Saturday, September 21, 2019
Helping Family Businesses succeed.

Make Sure Family Business Has a Strategy

Keanon Alderson
The Press Enterprise

There is an old adage that says, “Failure to plan is planning to fail.” Many family business researchers agree that one of the main reasons for failed family business successions is a lack of effective decision — and a lack of proper planning. The vast majority of family businesses fail to plan effectively.

One survey showed only 37% of family firms had a strategic plan. This not only shows a tremendous opportunity for family businesses to improve their performance, but also illuminates a need for more effective decision making.

Family businesses that have a strategic plan usually have more effective governance, board meetings, written hiring policies, buy- sell agreements, a formal valuation of company worth, more employees, and are more likely to have selected the successor.

More importantly, they have higher sales and higher international sales as well. These positive outcomes point to the importance of the strategic plan in helping the company manage the business in a more rational and professional manner that can boost business performance, productivity, and effectiveness.

In a recent survey of family business owners by the giant accounting firm KMPG, the following issues and challenges were rated as the most troublesome or important:

  1. Growing profitably
  2. Balancing different interests
  3. Dealing with regulatory challenges
  4. Planning succession
  5. Determining future directions
  6. Exiting by retirement
  7. Establishing professional business management
  8. Selling the business
  9. Managing family relationships
  10. Addressing international growth

One recent survey showed the majority of family firms did not have any international sales which is very surprising, considering the large prevalence of family firms in most industries. Instead, these firms were more concerned with domestic competition, and day to day problem solving. This type of short-term thinking is the result of a lack of proper planning.

There are multiple and deep seated reasons why many family firms fail to effectively plan; conflict, family dysfunction, poor management, and the lack of proper governance tools such as boards, and shared decision making are the most common reasons.

The answer for family firms is to progress through the strategic planning process in a logical fashion.

The business must first perform research on the marketplace, the customers, the competitors, and the suppliers. The strategic planning process includes the development of the company mission, vision, and values, performing an analysis of the strengths, weaknesses, opportunities, and threats (SWOT), development of company goals, strategies, objectives, and action plans, establishment of company targets, organizational review and development of key performance indicators, and a financial plan.

The end result will be a written document that can be updated and reviewed as needed. In the past, strategic plans were commonly forecast for 5, 10 and 15 years into the future.

Now, with the increasingly fast pace of business today, one to five year plans are more common.

It is not easy. Although it is quite possible to write the strategic plan themselves, some family firms hire family business consultants to guide them through the strategic planning process. The proof is in the pudding; research shows having a strategic plan is associated with better performance and an increase in longevity.

Keanon Alderson is an associate professor in Robert K. Jabs School of Business at California Baptist University in Riverside. His book “Understanding the Family Business” was published last year.

He can be reached at kalderson@calbaptist.edu

Source: http://www.pe.com

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