Pr of ess ional izing the

Fami l y Busi ness

Ricardo H. Mercado
Family Business Development Center
John Gokongwei School of Management
Ateneo de Manila University
 The Successful Entrepreneur
The Entrepreneurial Managerial Skills and
Traits & Psychological Competence in the
Makeup: following areas:
• High Need for • Strategy
Achievement
• Cash Flow
• Moderate Risk-Taking The Management
Successful
• Creativity • Strategic Planning
Entrepreneur
• Flexibility • Accounting &
• Commitment Record-Keeping

• Proactive • Marketing

• Intuition • Networking

• Confidence • Delegation of
Routine Activities
• Sense of Observation
 The ENGINEER The kids’ wives
My
Book
Keeper
Production Manager

DAUGHTER The
BOSS The
Vice-President
The other
Family’s kids

Top Salesman Old The KIDS

Timer
MOMMA

A “SPIDER” FORM of ORGANIZATION

 Entrepreneurial Management

• Centralized decision making

• Informal control
 The BOARD?
MOTHER?
Also known as:
RASPUTIN?
The AYATOLLAH
The FUEHRER
“The” BOSS “HIM”
The GODFATHER
The little
OLD LADY
With a moustache

…but
for r
#1 The
$ON SON-

eal r
#2 IN-LAW
#3 SON

esult
SON

s!!!
The HELP…

A “RAKE” FORM of ORGANIZATION

 Different goals:
family system versus business system
FAMILY SYSTEMS
BUSINESS SYSTEMS
Resolution of Emotional Issues
Accomplishment of Tasks
Oriented Inward (Nurturing)
Oriented Outward
Seeks to minimize change (Serving Customers)

WHO you are Makes the most of change

WHAT you do
 Different goals:
family system versus business system

Family system Business system

 Emotional concerns  Business performance

 Family needs  Business demands

 Maintaining stability  Managing change

 FAMILY BUSINESS SYSTEMS
Often the owner / father / C.E.O. is caught in the middle of seven
competing interests.

1 2

FAMILY 5 MANAGERS
7
4 6

OWNERS
3

In family business, the technically correct solution isn’t always the

emotionally appropriate solution.
 Most family business
disagreements are not
based on fact and
money, but on emotions
and control.
The Importance of Planning for Business Families
Off-balance: family first

Family Business

Overemphasis on the family  Business communications

erodes:  Business relations
 Performance appraisals
 Decision-making
 Strategic options
 Strategic Planning for the Family Business
Off-balance: business first

Business Family

Overemphasis on the business  Family communications

erodes:  Family identification
 Family loyalty
 Family time
 Family emotions
 Successfully balancing
Family and Business Systems

Business Family

Balanced business and  Trust

family systems create:  Commitment
 Business effectiveness
 Family harmony
 The Parallel Planning Process
Values
Core Management
values philosophy

Strategic
Family thinking Strategic
commitment commitment
Family Business
Shared future
Family vision Business
vision vision

Formulating
Family plans Business
enterprise strategy
continuity plan plan
 Strategic Planning for the Family Business
Many possible strategic
alternatives
Vision fit
Family
Strategic
commitment Appropriate commitment
alternatives
Family
enterprise Strategic fit Business
Continuity strategy
plan Possible plan
strategies
Reinvestment Family fit
decision
Final choice of business strategy

Selecting a business strategy

Strategic Planning for the Family Business
Family strategic thinking Business strategic thinking

Fa
mi
Lo
ph ly bu ng

ph t
ilo
es ily
-
so sine te

so en
rm

y
ph ss
va fam

ilo em
y go
als
lu

p h ag
re

Family Strategi

an
Co

M
Commit
ment Commit
Family vision ment
Business vision

Shared vision/mission of the

family & business

Family and business strategic thinking supports

the development of a shared vision/mission
 FAMILY BUSINESS CONCERNS
STRATEGIC ISSUES:
strategic management

