Preparing for Change
The strength and dominance of family-owned firms (FOFs) in Asia is a testament to their adaptability and resilience in the face of competition from global multi-national companies (MNCs), government linked companies (GLCs) and local corporates. Management of these firms is characterised by a dominant patriarch or core of family members closely supported by a group of loyal, long-tenured executives who are familiar with both the business and values of the family owners.
This arrangement leads to an efficient, lean management team that works well together and can draw upon years of hard-earned experience to guide decision making and execution. Honed by years of facing down competition, these teams can be formidable business opponents, reacting faster and more decisively to market dynamics than competitors with more matrixed management structures.
Benefits from the close-knit team dynamics are disrupted when (1) management bandwidth is stretched through rapid growth or expansion into new markets (geographic or industry) thus requiring the small core of senior executives to spread their time between business-as-usual and the new initiatives, or (2) leadership succession to the next generation of family members, thus changing long-standing interpersonal dynamics and perhaps cumulating in the departure of key executives. These events herald major change and unless they are anticipated and planned for, the likely outcome is the same – loss of attention to the core business with the attendant risks.
Forward-looking family-owned firms can mitigate these risks through a restructuring of the overall company governance. This needs to be informed by a clear understanding of the family and management bench strength, competitive environment and financial resources.
Our observations of top Asian family-owned firms suggest that the range of governance and organizational options can be illustrated through several archetypes:
Family-led: With strong talent bench strength, a stable, leading market position and robust financial reserves, why change something that is not broken? The focus should be on maintaining execution bandwidth through recruiting and cultivating a pipeline of middle management talent that can be deployed against new opportunities and promoted into the senior ranks for succession or to expand senior bandwidth.
External Management: Recruiting external talent into select senior positions often infuses new ideas and management experience into the family-owned firm, which can provide the impetus for organisational transformation. This also serves as a potent signal of change to investors for publicly traded family firms. In addition, younger family members in the business benefit from the tutelage of the recruited senior executives who will bring a different world view.
Family Holding: Spinning off a business unit into a Joint Venture or Partnership with a MNC brings the complexity of having to collaborate with an external party but also the benefits of global best practices, financial resources and talent. Careful structuring of the arrangement is key to allowing the partner enough latitude to execute its strategy while allowing the family to maintain visibility on finances and performance, and preserve decision making authority on critical topics. Selective secondment of trusted executives and maintaining close rapport between the family patriarch and senior MNC executives will ensure adequate trust and collaboration in resolving any challenges that arise.
Separation: There may be circumstances when it no longer makes sense to operate as a conglomerate and separating the business units is the way forward. While the separation process may sometimes be traumatic, the new business units often benefit from simpler decision making and clearer focus, which are conducive for an acceleration in growth.
Meeting the challenge of change, be it internal or external, starts with a conscious process of self-examination that considers the full range of options and deliberate transformation once the end goal is identified. This is best achieved using a dedicated project team headed by the family itself with the help of sub-teams to cascade the change through the organization. Consider the selective use of external advisors to bring a fresh perspective to the process, help frame the issues, facilitate consensus and maintain project tempo.
Successful companies maintain their relevance and competitiveness by embracing rather than avoiding the challenge. Ambitious owners should likewise view change as the opportunity for your firm to transform and grow beyond the current limits.