Monthly Archives: July 2014

Lessons from a 400-year-old family-owned business

TALK about extreme pressure from the front and back! The corporate world today is changing fast. To survive, firms must be competitive, ready for changes, exploiting opportunities presented by globalization, finding finance when crisis hits, and, generally, must be able to adapt to new challenges more rapidly than ever before in corporate history.

On the other hand, many would assume that a family business can go in perpetuity, parallel with the family and its bloodline. Think about it – can a family business like a family, genetically go on forever given that in today’s climate, it is unlikely that most businesses can have the same business model 20 years from now?

Enterprise longevity vs. business survival.

A recent article in The Practitioner –an online publication of the Family Firm Institute – pointed out the difference between “firm survival over time” (continuity of a family business through the years) and “longevity of a family enterprise” (a family’s ability to create wealth and value over generations).

The Practitioner article – by Pramodita Sharma, the Sanders Professor for Family Business at the University of Vermont’s School of Business Administration – argued that family enterprise success can be defined in ways other than leadership transfer from one generation to the next.

“Both the creative destruction of firms and pruning of the enterprising family are integral parts of longevity of an enterprising family” Sharma wrote.

“Recent reviews of the research on succession, governance, professionalization and performance all point in the same direction — that one size does not fit all and the overarching numbers of ‘success’ are insufficient to capture the complexity and heterogeneity of family enterprises and their pathways to success.”

Surprisingly, however, some family businesses make it much beyond the third generation. One of them, Mellerio dits Meller, is celebrating its 400th anniversary this year.

Mellerio dits Meller is a French jewellery house, founded in 1613, and still active today. It claims to be the oldest family company in Europe. It gives its name to the Mellerio cut, a 57-facet jewel cut, shaped as an oval within an ellipse. Today, Mellerio is based Rue de la Paix, Paris with branches in Luxembourg and Japan.

Mellerio dits Meller has always kept up with the times. The family has in its possession cardboard boxes containing thousands of drawings that trace the evolution of fine jewellery design up to the present day. These records, among the most important in the world, are full of designs of modern jewellery at the time.

Today, they are seen as eternal classics and hallmark of timeless good taste.

Let’s touch a bit of history. In 1613, a young chimney cleaner, discovered a plot against King Louis XIII. When Marie de Medicis was warned of the conspiracy she rewarded Jean-Marie Mellerio and the Lombard community of Paris by granting them the privilege of “peddling cut crystal, hardware and other small goods” throughout the kingdom.

The privilege to cut crystal granted in 1613, renewed successively by Louis XIV, Louis XV and Louis XVI, marked the beginning of the Mellerio family’s jewellery business.

Starting as peddlers of trinkets, they gradually became jewellery-makers to the rich and famous.

Of all of the generations of Mellerios, François Mellerio, stands out among the most important figures in the family’s history. Francois was a true visionary and made the company what it is today, or at least set the foundations for it to develop and become what it was in the 19th century.

“But what is interesting in the dynasty is that each of my ancestors were very different from one other, each one brought his own sensibility,” according to Emilie Mellerio, who for her own part brings “this combination of right brain and left brain,” having trained both in creation and business analysis (Mellerio’s CV includes a six-year stint at LVMH-owned jeweler and watchmaker Zenith.

Her vision for the company moving forward remains service oriented, with the desire to increase the focus on made to order, which until 2004, made up “99%” of the company’s business, versus around 60% today.

Lessons that family businesses can learn:

1. Innovation and creativity
2. Service-oriented
3. Strive to have products that are relevant
4. Empowered next generation leaders
5. Alignment of family and business goals
6. Network

7. Consistency with the 400-year vision of producing the best and most creative product

To quote a 15th-generation Mellerio family member, “There is always a risk being 400 years old; the talk is always about how old we are, but actually the reason we are still alive today is that we kept on being creative the whole time. And we strive to continue to do that.”

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Importance of strategic planning in family-owned businesses

“In peace prepare for war, in war prepare for peace. The Art of War is of Vital Importance to the State (512 BC)”

IT is strategic planning season once again! Usually, strategic planning sessions are conducted during the last four to five months of the year.

According to Wikipedia, strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.

It may also extend to control mechanisms for guiding the implementation of the strategy. Clearly strategic planning—for both business and family—can help to strengthen the family enterprise and extend its lifespan.

Professor John Ward looks at strategic planning as the process of developing a business strategy for profitable growth. It is designed to create insights into the company and the environment in which the company operates. It provides a systematic way of asking key business questions.

Such an inquiry challenges past business practices and opens the way for choosing new alternatives. The result should be a well-prepared strategic plan—usually a written document—that spells out specific steps to improve customer satisfaction, increase profit, and revitalize and prepare the company for the next generation. The plan also states the chosen mission of the business, identifies the direction of future growth, and describes programs that can help to achieve that growth. It thus indicates ways in which the business can compete more effectively.

On the other hand, Jane Hilbert-Davis, founder of Key Resources, an international business consultancy based in Boston, defined strategic planning as simply creating a plan of action. Originally from the Greek roots, ‘STER’ which means to spread out, usually in a military sense, and AG to drive or to lead, the word ‘strategy’ conjures up images of preparing for battle, or competition. It’s different from ‘vision’ which is a future imagined, a hope of how things can be in the ‘farther into the future’ horizon, 10-20 years from now.

A strategic plan describes how you can get there. It’s about making decisions in the present state for the future and usually involves a three to five-year time frame. It is both written and lived. It cannot be pieces of paper stuck in a drawer and forgotten, but must be thought through carefully. It should reflect a flexibility and readiness to whatever the future may bring.

The first efforts of the planner, as he or she begins to intervene, are usually to profile the current situation, using financial, competitive or customer analyses, and to interview the senior managers on what they see as the key strategic issues facing the firm. The interviews often uncover all sorts of family business issues, such as uncertainty about succession, rivalries among family members, and discrepancies between position and performance.

Benefits of Planning

As we have seen, formal planning helps to prevent family businesses from “undershooting” their strategic potential by articulating assumptions and perceptions.

Planning encourages commitment from family members as a part of the process.

It provides techniques that help managers to assess the company’s rate of reinvestment and assure that the business is retaining sufficient cash for a solid future.

The planning process increases business knowledge throughout the company and provides outstanding training for the children who are the successors and future leaders of the company.

Planning provides one other key benefit. Because it requires the participants to answer tough questions about competition and reinvestment, the planning process helps all managers and family members to develop a common understanding—that is, the same assumptions—about the world in which the company operates.

Strategic planning strengthens the ability to share decisions and value orientations.

Both are critical requirements for success in perpetuating the family business. So, in addition to providing a framework for evaluation and choice of a business direction and family goals, strategic planning is a process that prompts healthy communication on critical family business issues. It is also a valuable tool that helps build qualities such as the ability to work toward consensus, team management, and shared decision making. It identifies the fundamental business and family assumptions in a constructive way.

There are many challenges to sustaining a family’s emotional investment in an enterprise from generation to generation. Deliberate strategic planning is one key to success. It helps create motivation that can sustain the family and business through inevitable differences in individual perspectives. Good planning releases energy that the family can use to fulfill the dream of many family businesses: creating and sustaining a healthy family enterprise for the next generation. It is clear that business and family strategic planning promote continuity in family businesses.