Planning together helps family members and management understand the critical factors for long-term business growth and helps to build long-term Family Commitment.1 It also provides a foundation for coordinating, directing and controlling the activities of the business. These goals have special meaning for a business family concerned about the additional chal- lenges of management and ownership succession while maintaining family relationships.
Adopting the Parallel Planning Process (PPP) is a chance to address expectations, change and conflict. These are three elements present in all family relationships. Many family businesses are driven by an expanded set of goals related to family stewardship and legacy. They recognize plan- ning’s contribution to meeting the challenge that Léon Danco, the founder of family business consulting, identified as creating a ‘business that shall last forever’.2
This chapter begins with a brief overview of the influence of life cycles on family business planning. The interest in family business planning is usually triggered by a family or business life cycle event such as a next- generation family member graduating from university and joining the firm or stagnant sales created by a mature market. Studying the life cycle patterns of markets, organizations, families and individuals will help to explain the challenges ahead and the planning that is required to address those challenges. Chapters 4–7 include further discussion of life cycle influences on planning.
THE INFLUENCE OF LIFE CYCLES ON FAMILY BUSINESSES
Planning for business growth while transferring ownership and manage- ment across generations presents many challenges in today’s complex business environment. Family businesses must cope with endless industry- related and organizational decisions while simultaneously planning for the
24
management and ownership transitions driven by individual and family life cycles. These challenges are not unique to a particular family enter- prise. Rather, they are related to predictable transitions that occur as both families and businesses grow and mature.
Families and their businesses must address life cycle change because it is a biological inevitability.3Figure 2.1 depicts the human life cycle from birth, through growth and development, to the highly productive adult years and then phase-down. In a family business, managers and owners have the most influence during their adult years, from around age 30 until they peak in their 60s or 70s.
All businesses face challenges created by industry and organizational life cycles. The addition of the individual and family life cycle forces is what makes family business planning unique (see Figure 2.2). Because family members are intimately involved as employees and owners, their life cycles also have an impact on the business. The combination of continuous life transitions and events within the family and business systems makes it imperative to understand the planning challenges driven by family and business life cycles. These forces can be as complex as those in Figure 2.2.
Life cycle models are used in the field of family business to explore planning and organizational issues. For example, Gersick et al. proposed a family business developmental model that includes three overlapping subsystems: business, ownership and family. Their model recognizes the
Figure 2.1 The human life cycle: the biological imperative
Source:N.C. Churchill and K.J. Hatten ‘Non-market-based Transfers of Wealth and Power: A Research Framework for Family Business’, Family Business Review,10(1), 1997, 53–67. Copyright 1997 by the Family Firm
Institue. Reprinted by permission.
30 years 60 years
Time
Activity
interrelationship of these three subsystems and presents three develop- mental stages for each.4
The framework proposed in this book takes a slightly different perspec- tive. Ownership is not a life cycle, but rather an Ownership Configuration influenced by life cycle forces and family decisions. This model proposes that family business can be structured with six Ownership Configurations that result from life cycle forces and family decisions:
■ Entrepreneurship
■ Owner-managed
■ Family Partnership
■ Sibling Partnership
■ Cousins’ Collaboration
■ Family Syndicate.
The planning implications for these different Ownership Configurations are discussed in Chapter 6. Figure 2.3 elaborates on the four life cycle forces that create the unique challenges of family enterprises. This frame- work integrates industry, organization, family and individual life cycle forces to demonstrate their combined impact on the family business Ownership Configurations.
Applying life cycle thinking to human and business development is a challenge. Human life cycle events follow a life pattern that evolves over
Figure 2.2 Four life cycle forces influencing family business planning
Organization
Management
Ownership
Family business
Industry
Individual
Family
Figure 2.3 Life cycle forces influencing family businesses
Adapted from:R.S. Carlock, Family Business Management Course Materials, University of St. Thomas, 1995; C.K. Sigelman and D.R.
