Enduring Sibling Business partnerships.

Working with a sibling can be an exciting or nerve-racking experience depending on the pairing.  Unlike other working relationships where the boundaries often start and end at the office itself, working with sibling is an omnipotent journey. One has to cherish and sustain the relationships not just at office, but at home and even on holidays and social events. From my limited personal experience and observation of businesses where siblings work together, I have gleaned six principles that are keys to sustaining a sibling led business.

  • Define shared purpose:

Commit to a shared purpose and actively seeking common ground is keys to sibling business. Singling must have clarity of the purpose of their coming together and what business ownership means to each of them. Sibling businesses success requires siblings to focus on something larger than their individual focus. A superordinate focus makes it easier for siblings to accommodate loss of autonomy and collaboration rent each of them pays to drive the priorities and concerns of the business.

  • Choose to play strength

Sibling businesses thrive when siblings complement each other and each plays to their strength. Someone could be strong with numbers and other with people or sales. Recognizing that perspective may be different from different functional view improves acceptance and tolerance of each other’s differences and avoid being judgemental. Zones of work for each allows room for specialization and space for “law of minimum distance” that is key to each sibling enjoying their value addition. Check your ego, and realize what is best for the business.

  • Set expectations ahead of time

Clarity of who does what and how would decision happen is important to eliminate ambiguity and blame game. Successful business relationships have explicit business rules regarding who will fill what areas, how responsibilities are delegated and who is accountable to whom?. It is also important to define what kind of performance review will happen and who owns the outcomes?.

  • Communicate frequently and openly

Communication is key to all relationships and sibling relations more so. Some siblings may prefer informal 10 minutes stand-up meetings each day, while others may hold weekly lunch meetings. Contrary to expectations, do not expect your siblings to read your mind. For partnerships to work let go of these assumptions and communicate clearly and openly, just as you would with a non-family business associate. Express feelings, ideas, disagreement openly in a respectful and consistent method. Frequent, open communications and good listening skills cement the fissures and keep the sibling relationships strong.

  • Make participative decisions

For sibling business relationships to stay together, all strategic decisions including investments, on boarding relatives in business, diversification or partnerships must be thoroughly thrashed out collectively.  Sibling businesses can also use extended platforms such as family court to keep away undue influence, improve transparency and collaboration.  For large sibling business, a good approach is to have sibling code of conduct. This is a formal document that clearly details how exceptions will be handled, what financial information and decisions will be shared, relatives in business and succession.

  • Clear compensation policies

An area that derails most sibling partnership is compensation. While as kids the siblings may have got same allowances, their compensation in business must be based on job performance. It helps to have a clear compensation policy to avoid unpleasant situations in future. It is possible to equal profit bonuses while salaries may differ across siblings, so that people do not feel exploited and underpaid.

Dr TR Madan Mohan

Successor Selection in family business

Family business continuity depends upon clear demarcation of rights, expectations and responsibilities of family members and their extended relations. Succession is a key factor that can lead to odious conflict if the selection is not felt fair by all members. A wrong selection can jeopardize the very sustenance of the business itself.  Successor selection in a single owner business or cousins consortia the criteria remain same.  Successor candidate for a family business must possess:

  • No vacillation of taking charge
  • Alignment with personal dream
  • Strong family (sibling) ties
  • Strong leadership skills,
  • Drive to scale

Not all progeny would be interested in working for family business. Identify who is interested and committed irrespective of gender and on tradition of first born. Incoming family member must be clear in owning the role and responsibility. They must exhibit “strong skin in the game” orientation in all areas including planning, execution, feedback and improvements related to the new role. If there are any signs of ambivalence, then family elders and family board must search somewhere else within the family or alternately bring in professionals to run the business while family oversees the business and family interests.

 

It is important the family business forms a part of personal dream of the successor or at least allows her to anchor to explore personal dreams. If the alignment between personal dream and the family business are weak, the succession may not yield significant results. Higher alignment would ensure the successor brings more passion and commitment to growth and transformation of the family business.

Family business successor must not only be adept at managing business, but must be able preserve and nurture family ties.  Successor should have an ability to delineate family and business rituals, positions and carry family branches and interests in all fairness. In family businesses with well entrenched non-family professionals, the successor must be able to build rapport, influence and advocate required changes to set the business to next level. The successor must be capable of leading other family members on investment. Successors who exhibit a strong player-coach orientation perform better as they can collaborate and lead within and across teams.

