Introducing professional management to family business

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

I started writing about family business way back in 1992, the year I started teaching Strategic Management in the MBA program of De La Salle University. The subject was the required final course for all graduate studients. At that time, I wrote that more than 95 percent of businesses in the Philippines were family businesses. The biggest challenge was how to introduce professional management into these types of businesses.

This was three decades ago and a decade later when the technological revolution began accelerating, I wondered whether family business would survive these dramatic changes. After three decades, despite the introduction of artificial intelligence, data analytics, robotics, algorithms and all the other products of the technological revolution, family business has not only survived but has become as widespread as it ever was and the challenge continues to be the introduction of professional management.

In these times of economic and business uncertainties, it becomes more urgent to make the family business globally competitive. However, a prevailing misconception is that professionalizing a family business means replacing family members with non-family members.

Professionalization does not simply mean bringing in outside professional expertise. Professional management refers to the successful melding of professional knowledge, skills and values into the management and organization of a family firm.

It also means running a family business in a businesslike manner and has to include the installation of an accounting system, the use of management accounts, the use of human resource management techniques and the business training of family members. If a company wishes to grow, it should give up on its instinctive management methods and adopt a more professionalized approach, one based on planning and controlling growth through the use of strategic management techniques.

Gibb Dyer Jr. outlined the reasons the family business must be professionalized in an article, “Integrating Professional Management into a Family Business.”

He cites three main reasons for initiating this process. One principal and important reason is the lack of management talent within the family. Family members may lack specific skills in functional areas such as marketing, finance or information management. For the business to survive, the family must acquire such skills. And if the business succeeds and continues to grow, it is highly unlikely that the family will be in a position to staff all the key positions. Out of sheer necessity, the family will either look outside the family for help or attempt to broaden the skills of the family members.

A second reason is to change the personal values of its decision makers and to reengineer the organizational culture. It has been observed that many times family values such as unconditional love and concern often conflict with business values such as profitability and efficiency. Some family business experts believe that the family’s lack of professionalism and the employees’ lack of concern for efficiency and productivity can be changed by indoctrinating the management team to sound business practices or by bringing in professional managers whose values are more consistent with organizational efficiency and productivity.

A third reason for acquiring or developing management expertise is to prepare for leadership succession. The founder or family member considering retirement may feel the family members in the business need additional training before taking on the mantle of leadership. The current leader may even feel no one in the family is capable of running after he is gone.

There are three basic possible options for family business leaders who want to bring professional management skills in their organizations. The best alternative may be a combination of several alternatives.

The first option is to professionalize members of the family. This option entails four conditions which must exist:  family members must show willingness to gain management skills and work in the business; family must feel that the cultural values established by the family need to be perpetuated and that the family is able to make the continuity possible; family must want to continue to own and manage the business; the strategic focus of the business should not be likely to change in the near future.

The second option is to give non-family employees the training and skills that will be needed by the organization in the future. Again, this will be viable in the presence of these four conditions: few, if any family members, are interested in working in the family firm; these non-family members demonstrate the necessary motivation and ability to improve their performance as managers; trust between non-family and family employees is high; family wants to perpetuate family values and to continue the strategic thrust of the business.

In many family firms, the non-family employees are often treated as second-class citizens and given little credit for the success of the business. They are under utilized though they understand the business and the idiosyncrasies of the owning family. Given the opportunity, they can act in ways that will meet family expectations, which means they can play a significant role in growing and developing the business. These non-family members need to be professionalized as well. They may be offered incentives for additional educational opportunities for advancement as well as be given career guidance and career options.  Family members must regard them as equals and offer them benefits usually reserved for family.

A third option is to bring in professionals, especially when these conditions exist: there is little or no expertise, ability or interest on the part of the family to manage the business; there may be a need to change business strategy or family values. Family businesses which have failed to maintain competitive advantage are often in great need of an overhaul. Without outside help and new ideas, such changes cannot take place. Thus, the need for new management expertise.

These measures, if properly implemented and adopted, will allow the management of a family business to be professionalized while still remaining a family business.

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