---------------------------------------------------

HYGIENE ISSUES: family relationships, family

governance, succession, conflict resolution, etc

Managing for the Long Run

Miller and Miller (2005)
 Hygiene Issues
 How can the dream of a substantive mission be
realized while impatient family owners haggle
about their share of profits?
 How can a corporate culture be harmonious when
different factions support different family
members?
 How can independent command be achieved when
family members are fighting for leadership?
Managing for the Long Run
Miller and Miller (2005)
 Strategic Planning for the Family
Business
Management

Organization Individual

Family Business

Industry Family

Ownership

Life cycle forces influencing family business planning

 The overlap area for identifying
family business strategies

Internal External
Capabilities Environment

Choice of
business
strategy area
Family
Commitment

Firm’s strategic Family commitment External

capabilities • Future vision of the environment
• Financial, family & business • Attractiveness
marketing, and • Confidence in of firm’s
organizational management industry and
resources • Capital available markets
Professional Management
 Professional Management
Family culture is built around an informal
entrepreneurial style of management.

 Decision making process is centralized

 Over dependence on the owner-founder
and other family members
 Family and non-family members used to
this style will resist change
 Professional Management

Business growth requires a larger,

deeper pool of qualified
management talent than any one
family can realistically produce.
 Professional Management

Families introduce professional management for

several reasons. More prominent reasons are:
 Lack of qualified successor from within the
family
 Family infighting
 Desire to formalize the decision-making
process
 Lack of management talents in the family
 Professional Management
(continued)

 Lack skills in decentralized

manner of decision making in the
family business
 Organization becomes formal;
psychologically unprepared with
such environment
 Professional Management
(continued)

 Desire to complement family member skills

 Family Business is planning to pursue an
aggressive growth strategy
 Supervising relatives
 Change norms and values of operations
 Introducing Professional Management
Lack of a
qualified Family
successor within infighting
the family Reasons for
The desire to Introducing Desire to
formalize the Professional change norms
decision- Management and values of
making process business
The family business operations
The desire to
is planning to complement
pursue an family members’
Lack of management
aggressive growth skills
talent in the family
strategy

Reasons for introducing

Professional Management in the Family Business
Ibrahim-Ellis: Family Business Management Concepts & Practices
 Strategy of Coordination
Formal Control Mechanism

Low High
D R
E E High
L S
E P Laissez-faire Professional
G O management management
A N
T S
I I
O B
N I
L
O I
F T Entrepreneurial Bureaucratic
Y Low management management
 Professional Management

• Delegation of decision-making
responsibility

• Use of formal control systems

Professional Management

The professional manager will

discover that he entered a minefield
strewn with explosives that can be
triggered by any careless move.
 Professional Management
(continued)

Changes introduced by the professional

manager could be potential source of
tension.
 Professional Management
Problems of Professionalizing

•Difference in problem analysis

• Difference in relating to others

•Occupy different positions of authority

•Difference in training and values

 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

Feelings Management
and
skills and
Thinking
training
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

S
Feels he is paying high Realizes high salary however
A salary. Expects maximum feels no need to change work
L time and effort with quick habits. Recognized past
A results performance and rewarded
R
Y
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

R
Expect professional to
E come in and make
Feels that it is unrealistic to
expect any real changes
S immediate, even dramatic immediately and should take
U improvements in the one to two years to make
L business significant changes
T
S
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

Professional should be Works under the assumption
T spending a great deal of that he can get on top of the
I time everyday, including business by putting in a full
weekends, learning the
M regular day.
business and being on top
E of all issues of the family
business.
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

D Professional should work Professional doesn’t think

on broad areas but feels
E that he should also
detail work is wise use of time.
He prefers broad-range
T perform detail work. thinking and has others to do
A Concerned that the detail work for him.
I Professional doesn’t
L follow through.
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

