Monthly Archives: August 2016

A business goal and a compelling strategy

“Everything you do now is for your family business’ future.”

I LOVE this line from an online quote: Give a man a bow and arrow and tell him to shoot and his first response would be, “At what?”

When there is no target, there is no purpose for shooting.

On the other hand, if you gave the archer a target and challenged him to hit the bullseye, everything changes. You now gave him something to aim at, something to challenge his skills against, something to measure his progress with, and something that gives all of his effort purpose. All by adding in a simple target.

The goal of strategy is to describe how and why the company is going to achieve its goals and objectives and to that end, the company must ensure that its strategies are aligned.

According to a research paper by John Ward, co-founder and principal of The Family Business Consulting Group, Inc., the term “strategic planning” typically refers to 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.

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 Greek words, “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 to 20 years from now.

A strategic plan describes how you can get there. It’s about making decisions in the present 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.

Analyzing the critical 3s

As a strategic planning facilitator, my initial efforts as I begin my intervention is to profile the current situation using financial, competitive or customer analysis, 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.

Strategy is the result of relevant research and analysis, as appropriate; and synthesizing the parts into a cohesive unit to develop a Strategic Plan. If you want a plan that will cover three years, my advice is to formulate a strategic plan. If you want to phase your plans and not “rock the boat” due to the conservative nature of the family members, you may opt to explore starting with formulating a business plan. The latter is an action plan covering 12 months.

But actions taken alone are just tactics.

Compelling strategy

For the family business to survive and grow, its marketing strategy must be compelling and competitive.

Marketing strategies should identify customer groups the company can serve better than its competitors and tailor its product offerings, prices, distribution, promotional efforts, and services to those target market segments. Good marketing strategies help the company concentrate its efforts on the markets it can serve best.

It is crucial that the compelling strategy takes into account all aspects of the company, so that the whole organization (and the executives) to quote Julie’s CEO, Opep Gandionco, “rides one bus” and proceeds in the same direction with the same purpose.

In the end, the company’s strategy is more likely to yield positive results if all employees understand, embrace and buy into them.

Watching out for the 3C’s

BOSTON — What do large family-inspired business conglomerates like the SM Group, Unilab, Jollibee, Ayala Corp., JG Summit andAboitiz Group have in common?

Every year, around the third quarter, the business unit heads of these companies are busy finalizing pre-strategic work plans for 2017.

Multinational corporations (MNC’s) are also abuzz with dedicated calendars all pointing to their much awaited strategic planning calendar.

ASEAN business advisors like us consider August to November as our busiest and most punishing four months facilitating strategic sessions in the region. August and September alone will take me to five countries! Work is more fun than fun.

Strategic plan as your compass

Most business owners or managers recognize that a strategic plan is a directional map for where their companies are headed and how they intend to get there. However, it is much harder for them to understand what goes into the strategic planning process. Why? Family business leaders belong to a transactional culture, meaning a very selling-oriented environment where the only discipline they know is sales and more sales year-in and year-out. To them, strategic planning sessions are a waste of time and will not result in any concrete and visible result in the immediate term.

Businesses must watch out for the 3Cs and the Real C

When doing Strategic pre-work planning, you must always focus on the three main C’s–competition, competitive advantage (company) and customers. But due to the volatility of the market, I deem it imperative to incorporate another C: complexity. The borderless competition and the complexities of the market have made strategic planning very crucial.

The latter is best done when a company looks at its past, present, and future in light of its changing environment. It is the process of thinking about the company and its related environment as an integrated whole. A process during which an executive “planning team” is organized to consider three key questions on a continuous basis:

What is our business?

Where do we want to go, and when?

How do we get from here to there?

Strategy is a continuation of a long-term plan of action designed to accomplish a desired set of goals. Your strategy relates to why and how your plan will work, relative to all the influences upon your company and its activities (in particular, its customers and competitors). I have seen throughout many consulting engagements that something has been missing.

Managing a family business is tough

A successful business is often the best thing that can happen to a family – and the worst.

“Keeping a family business alive is perhaps the toughest management job on Earth,” says John Ward. But without a clear management strategy, things could get even more awry for everyone – from the family patriarch who heads the business down to its members and staff.

It all starts with a vision you have for your company. Is that vision still relevant? Is it being accurately and concisely communicated throughout the company? If not, the outcome can be far from what you envisioned.

Vision Mission Values (VMV)

Jack Welch of General Electric fame accurately points to VMV as a powerful starting point and he says, “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”

While reading this article, why don’t make a review :

1. Vision – Is the original vision still appropriate in terms of market trends, opportunities and threats?

2. Re-energizing – What is the best management structure for the future, especially in terms of outside advisers and non-family managers?

3. Values – Do the values, skills and ambitions of the next generation in the family match their wishes, abilities and views?