Successor in family business must bring strong leadership skills. The successor must be comfortable in exercising leadership alone, review and critique associates wherever necessary. Successor should be able to show tact and respect to family and non-family associates who may be involved in the business, and yet direct them to reach the desired goal.   Successor must exhibit a high dose of candor and sense of urgency, especially for anything related to bad news. Successor must be evaluated for their team building, ability to tap talent and instill a culture of excellence.

Family business succession is not just about leading existing business, but also a stage to move to next level of expansion. The expansion may come from scaling up production or entering new markets or scaling out to build competencies and capabilities to seek out opportunities in other areas and realize the growth potential. Successor in a family business must have the drive to obtain inputs every quarter, validate these inputs and act on them to realize the goal.

While family elders and board may have high access and knowledge of a successor as an individual, whenever contenders exist ask for a business plan from each. The family elders and family board must check whether their approach clearly captures the business and family dynamics, dreams and action agenda.  Once a successor is selected family elders and the board must establish the business parameters, discussed and communicated the same across multiple interest groups to buy the succession plan well in advance. Once a future leader is identified, start mentoring the person through on-the job exposure and empower him to learn and implement changes. If the family prefers to expose the successor to learn the ropes in outside business, create alternate investments that may not blow a big hole in the family books, but de-risks existing business from transition. Succession plan must detail how the first 3 quarter of induction and transition happen. Identify respected non-family mentors who would take the new ward under their umbrage and fill in “implicit knowledge”. Do not burden the successor with constant reminder on results, instead focus on outcomes. Obsession with results can induce an undue pressure on the successor and induce her/him to focus on short term gains. Remember succession is an opportunity to rewire your business. As John F Kennedy rightly said, “The time to repair the roof is when the sun is shining bright”.  Thinking strategically about the selection process enhances the quality of successor and the survival of the family business into next centenary.

Dr TR Madan Mohan

Setting your ward to “succeed in family business”

Family run businesses are a significant segment of any nation’s industrial structure. 5% of US GDP is contributed by family businesses and 35% of Fortune 500 is family owned. They generate close to 50% of employment and 59% of all new job creations. In India 95% of business are family run, and 30% of BSE listed companies are family owned. These companies product more than 6000 products, contribute to 45% of manufacturing output and 40% of the total exports of the country.  Just about 20% survive a first generation transfer and over 65% of the succession plans go awry.  Succession has not been smooth affair within large companies like Tata’s and Mahindra’s.   Success of succession depends on the planning and execution.   Insights from successful entry and succession of wards into family business show there are some common principles that can be easily adopted.

While planning, entry at right level and mentoring are important, setting up wards with the right gamification principles ensures success.

  1. Do not burden the successor with constant reminder on results, instead focus on outcomes.
  2. Obsession with results can induce an undue pressure on the successor and induce her/him to focus on short term gains. Remember succession is an opportunity to rewire your business, and let somebody who is going to own and run the business in future unearth suboptimal approaches, bring fresh perspective and drive down the cobwebs.
  3. Limit praise, only for genuine reasons.
  4. Undue praise, which happens every day for no significant output, takes the charm out of appreciation. Overusing praise may make the successor believe less of you and less motivated
  5. Encourage them to take risk and experience failures
  6. Nothing teaches like the dirt on their own hands. Allow successors to fold up their sleeves, trip, fall and raise up to live with the experience.
  7. Allow them to solve the problems in their own way and learn
  8. Encourage them to go to the bottom of events, what happened, why it failed, what could they learn and how they would do it next time. Senior family members must dawn the role of mentor on the sides rather than leader on the dias if succession has to be successful

A structured approach to professionalizing a family business

Family businesses are a significant constituent of many economies. Family business have certain traits like high emotional involvement, unilateral decision making and optimization focus that offer unique advantages, more so in tough times. However, these very traits prove to be their Achilles heel once they start to grow and expand.  Family businesses realize a need for formalization of processes and bring in professionals at senior levels to drive focus on results and efficiency. Family businesses attempt professionalization to build newer fences and wedges at some managerial levels to drive the emphasis on outcome rather than relationships.

