ReportWire

Tag: family enterprise

  • There’s No Such Thing as ‘Best Practices’ When It Comes to Family Enterprise Governance

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    I see it all the time. When teaching MBA students and executives from family enterprises, so many of them make the same mistake. They take a check-the-box approach to building governance structures and policies, whether related to a board, family council, family office, or others. “We must incorporate all of these governance elements,” family leaders reason, without considering why. The result: governance systems that do not match the needs of the organization.  It’s a problem with multiple causes. Fortunately, it has an elegant solution from the field of innovation: adapting the concept of “jobs to be done.”  

    The danger of one-size-fits-all  

    Part of the problem here is rooted in growing knowledge about the field as a whole. As this domain has grown, so has the number of consultants, bankers, wealth managers, brokers, attorneys, psychologists, and other service-providers eager to tell families how to better govern their enterprises.  

    The result of the efforts by service providers to scale advice market-wide can mean commoditization of solutions. The result is that families believe they need a certain portfolio of governance “products,” regardless of the specific nature of the family and its enterprise. This can quickly turn into the check-the-box approach. Instead of thinking of strategic purposes, families play governance bingo with an implicit belief that families must have a specific set of policies and structures to be successful. The problem exacerbates as families see what other families are doing. It’s like seeing someone else with a family office and concluding, “Surely, we need that too!”  

    There’s no such thing as a specific set of best practices when it comes to family enterprise governance. Each enterprise is as unique as the family that leads it, and thus requires customized governance. For example, would you go to a doctor who provided the same treatment to every patient, regardless of their condition? I hope not. 

    The “jobs to be done” framework 

    To work toward finding the right governance system for their needs, families can make use of the “jobs to be done” framework. This is a concept popularized by Clayton Christensen in his book The Innovator’s Solution. The core idea is that organizations should think of customers as hiring a product to do a certain job for them, such as solving a practical problem or serving an emotional need.  

    The approach’s brilliance is in shifting thinking from the product to the end user by focusing on the job the product must perform. This results in a design that actually meets the customer’s needs, benefiting both the customer and the business. Families can similarly apply the framework to the design of their governance systems. They can move from a check-the-box, product approach to understanding who the governance systems are serving and what it is that they want them to accomplish.  

    4 steps to shift your thinking  

    Here are four easy steps to take this “jobs to be done” approach to your governance system.  

    1. Define the customer. Too many families overlook this step in the rush to adopt governance elements. Who will be the customer of a given governance system or component—owners, family employees or prospective ones, or the whole family? Rather than asking, “Do we need a board?” think about whose needs may be served by a board as a starting point.  
    2. Identify the job(s) the customer needs done. This may seem simple, but it can be more complicated than you think to overcome preconceived ideas of what certain governance structures “should” do or look like. To continue the example of a board, and assuming the customer is the family, what does the family need from a board? What would the family hire a board to do for them? Perhaps it’s for oversight, strategic insights, or credibility? The answers to this question are crucial for the next step in the process. 
    3. Design the product to fulfill those needs. With the customer identified and the job defined, design the product (family office, family council, board of directors, family protocol, or employment policy) to meet those needs. Be careful with this step, because most governance, left unattended, can revert to its commoditized form. For example, board members without direction from the customer will tend to act in the same ways they have in the past.  
    4. Assess success. Is it working? Return regularly to the customer to confirm they are happy with the structure or practice they “hired” and adjust as needed to address evolving needs.  

    What jobs do you want your governance system to do for the family and enterprise? That’s the question more families in business need to ask. The ideas here will help you do that and reap the rewards of governance components designed just for you. 

    The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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    Matt Allen

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  • Boost Innovation in Family Business by Promoting Autonomy With Strategic Control   

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    As the pace of change in the world increases, family businesses are often faced with the need to increase innovation to adapt to changes in the market and the family. It might mean coming up with an innovative product, feature, manufacturing process or whole new operating model. It might also require a creative dividend strategy or approach to family communication to serve a fast-growing family and shareholder base. 