4. Continuity – What is the company ethos, family involvement and how are decisions delegated?

5. Governance – What strategies can be adopted by which the family can resolve conflict?

6. Resources – What actions, support and resources are required to maintain the business into the future?

For instance, if you plan to expand to another territory or introduce a new product or upon the prodding of your son (working in the family business) launch a social media marketing campaign to appeal to a broader, younger, Internet-savvy audience, did you initiate some form of survey for your marketing team whether they are familiar with social media?

How about your sales team? Do they have the experience in generating online leads? And most importantly, does your product make sense for this new audience?

To be continued…

Learning from the demise of the Cosmos empire

“Today is hard. Tomorrow will be worse, but the day after tomorrow will be sunshine.”

NEW YORK – When confronted with a crisis, it’s all about preparing for the future says, Jack Ma, Alibaba founder.

Family-owned and closely held businesses endure or die out depending upon how effectively they plan for the future. Similarly, even small and medium-sized family businesses must respond to a crisis. No company or family can escape some crisis at one time or another.

What is a crisis?

It’s any unplanned event, occurrence or sequence of events that family businesses have not had to deal with before. A crisis might be external to the business,-an economic downturn, a calamity, and earthquakes-or internal such as the death or disability of the founder, workplace violence, product failure or management failure.

Whatever the cause, the key to survival is planning way ahead and the ability to “take the long view”. The irony is that the very definition of a crisis is that it is an event that can’t be fully planned for. However, there are things you can do.

Prevention is best. Preparation is better.

Evaluate the ways in which your family or company are most vulnerable to a catastrophe. Identify possible risks and what can cause them. Any company should have an internal ‘alarm system’. Pay attention to the warnings. A patriarch suffering a stroke and given six months to live, like in the case of Henry, would have given the family sufficient time to transition and prepare the process for a leadership change.

The Cosmos family’s failed succession plan after the untimely demise of its patriarch, Henry Wong, is a valuable lesson for family business leaders to prepare for the worst case scenario.

Cosmos patriarch should have prepared a succession plan early on.

Without a clear succession plan, many businesses fail after the original owner passes away. The key is to plan well ahead. Succession is a long-term complex process, not a one-time event.

Business leaders must think what his or her long-term goals and objectives are, both in business and personal terms. They must ask themselves many questions before they even begin to consider the actual process of transition, such as whether they will play any active role in the company’s future operations, how the transition or even sale will affect the employees, customers, suppliers, and other stakeholders in the company.

The criteria must be made very clear, including the qualifications of the successor, to whom ownership of the business will go to, exactly when that will occur, and under what conditions.

Planning for the sudden death of the leader/owner of the company

As the saying goes, “Failure to plan is planning to fail.” Founders of companies that don’t plan can cause financial as well as emotional chaos in the company they have nurtured and spent their lives on. I have listed the following immediate steps when confronted with the warning signals. For SMEs with 100 percent or majority family ownership, you can also simplify the process:

Create a family council or an executive leadership team who will meet with advisors and stockholders. Decide who will be the leader albeit interim for the team.

Develop a written document describing who does what and what is to be done. For companies with many shareholders, it is better to prepare a corporate management statement that includes the following:

Guiding philosophy: What overriding principles of your business are important for your successors to continue?

Interim structures: How should the company be managed, the family organized around it and ownership handled in the interim and in the future?

Direction and outside support: Who should be involved in determining key issues related to company direction, and how should that input be organized?

Benchmark: What metrics, or key success factors, need to be monitored—and what should those benchmarks be?

Location of documents: Where do you keep the important personal and business documents that will be needed in handling that transition?

Appoint a family spokesperson or lead communicator with your customers, suppliers, banks, and other stakeholders to give assurance that it’s business as usual. Articulate the truth and tell it fast with openness and consistency, realistically upbeat and reassuring.

Involve the stockholders, board, executive management team and family to put into operation the plans that were made before the leader’s death.

It is better to incorporate in the plans the succession programs and the estate plan.

Keep your plans current and review them regularly.

The short life of family enterprises

FAMILY-OWNED enterprises (FOE) constitute the world’s oldest and most dominant form of business organizations.

According to Prof. John Ward, in many countries, family businesses represent more than 80 percent of the overall businesses.

It is also a fact that most family businesses have a very short life span beyond their founder’s stage and that some 95 percent of the family businesses do not survive the third generation of ownership. This is often the consequence of a lack of preparation of the subsequent generations to handle the demands of a growing business and a much larger family.

Strengths of family businesses

Several studies have shown that family-owned companies outperform their non-family counterparts in terms of sales, profits, and other growth measures. This high performance is the result of the inherent strengths that family businesses have compared to their counterparts. Some of these strengths include:

Commitment. The family as the business owner shows the highest dedication in seeing its business grow, prosper, and get passed on to the next generations. As a result, many family members identify with the company and are usually willing to work harder and reinvest part of their profits into the business to allow it to grow in the long-term.

