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Cross-Generational Family Business Survival
Forward Thinking Business Blog –
Across Ireland and the UK, family businesses employ many thousands of people, supporting local communities and making a vital contribution to the economy. Yet it is estimated that fewer than 30 percent of family businesses survive the second generation, and only 3 percent survive the fourth.
One reason why cross-generational sustainability is a challenge is that family businesses tend not to be naturally good at managing change. An overly-conservative business culture, a leader reluctant to let go of the reins when the time comes for a new generation to take the business forward, inadequate resources to fund succession, failing to keep up with industry developments or new technologies — these are all factors that can impact cross-generational sustainability.
Effective strategic planning will address many of these issues but implementing the plan will always be less effective if emotional factors are allowed to influence decision making. This is one reason why it is a good idea for family businesses to include non-family members on their board.
An interesting study aimed at helping cross-generational family business growth using a Family Business Success Model was recently discussed in the Journal of Organizational Change Management. The study authors J Sreih, R Lussier and M Sonfield found that family business owners can improve their probability of success by
- adopting a team-management decision-making approach,
- handling conflict effectively,
- formulating specific succession plans,
- developing strategic plans,
- using sophisticated financial management methods, and
- dealing effectively with the founder’s influence.
These are themes FPM has frequently discussed in our Client Matters newsletter and at our family business workshops. We also stress the importance of having clear core values for the business.
it is estimated that fewer than 30 percent of family businesses survive the second generation, and only 3 percent survive the fourth’, says Michael Farrell, FPM
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Family Business Leadership
The family business leader must ensure that everyone understands these core values and what differentiates the business from its competitors.
People are at the heart of every business and leaders need to be supported by teams who are committed to their individual roles, focused on meeting client expectations and capable of identifying future business opportunities.
A good organisational structure will provide clarity around roles from the boardroom to the most junior members of team.
- The Board oversees the business’s vision, values, strategic direction and focus.
- Senior management is responsible for translating the Board’s vision into a strategic business plan that they then implement, supported by unit managers.
- Unit managers supervise the business’s functional operations.
- Employees are responsible for carrying out their duties in a manner consistent with the organisation’s vision and values.
As in any business, once you get the basics right, it becomes easier to build for the future. If you are not already on our mailing list and would like to be notified of our next family business event, please contact a member of our team.
Sreih, J., Lussier, R. and Sonfield, M. (2019), “Differences in management styles, levels of profitability, and performance across generations, and the development of the Family Business Success Model”, Journal of Organizational Change Management, Vol. 32 No. 1, pp. 32-50. https://doi.org/10.1108/JOCM-01-2018-0030