Shaffer, Life-span Development, Belmont, CA: Brooks/Cole Publishing, 1991; D.J. Levinson, The Season of a Man’s Life, New York:
Balantine Books, 1978; J.H. Eggers, K.T. Leahy, and N.C. Churchill, ‘Stages of Small Business Growth Revisisted: Insights into Growth Path and Leadership/Management Skills in Low and High Growth Companies’, in W.D. Bygrave, S. Birely, N.C. Churchill, E. Gatewood,
F. Hoy, and W.E. Wetzel (eds) Frontiers of Entrepreneurship Research, Boston: Babson College, 1994, 131–44.
Organization axis
Industry axis
Family axis
Ownership configuration Individual axis
Regeneration Maturity/
decline Rapid growth
Growth orientation
Stability Survival
Existence
Early adulthood
Settling down
Entrepre- neurship
Owner- managed
Sibling partnership
Family syndicate Cousins’
collaboration Family
partnership Mid-life
transition Middle adulthood
Late adulthood
Married couple Family
without children Family
with
children Launching young adults Family
without children Grand-
parenting
Retirement Decline
Maturity Growth
Introduction
Late adulthood transition
Family business
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an average of 70–80 years. Industry and even organizational life cycles are much less predictable. A new computer software product may move through the industry life cycle from introduction to decline in a few months. For these reasons, there will not always be clear linkages between the different life and business cycle transitions.
What is important to understand is that life cycle forces shape indiv- idual, family, organization and market behaviors. Different life cycle situ- ations and combinations require different planning and strategies.
Actual or anticipated life cycle transitions are the starting point for the PPP. A change in any of the four life cycles presented in Figure 2.3 means that the family and business plans require new thinking and possibly revision. Figure 2.3 depicts all of the possible phases that may occur within each of the four life cycles operating in family businesses.
Families face additional pressures when life cycle transitions occur in two or more life cycles at the same time. When this happens, planning also becomes more challenging. The life cycle influences on planning for careers will be discussed in Chapter 5, for ownership in Chapter 6 and for the business in Chapter 7.
PLANNING TOOLS For Your Business Library
Readers interested in more information on life cycles should read Generation to Generation: Life Cycles of the Family Business by Kelin Gersick, John Davis, Marion McCollom Hampton and Ivan Lansberg (Boston: Harvard Busi- ness School Press, 1997).
STRATEGIC PLANNING AND THE FAMILY BUSINESS Strategic planning techniques are useful tools for helping to develop a long- term approach to utilizing business capabilities and market opportunities.
Unfortunately, traditional strategic planning models and tools are designed to focus exclusively on the business and its needs. They do not address family challenges that make family businesses unique. The expanded scope of family business requires a very different planning framework.
The Expanded Scope of Family Business Planning
All organizations that engage in strategic planning are concerned about three variables:
1.Content:What they plan.
2.Process:How they work together.
3.Context:Where the planning takes place.
It is obvious that the content, process and context will vary among organ- izations, but a family business must include another consideration in its planning process – the Family Context. This means that family needs, expectations and relationships must be considered as a part of the planning process. Figure 2.4 illustrates the expanded set of planning considerations created by family business ownership.
In addition to the expanded context, the process for planning is a more important consideration in family business planning, because family membership is a lifetime relationship. In most business or other organiza- tional planning, relationships are temporal. The dynamics of most organ- izations allow an individual to be involved in multiple personal, superior–subordinate and team relationships during a career. In a family business, this is usually not true. A family business owned and managed by a family will produce lifetime work relationships. For this reason, fami- lies have to focus much more on process – that is, how they do things. The ways in which the family learns to work together may well be the critical factor in family harmony and ownership continuity.
Figure 2.4 Planning considerations created by family business ownership
Content Process
Family context
Environment context
Understanding Strategic Business Planning
It is assumed that readers are already budgeting within their companies, that they are developing operating plans and that they have begun thinking about long-range goals. The term strategic planning refers to the processes used to plan for the long-term performance of an organization.
Strategic planning provides a systematic way to ask key business ques- tions. It creates insights into the company and its environment. Such inquiry challenges past business practices and opens the way for exploring new opportunities.