C Own er Pr ofe ssio nal

O
M
Owner has a Professional maybe excited
M
I
vision/mission for the about something else and
T family business. He feels wants the company to succeed
M that the Professional must but doesn’t have the same
E have the same vision sense of vision/mission as the
N owner
T
 Professional Management
Differences in Views and Expectations of
Owner and Hired Non-Family Professional

Own er Pr ofe ssio nal

E
X Owner is frugal with Professional feels one must
P expenses. Motto is “stay invest in development and not
E out of debt and pay as you expect immediate return. He is
N go”. Owner feels that accustomed to having his own
S
every expenditure should budget to spend as he sees fit.
E
S pay off.
 Professional Management
Possible steps to take to mitigate some problems

1. Help professionals socialize in ways of the

family and business. Family should
communicate clearly those values it feels to be
upheld-should focus in articulating ends rather
than means.
 Professional Management
Possible steps to take to mitigate some problems

2. Tie the interest of the professional manager to

the firm, which will influence his behavior to be
more consistent with family interest. Including
them in some family meetings can be a good
way to gain their inputs as well as teach them
how the family feels about the business.
 Professional Management
Possible steps to take to mitigate some problems

3. Professional managers should be encouraged to

be part of the community they work in.
Communication barriers must be eliminated
between the professionals and the employees of
the business. Rapport must be developed with
the work force.
Professional Management

An important part of finding a

good fit is being sure that a
non-family candidate holds
values that are similar to those
of the business-owning family.
 Professional Management
It’s not the job of the professional
manager to be the mediator or
referee. Avoid triangles – where
one family member criticizes
another to you or wants you to
carry messages.
 A Process Model of Professionalizing Small and Medium Family Businesses
Drivers of Professionalization
•Growth in business
•Desire for technical competence/
management discipline
•Desire for change
•Desire for more aggressive growth Difficulties of
•Lack of family members Professionalization
•Desire for business continuity
•Desire for more strategic role for Family
owner Strained family
Conflict in the family relationships Positive Outcomes
Resistance/ jealousy of of
family Professionalization
Conflicting styles
Feelings of entitlement
Inability to adjust Family
Modes of Methods of
Professionalization Professionalization Self- interest •Succession
Train family On the job training •Improved
Train non family Formal education Non- family
employee Training Programs Culture clash between Relationship
Entrepreneurship Hire Professional or Mentoring family & professionals •Less micro
Technical Positions Work experience in Transfer of power &
Hire Managerial other companies authority management
Position Management Difference in strategy
traineeship programs Piracy/ retention Business
Perceived favoritism •Growth
Resistance by •Management
employees
Discipline
Intrigues/ conflicts
Barriers of Professionalization Dishonesty/ poor •Continuity
Resistance by family performance •Competitiveness
Lack of trust for outsiders Creation of bureaucracy
Leadership style of owner
Difficulty in finding the right people
Business/financial limitations
Lack of knowledge of
professionalization
Resistance to change by organization
Mercado-Hechanova-Lopez-Franco 2006
 5 STAG ES OF ORGA NIZAT IONA L
GRO WTH

C C C C
ST AGE R ST AGE R ST AGE R STAGE R ST AGE
1 I 2 I 3 I 4 I 5

Entrepreneurial S Management S Professionally S Bureaucracy S Intra-

I Discipline
I Managed
I I preneurial

S S S S

revolution revolution revolution revolution

evolution evolution evolution evolution evolution

Copyright All Rights Reserved 1985 – 2002 Franchise Architects

Larry Greiner, Evolution and Revolution as Organizations Grow
 ORGANIZATIONAL GROWTH

● Each St age creates a new set of crisis,

● Growth creates Crisis and Evolution,
● Evolution Breeds Revolution,
● Each St age has a distinct Purpose,
● A company may not advance to the next
Sta ge unless they can accommodate the
Crisis that occurs as a result of growth.

Source: Professor Larry E. Greiner, “Evolution and Revolution as Organizations Grow” July-August 1972
President and Fellows of Harvard College.
Professional Management
Family Businesses deserve
the best.

Not only that, the best of

the best want to work for
family firms.