Professionalization of a family business is a process that folds over couple of quarters. Smart family businesses have traversed the distance pace the change in terms of short term outputs and long term intended results. Results based management is a strategic management tool that can be effectively used by family business embarking upon professionalization program. RBM has various dimensions. Results are realistic, risks are identified and managed and appropriate indicators are used to monitor the progress of the expected results. These indicators help the organization in assessing whether or not the activities are yielding the desired results. RBM helps to bring clarity on the purpose of the programme/activity/change and the desired results from the very beginning. RBM captures the process of change in short, medium and long term. Professionalization results  (in terms of formalization of process, reporting mechanisms, performance systems, outcomes management, etc) are commonly linked together in a result chain. The results are captured at three levels:

  • Short term or output
  • Medium term or outcome
  • Long term or impact

The result at each level aggregate or contributes to the goal or desired impact that needs to be achieved.  RBM integrates people, process, resources and measurements to administer the programmes and improve transparency and accountability. RBM clearly defines the activities to be performed at each stage to achieve the desired results. These activities are further segregated into allocation to different groups. Each group is reviewed based on the activities and the outcomes and outputs are consolidated at the programme level to report the impact or the final result in comparison to the objective set.

While adopting RBM for professionalization program, family businesses must use PCC-DIO framework to identify activities and the outcomes. The PCC DIO involves

  • Purpose
  • Comprehensiveness
  • Consistency
  • Delivery
  • Impact
  • Outcome

Purpose:  Each activity must meet the objective of formalizing, integrating process, functions and roles so that actions drive performance.

Comprehensiveness:  Each activity and tasks are aligned with complete consideration of the the roles, responsibilities, and different levels of learning. The focus is to ensure the tools, and methodologies are rich enough to make informed decisions.

Consistency:  Systems and activities must be repetitive and consistent in terms of data, duration and procedures for the complete professionalization program and show no deviation from the desired architecture.

Delivery: The timeliness and quality of delivery by each activity should meet the professionalization goals and be delivered within the defined time.

Impact: The impact analysis of every process on the concerned stakeholders must be done after delivery.

Outcome: On completion of each process, outcomes must be evaluated to assess what was desired and what has emerged.

While the above frameworks can offer a defined approach to professionalization program, certain critical human elements are key to the success of professionalization program. First, is the change management champion from the family who can anchor the program, imbibe the tantrums and shocks that emerge in the early days of transformation and buffer the professionalization program. Second, a trusted experienced non-family person who can work with new professionals brought into change the desired areas. Thirdly, planning and showcasing some quickly demonstrable outputs like formal employee policy manual, incentive models or documentation of knowledge management processes to convey the seriousness and commitment of family business on professionalization program.   Fourthly, preparing the business to bear the shock of untimely exit of relatives or other executives who find adopting to the program a little difficult.  Finally, family learning to clearly devise approaches to successfully manage the conflicts between family business and business of the family.

Hopping on to Dad’s throne: successful immersion strategies of Daughter’s into the family owned businesses

In the past, gender has been a particularly thorny issue when it comes to ascent of throne or board room. Catherine the great, or Elizabeth I and many princess had to manage male chauvinism and persecution to survive and manage their kingdoms. Fortunately, business owners across the world are recognizing that gender is a non-issue and are seeking a family champion for continuity.  Are you a business owner blessed with a daughter interested and capable of running your business and take to next stage.  How should your business plan and execute successful in immersion of daughter into family owned business.

Insights from successful entry and immersion of daughters into family business show there are some common principles that can be easily adopted.  First, the immersion is well planned ahead. For a large automotive seat manufacturer, the immersion started when the daughter was just 12 years old. She was encouraged to spend summer holidays in the plant, know the employees and their families and develop personal bonds with long standing respected non-family members. By the time she graduated from engineering she had helped design two innovative products.  The second principle is to bring them at appropriate level, preferably closer to market. A large construction company based out of Mumbai that has diversified into food parks, hospitality and related areas, asked the daughter to start with interning for an operational excellence team that had a charter to improve customer engagement. Working with the excellence team helped her understand the gaps from 10,000 sq.feet,  get a large picture view across various functions and what to change to make things happen in the company. A great advantage was she could tag along with the excellence team to all departments without being prying. Third principle is identify respected non-family mentors who would take the new ward under their umbrage and fill in “implicit knowledge”.   A manufacturing company in Ahmedabad placed the daughter who was going to take the overall mantle of the firm shortly from the founder under the guidance of sales and marketing chief stationed at Mumbai. The ward had an advantage of learning the ropes of business from an experienced hand, but away from the distraction of royal court. Fourth, but the most important one followed by most successful companies is to help the heir position as a winner by setting them to win, especially by focusing on related non-core business. An equipment manufacturer that has been in business for over two decades, after announcing the entry of the heir apparent in a normal way, asked her to work on areas of improvement with no investment but significant revenue upside. What the young heir went on to do for the first two quarters is to build successful aftermarket revenue of their existing business. A large construction house brought in the daughter as an marketing assistant,  pushed her to go through the grinds of sales and marketing. After an year the company asked her to come with ideas for related business areas that can be pursued. The heir came up with School and Interior decoration unit  that complemented the integrated real-estate development. The two business units now support 18% of the overall group revenue and with the successful running of the two enterprises, the daughter has gained the appreciation of all stakeholders.