This book views strategic planning as the foundation of the Strategic Management approach to business. Strategic Management is a comprehen- sive model of business administration that fully integrates planning with action (see Figure 2.5). This planning and action process creates a systemic way to recognize opportunities (strategic thinking), make decisions (strategic formulation), take action (strategic implementation) and improve performance (strategic reformulation). Strategic Management becomes a way of managing the firm, actually ingrained in the manage- ment process.
The questions asked in the strategic planning process become an inte- gral part of how managers think. These questions perpetually challenge basic assumptions and identify new market opportunities. Managers experiment by putting new ideas into action and become planners for the future. Figure 2.5 demonstrates that thinking is a continuous process that influences all phases of the management process. When this business plan-
Figure 2.5 A strategic management approach to business Strategy
formulation Strategic
thinking Strategyimplementation Strategic
control and reformation
ning process becomes second nature to managers, the firm is practicing Strategic Management. At that point, business planning and action are integrated into a unified framework for linking the firm’s daily operations with its long-term goals.
Strategic Planning and the Parallel Planning Process
Strategic planning using the Parallel Planning Process is a very different activity because of the integration of the family system. The scope of the planning process is broadened to consider the interaction and mutual influ- ence of the family and business systems. This parallel process is recom- mended because it links family and business planning so that the values and goals of both the family and the business are fully considered. In the ultimate choice of business strategy, the plan must reflect family consider- ations, especially the family’s values and vision for the future.
The first phase of the strategic planning process is strategic thinking. The goal of this phase is to identify planning options that are appropriate for both the family and the business. The family explores core values, family business philosophies and a Family Vision. The management team explores the management’s business philosophy, a Business Vision and its long-term goals. The outcome of this strategic thinking phase is determining Family Commitment and clarifying management’s Strategic Commitment.
During the second phase of the planning process, strategy formulation, the Family Enterprise Continuity Plan and the Business Strategy Plan are developed. The family considers family participation, leadership and ownership while management explores the firm’s strategic potential, possible strategies and finalizes strategy and investment decisions. These plans detail the family and the business’ activities, tactics and programs designed to meet their goals and support the achievement of their Shared Future Vision.
This book concentrates on exploring the planning phases of Strategic Management: strategic thinking and strategy formulation. In some cases, actions or activities related to implementation and reformulation are also addressed, when they overlap with planning. For example, when discussing the development of plans for developing family management, one of the activities addressed will be performance review – an important tool in strategic reformulation.
PARALLEL PLANNING FOR THE FAMILY AND BUSINESS SYSTEMS
Parallel planning for the family and business systems represents a special challenge for the family business. Unfortunately, the development of these two plans cannot always proceed in lock-step fashion due to different time requirements of the family and business systems. The development of a Business Strategy Plan, when identified as a high priority, can be completed in a relatively short period. Families, on the other hand, will require a much longer period to address the highly emotional tasks that are involved in securing Family Commitment and developing the Family Enterprise Conti- nuity Plan.
There is no single path to follow in order to accomplish this. It may take several years for the family and business plans to fully interconnect and for the goals of each to become fully harmonious. However, the principle remains clear. Planning for the future of the business and for the future of the family is a continuous process that is affected by changes and events that influence each system. The Reardon Family Challenge demonstrates many of the issues that make the PPP valuable to family firms.
TheReardon Family Challengeis introduced here to provide the reader with a case example to think about as the planning process develops. The Reardon family’s issues will be explored in each chapter resulting in the development of a Family Enterprise Continuity Plan and a Business Strategy Plan (see Appendices E and G).
REARDON FAMILY CHALLENGE The Reardon Technology Case
Bob and Steve Reardon are frustrated with their siblings’ behavior. Their busi- ness has accumulated cash for expansion that Bob and Steve believed would strengthen the company’s growth and competitive position, but their siblings are requesting a large dividend for themselves instead.
Reardon Technology is a $100 million-a-year manufacturer of electronics products owned equally by the six Reardon siblings and their father. Their father, who was Reardon’s founder and chief engineer, retired nine years ago.