Knowledge continuity. Families in business make it a priority to pass their accumulated knowledge, experience and skills to the next generations. Many family members get immersed in their family businesses at a very young age. This increases their level of commitment and provides them with the necessary tools to run their family business.

Reliability and pride. Because family businesses have their name and reputation associated with their products and/or services, they strive to increase the quality of their output and to maintain a good relationship with their partners — customers, suppliers, employees, community, etc.

Why do family businesses still fail?

Indeed, about two-thirds to three-quarters of family businesses either collapse or are sold by the founders during their own tenure.

Only five to 15 percent continue into the third generation in the hands of the descendants of the founders.

This high rate of failure among family businesses is attributed to a multitude of reasons. Some of these reasons can be due to the state of the industry or some external event like the regulatory environment or the economy. But clearly, the real danger points to the three major issues below:

Complexity. Family businesses are usually more complex in terms of governance than their counterparts due to the addition of a new variable: the family. Adding the family emotions and issues to the business increases the complexity of issues that these businesses have to deal with. Unlike in other types of businesses, family members play different roles within their business, which can sometimes lead to a non-alignment of incentives among all family members.

Informality. The family tries to do it all and there is usually very little interest in setting clearly articulated business practices and procedures. As the family and its business grow larger, this situation can lead to many inefficiencies and internal conflicts that could threaten the continuity of the business.

Lack of discipline. Many family business owners especially the next generation members who have never experienced struggling to survive have this sense of entitlement and often times do not pay sufficient attention to key strategic areas.

While many businesses that are owned and managed by families recognize the importance of ownership and management transition, “few know where and how to start in developing a governance and succession plan.”

For advisors out there, the key is to challenge FOEs to pursue governance and succession. Doing so will improve their odds of survival.

End of the Cosmos family business: Where did it go wrong?

I AM back in Manila after a dizzying week of family business coaching work mixed with several conference talks related to governance and business strategy. How I wish there was another day between Saturday and Sunday!

This half year alone, I have been a witness to so many family owned enterprises (FOEs) in Asia groping in the dark on how best to start the governance process. Most of these FOEs are facing challenges in working through their ownership and management transition.

Some would ask the extent of my coaching work in the Asia Pacific, but modesty aside, it’s really not rocket science. It is more of a series of interventions where my goal is to equip visionaries, next generation owners, in-laws and other stakeholders with the tools necessary to ensure their companies’ success and survival.

My role as a family business coach

In a more detailed form, my role is to provide family members a clearer perspective on what option the family business will operate. Will it be business first or family first? Second, I help define the roles and responsibilities of owners, directors, board chairs, the executive team and the family council. This particular task introduces corporate governance amongst family members working in the business.

The third task is to educate family owners by highlighting the importance of aligning and perpetuating the family and business values. These values when embraced by family members will be the glue that will harmonize relationships amongst family members.

My fourth and last intervention is to create clarity and build trust among family owners through governance and ownership. The latter requiring a process of documenting agreements covering family, business and ownership governance.

When all of these four areas are covered and the family members are fully compliant, then I happily exit from the engagement and move on to help the next family business.

Death of the Cosmos patriarch

Such is not the case with the Cosmos Group. The patriarch of the Cosmos Bottling empire, Henry, suffered a stroke due to a malignant tumor in his brain and left him incapacitated until he died a few months after. He was 53.

According to his eldest son Danny, the death was the main trigger leading to the collapse of the mighty Cosmos Group.  But the much bigger issue was the unpreparedness of the family to handle the death of the patriarch, the dynamics of having family members and different branches working in the family business and managing the transition/succession process to the third generation. Henry’s death created that leadership void in the organization.

RFM acquires Cosmos

In Danny’s own words regarding the sell off, “Cosmos was sold for the wrong reasons and for the wrong price!”

The eventual transfer of ownership to the RFM Group concluded the end of the Wong family’s ownership of the Cosmos Bottling Company after only three generations.

Danny went on to pose several regretful questions with the hope that FOEs currently facing their own internal conflict must continue to be determined and unyielding in pursuing governance. No matter what the challenges are, every family member must seek ways to promote harmony.

Where did we go wrong? Why didn’t we see the signs? What should we have done? What can we do? Who can help us?

In my conference talk last week, I purposely highlighted studies that addressed the inevitability of the death of the patriarch and the numbers are alarming. Most family enterprises are highly dependent on their current leader – as much as 80 percent of the business.

But major leadership change in family businesses is forthcoming:

Forty percent of family business leaders will retire in the next five years.

Twenty-eight percent will retire in six to 10 years.

Twenty-two percent will retire in 11 to 15 years.

To this day, most have no contingency plan covering the death or the disability of their leader and only 29 percent have a succession plan. Family business owners see the generation of wealth as the primary role for the business. Preservation of wealth and business succession in the family is a lower priority. These are sad numbers but empirically true.

My advocacy is to reverse this trend.