsweringthequestionsinTable12.5canhelpanext-generationleaderdeterminethe
familybusiness’spotentialforintergenerationalgrowthandhisorherroleinit.
Growthforitsownsake,withoutauniquestrategytosupportthegrowtheffort,is
tobeavoided.PuttingaproductthatcreateslittlevalueforcustomersontheInternet
orin anothernewdistribution channelonly glorifiesan undifferentiated product;it
doesnothingtoimproveitscompetitivefitness.Justsuchanapproachledtothetragic
fateofmanyonlinebusinesses.Toysandgroceriesarecommodities;theInternethas
notchanged that.Agrowthopportunity needstobesupported bycompetitiveand
economicfactorsthatcombinetocreatethemostvalueforcustomers.Onlythenwill
family-businessshareholdersbeabletoshareinthevalue-creationprocessbyenjoying
greaterreturnsontheirinvestedpatientfamilycapital.
table
12.4
PotentialOrganicCompetenciesofaFamilyCompany
. Uniqueoridiosyncraticorganizationalcapabilities:people,skills,andsystems
. Customer–supplierintegration:relationshipsandsystems
. Product/servicepriceandperformance
. Brandequity:reputation
. Concentratedownershipstructure
. Familyunityandbusinessopportunity
table
12.5
FocusingonIntergenerationalGrowth
. Howcaninnovationbeexploitedtoofferagreatervaluetocustomers,createabetter-
functioningorganizationforemployees,andgeneratebetterreturnsforshareholders?
. Whatinthenatureofthefamily–businessinteractionmayrepresentauniquecorecompetence
thatcanbeturnedintoacompetitiveadvantage?
. Whatwillbethecompany'snextunique,differentiatedvaluepropositionforthecustomer?
. Whatcanthenext-generationleadershipdotoconvincetopmanagementand/ortheboardof
directorstofinanciallysupportthisunique,differentiatedvalueproposition?
10
Poza,E.,SmartGrowth,CriticalChoicesforFamilyBusinessContinuity.Cleveland,OH:University
Publishers,1997.
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313
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