He lives out of state and limits his company participation to chairing two board meetings a year. Bob, who is 49 and the third oldest sibling, has worked at Reardon for 19 years, serving as CEO since his dad retired. He has done a superlative job, increasing revenue fourfold by acquiring a competitor and entering new markets for Internet electronic components.
Reardon is an industry leader, has no debt and is a strong niche market player, but its growth rate is slowing. Competitors (no longer local companies but national and international conglomerates) are squeezing margins and more of its customers are purchasing overseas. Running at full capacity, it needs exten- sive capital expenditures to increase manufacturing capability, fund new product development and increase marketing efforts.
Bob and his older brother Steve, who serves as an engineer in Reardon’s design department, are the only family members actively involved with the company. The other siblings, who are settled in outside careers, have recently shared an interest in becoming more active. They have also expressed concerns about the company’s lack of liquidity. Some seem to resent Bob’s high salary, although they are all very glad to have such a capable CEO. Their father, who loved inventing, never seemed able to capitalize on his good ideas.
In particular, Bob’s 57-year-old sister Nancy believes her brother is overpaid.
Her husband Phil is division president in a public company. Although Phil’s company dwarfs Reardon in sales, Bob earns more than Phil does. Nancy also has a daughter with a master’s degree in electrical engineering and she would like to work at Reardon. Bob has resisted the idea of any of the third-generation members joining the firm because he is not sure he likes the idea of ‘becoming a family business’.
THE PARALLEL PLANNING PROCESS FOR THE FAMILY
The Reardon case demonstrates the need for a planning process that considers the expectations and demands of the family system. Tradition- ally, strategic planning focuses on the business and its goals and perform- ance. Bob has done a superior job of strategically positioning Reardon Technology into high-growth markets, but this is not enough if he wants to maintain the support of the family shareholders that is critical to continued growth.
He has demonstrated his management acumen by dramatically growing the firm. His family recognizes and appreciates his business efforts. Unfor- tunately for Bob and his family, superior business performance is not enough because they have failed to develop any plans to address the family’s needs. This is creating frustrations for Bob and his co-worker brother and their sibling shareholders, who feel trapped by their ownership in the firm.
There appears to be a widening gap between the ‘insiders’ who want to invest heavily for the future and the ‘outsiders’ who want more control of their ownership and an expanded role for the family. Additionally, issues
of management compensation and career opportunities for the next generation need to be addressed. Bob’s uncertainty about ‘becoming a family business’ demonstrates his belief that Reardon Technology is ‘not a family business’ despite two and possibly three generations of family involvement. Bob’s comments suggest that he and his siblings do not have a shared vision of the future business or the family’s relationship to the business.
The importance of building Family Commitment and developing a Shared Future Vision of both the family and business cannot be overesti- mated. This book argues that exploring, identifying and articulating a future vision for both the family and business is fundamental to the family business planning process.
The process of aligning a vision for these two systems is the basis for the PPP. The family business, with its two competing systems, demands a clear agreement on what ‘we want to become’ both as a family and as a business if creativity, talent and resources are to be efficiently and effec- tively utilized. The Reardon family demonstrates the need for developing a Shared Future Vision of the family and business.
While both groups want Reardon to succeed, their definitions and timing for success are very different. The Reardon family is experiencing conflict because of a lack of agreed commitment and different future visions of their business and family. Exploring Family Commitment is the first step for the development of mutually supportive visions.
Exploring Family Commitment
The process for exploring Family Commitment requires the family to consider two questions. First, does the family have an interest in remaining family business owners based on the financial and social benefits that they will receive? Second, is the family willing and able to accept the responsi- bilities of ownership? Family Commitment requires a ‘yes’ response to both these questions. It is possible that a family can maintain ownership and neglect its obligations as responsible owners. Unfortunately, research indicates that a lack of active ownership in areas such as effective gover- nance does result in reduced financial performance.5
Exploring Family Commitment becomes an important issue as the family matures and new family members are available. During the Entre- preneurship and Owner-managed Phases continued ownership is a given.
As the expanding family becomes involved, it is useful to work together so that all family members, including in-laws and the next generation, can