    Whatever the specific need might be, family enterprises may face greater challenges making it happen than non-family businesses. Research indicates that the ability to innovate can decline across generations, with later generations producing far fewer innovations. Family leaders looking to enhance innovative behaviors, especially among rising generations, can follow this simple advice: promote autonomy by wielding control strategically.  

    Autonomy and innovation 

    Several years ago, I led a study looking at how people management influenced the behavior and attitudes of teams working on product management and development. One of our main hypotheses was that micromanagement, in the form of strict control, would stifle morale across the board. 

    Surprisingly, our research showed that tight controls on how team members carried out their day-to-day activities had a mostly positive impact on their attitudes and behavior. This was only true if they were working on projects where the market and technology were well-understood–such as for teams managing existing products. However, the more important finding was that when teams were working on innovative products where the market and/or technology was more ambiguous, the impact of leader control of day-to-day activities was clearly negative. In short, excessive control stifles innovation. 

    That’s because control diminishes autonomy or a sense of independence, long recognized as an essential component of innovative, creative behavior. Individuals need space to explore and experiment, leading to novel ideas and innovative activity.   

    However, autonomy can and does decrease across family business generations, driven by increased complexity in both the family and business as well as the need for the business to support a growing number of family members. Tradition and legacy can exacerbate this with a “Don’t rock the boat,” or “This is how our family has always done things” approach. Consequently, next-generation leaders often lack the autonomy required for innovative thinking and may feel pressured to maintain the status quo.   

    Wield the right control 

    The answer is not to remove all controls or expectations for next-generation members. Instead, family business leaders can use strategic control to increase autonomy with an outcome-focused approach. Most families use a specific kind of control when dealing with the next generation–called “process control” or “behavioral control.” It’s about micromanaging behavior to drive desired outcomes. It’s based on the assumption that because of the experience of prior generations, the “what,” “how,” and “why” are already understood. Thus, there’s one right or best way to do things. Not surprisingly, that rigidity diminishes innovation.    

    Instead, aim for “outcome control,” with focus on controlling the result of a process or activity, but leaving the “what,” “how,” and “why” to the individual. Families tend to avoid this approach because it implies that there exist alternative and perhaps even superior ways to accomplish goals than what they already know. This can call into question the legend of the founder, the eminence of current generation leadership, and other long-held, sometimes unspoken beliefs about how things should be done.    

    The genius of outcome control is that it provides autonomy for next-generation members to experiment, learn on their own, and apply their unique skills and talents to problems without sacrificing expectations for performance. This increased autonomy will drive higher levels of innovative thinking, activity, and results.   

    Quick tips to get it right 

    While using outcome control might not be the natural approach for you, the benefits are worth the effort. Here are some things senior-generation leaders can do to drive innovation by shifting from behavior control to outcome control.  

    • Accept that change is inevitable.
      Change is the only constant. Even if the family knew the best way to do things at one time, things change, and you’ll have to as well. Take an adaptive, flexible approach.   
    • Leave your ego at the door.
      It’s not about what’s best for you but what’s best for the family and its enterprise. Make it about them with statements like, “I trust you,” and “I’m confident in you.” More we, less me.   
    • Recognize the diversity of capabilities in the family.
      Everyone has different talents, capabilities, and interests as related to business, family, and broader life. People and organizations are most successful when they are allowed to use/develop these and or apply these to their work in unique ways. Harness the collective and individual abilities in your family. 
    • Promote continuous improvement.
      There is always a better way, but you have to be open to finding and embracing it. The mantra should be that of The Six Million Dollar Man, “You can rebuild it “better, faster, stronger.”   

    Innovation is critical no matter what business you’re in. Family enterprise leaders can promote maximum innovation in next generations by wielding control with care. When they focus on outcomes rather than processes, they’ll enable the autonomy and creativity that goes with it. 

    The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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    Matt Allen

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