Design Thinking approach to “Business transformation”

Many businesses are prisoners of their past success. Their business model and its components (including sales, marketing and organization) that served them well in the past may not be effective any more in current environment.   Revenue growth is suspect, revenue predictability becomes difficult and operations untenable.  Business have to reinvent and redefine themselves in terms of increased Productivity, Better Sales, Efficient Functioning for which they’ll have to undergo Multiple, non-standardized set of Changes and be bull-headed against resistance at various stages of the process till it reaches the desired goal. Changes are a necessity when efficiencies are low, outcomes paring below expectations and growth is alluding.

In our experience of helping many business transform, we have relied on a design thinking approach for managing the transformation. For us design thinking is an approach that employs suite of tools to unlock complex problems and solve them using untapped potential. The broad framework we use in business transformation consists of five stage: Evaluation (E), Visualization (V) – Definition (D) – Implementation (I) and Sustain (S). In the first stage of business transformation, we conduct an as is analysis of the organization: Its process, decision making styles, products, systems, alliances, sales and marketing approaches, etc.  Next stage involves visualizing various patterns of change by consultants and the organizational members. The objective is to enumerate all possible approaches that may be embraced to create a better PSPD business. P stands for profitability, S for sustainability, P for predictability and D refers to de-risk. Solutions are discussed and vetoed by the transformation committee and the implementation committee consisting of members across functions and at different levels within organizations draw their implementation plans, seek investments and other approvals and own roll outs. Process changes, and associated measurement tools are tracked and discussed both at implementation committee level and strategic transformation group level.  The iterative process involving all key decision makers is useful to bring out the risk perceptions and dogmas affecting the behaviour. From our own experience of working with Quest, Prosim, Nsoft and others, this stage is very useful to know the limits of growth and extensibility of the organization. Teams explicitly probe for efficiency improvement by adopting any of the following strategies: consolidation, elimination, outsourcing and co-creation.

In next stage, from the complete set of patterns, the group defines plausible state that score high on  desirability, feasibility and viability.   Desirability looks at quality of short term and long term outcomes of following an approach. Feasibility refers to whether the outputs (in short term) and outcomes (in long run) are achievable. At what cost is measured by viability.  Once the approach is identified, prioritization of changes and tactics are expounded using PCCIO framework. All implementation actions are prioritized and pursued based on (P)urpose, (C)omprehensiveness, (C)onsistentency, (D)elivery, (I)mpact and (O)utcome.

In our experiences, many finer changes to sales structures, partners and marketing happen over period.  We adopt P2O (Purpose, Ownership, and Outcome) approach to sustain changes. Creating process, product and change owners at all levels helps in pursuing the right changes over time.

Dr TR Madan Mohan and Sanjay R.M.

How prepared is your company for after-you??

A strong willed founder sees an opportunity, builds clientele and services and all suddenly disappears leaving the business at risk. Academicians Sascha Becker and Hans Hvide in their study of 341 privately owned companies observed that the death of founder in the first 10 years of the establishment had a deep and profound effect on the survival of the company.  Unlisted and family owned business are awful poor at planning for future.  Many business owners and family CEO’s just do not know how to prepare for eventuality. From our consulting experience we suggest a 8 point approach. First evaluate the family’s interest and children suitability for roles and responsibilities in the company. Involve outside professionals and independent directors to provide third party neutral assessment of the children and seek their suggestions on who could possibly more suited to run the business in future. Once assessment is made, communicate the decision within the family and children, seek their opinions and arrive at consensus. Biggest challenge is preparing them for a change. Ask independent directors and family to suggest a management structure without compromising the legal and family interests. Involve the management group in creation of a succession plan and document the role of each family member, responsibilities they could carry and the possible succession plans.  Communicate the plans to all the involved parties and formalize the succession plan. Identify the competencies the successor may need, training gaps and development support needed. Hire and fill professionals in roles that may be needed in future and start implementation of the succession plan with a dry run. Take a vacation and see how the succession team is responding to the business needs.  Start stepping back over time, and allow them to learn from failure.