Management

How to Successfully Manage a Family Business

A Family Business is the product of a marriage or relationship between two separate systems; the family system and the business system. A Family Business is one in which one family owns a controlling interest or the shares of the business. Some examples of well-known Family Businesses are: Toyota, Kellogs, Fiat etc.

Interesting Facts about Family Businesses

• 80% of all businesses in the world are Family Businesses

• 68% of all Family Businesses fail in the first generation

• 16% of all Family Businesses are sold or split up into the family members

• 16% successfully make it to the second generation

How Will You Make Sure That Your Family Business Survives for the "Next Generation?"

• By understanding how a family works

• By understanding how a business works

• By maximising the strengths of a Family Business

• By minimising the weaknesses of a Family Business

• Informing, educating, and training family members

• By planning and implementing activities that harmonise the two systems

Understanding the Two Systems

The first step in understanding the two systems (Family System and Business System) is to recognise that the two systems are different.  Each system has its own:

• Rules and regulations

• Roles for its actors

• Needs

• Goals and objectives

• Rewards and benefits

• Ways of resolving conflicts

• Ways of making decisions

When the two systems exist side by side in one family there are always some who feel a close identity to one system rather than the other.  For example some may feel that the business is there mainly to serve the immediate interests of the family, while others may feel that family members should sacrifice themselves to the business so that the family can advance and prosper.  Because of the fundamental differences between the two systems and the resulting points of view, confusion, misunderstandings and conflict are frequent.  Achieving harmony between the two systems is a difficult task for those who are given the responsibility of managing the Family Business.  To understand the two systems let us look at their different characteristics as presented by three overlapping circles in the figure.

The manager of a Family Business has to find a path which: satisfies both of these systems, avoids conflict and misunderstanding and creatively uses the resources offered by the family.

Improving the Management of a Family Business

1.  Clarify the Ownership (what share of the business belongs to whom)

• Because it reduces the stress caused by uncertainty

• promotes accountability

• motivates the owners

• stimulates a longer term perspective or vision

• provides a transparent basis for the distribution of profits

• identifies the most important persons in the decision-making process

2.  Decide on a Decision-Making Process That is Fast and Effective  Some examples include:

• A single director who make all decisions

• A single director who makes decisions up to certain levels

• A partnership of two or three directors who agree among themselves on a decision-making process

• A simple Board of Directors

3.  There are also many other forms of decision-making

• Define the Roles of the Important Family Members

• Prepare job descriptions that define responsibilities and functions

• Identify who takes over from whom when they are away

4.  Initiate Simple but Informative Reports to be Presented at Family Meetings to Enhance Communications. Including...

• Monthly sales report

• Potential new business opportunities

• Monthly profit or loss

• A report on current problems, etc.

5.  Train Family Members to Become Professionals After Clarifying Their Roles. This can be done through:

• Sending key family members to good schools for the best education

• Having key management attend business training courses

• Delegate key family members to business associations

• Send family members to conferences and on relevant study tours to keep up to date with the latest developments in your sector of business

(Collected by Jim Tomecko, GTZ Team Leader, from different sources)

Recession: 
Does Favorability Exist?

by Santosh Poudyal

Though the trends in business cycles normally come unannounced, there is definite surety that every expansion alternates contraction. Therefore, a transition from expansion to contraction, though undesired, is an inevitable. Therefore market watchers and business people are on a constant look-out for potentialities that exist in the heat of depression. The positive moves from the business people can certainly bring about long-term retention of expansion and early exit from recession.

Almost all businesses can cope with booming economy, but the real challenge comes when economic changes are sudden and unexpected. The firm that can survive the recession develops a strong responsive tendency enabling it to adjust and readjust in any economic climate.

During recession, a firm needs to manage three aspects of business: cash, customer and human resource. Direct impact of recession is readily visible on cash condition of the company. Therefore, managers tend to overemphasize on cost cutting options to a larger extent. But it alone is not enough to deal with recession. The three aspects of business are inter-related to each other and need equal attention. For example, during recession, customer needs to be best served. Establishing oneself as a quality service provider among customers may add to the value of the business by generating and ensuring high sales in future. At the same time, proper human resource management is indispensable for its role in maintaining quality and high customer satisfaction. Since better human resource provides better quality and better quality helps to increase profit, these three factors need equal attention as shown by Marty McGhie in his work Surviving a Recession.

Business cycle will have impartial impact in all sectors of the economy. Hence the effect of recession will be noticeable in all sectors of the economy. That means every sector will equally strive to pull itself out of the situation. As a result, at some point of time, it ultimately helps for industrial growth and eventual revival of the economy, making the recession a short-lived phenomenon.

Certain characters of recession as discussed below make it best period for business.

1.  Cheap resources:

During recession, resources like raw material, human resources etc. will be relatively cheaper. Since the recession will have pervasive impact on all sectors, suppliers tend to reduce the price. Eventually, raw material prices will have significant cutback and unemployment rate will soar thus resources will be plentiful as well as cheap. The low purchasing power of consumers is perfectly matched with low production cost made possible by cheap resource availability.

2.  Lower interest rate:

Recession is basically characterized by loan availability at low interest rates. Due to the economic slump, companies become hesitant to engage in additional capital into their businesses. This becomes more than enough reason for the banks to lower their interest rates so as to make it an attractive bargain for the companies to take bank loan. To make the environment more favorable, government needs to play a key role here. The government must come up with schemes like increase in the spending in development activities, which will help to raise the purchasing power of the people. Now, the lower interest rate becomes an opportunity to investors. If the described conditions exist, it would be unwise if one doesn't opt for further investment. Thus the situation turns in favor of the companies in terms of investment opportunities at low interest expense.

3.  Inactive opponent:

During recession, survival becomes the biggest priority for all the businesses. Therefore competition is less heightened in the situation where the need for economic wellbeing overshadows the need for cutthroat competition. So apparently recession is the best time to bring forth your new ideas out in the open and try to build on them. By proper planning of production and efficient use of the managerial tools, the company can fully take advantage of the inactive opponent.

4.  Assurance of bright future ahead:

Every recession is followed by a boom. Since there will be constant struggle to survive during recession, boom becomes less challenging and easy to cope with. Usually recession will prove to be a platform for infrastructural development and thus boom will demand less of such activities. Hence the company can shift attention towards other more substantial aspects of business when boom arrives.

The consumption of non-durable goods and services does not vary much during different phases of business cycle. Therefore another way to survive in recession is to focus in such businesses. For example the firm that supplies motor parts and provides motor servicing facility can resize its business and concentrate more on motor servicing facility. There are fewer people buying new cars when they have less money at their disposal but regular servicing of their vehicle will always be needed in even at the time of recession. So far as service sector is concerned, some mixed effects can be seen. For example, some of the service sectors like health service, lawyer service, school and colleges are not affected much, whereas travel and trek, hotels are highly affected during recession.

Surely, despite bad times we just need to look for the light at the end of the tunnel. One may think of recession as a bad time for business, but with proper use of managerial tools, it may be just as much profitable as boom.

(Poudyal writes on management issues)

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