We define as a situation of success that condition that gives us long-term profitability and family harmony.
Source of conflict in PE
We have defined that success in PE should translate into Profitability and Family Harmony. To this end, we should measure success by the results that emerge from the management of managers - family or not - to manage to dilute or avoid conflicts, without affecting the development of the company.
Although the possible sources of conflicts in a PE are infinite, depending on the family culture, type and size of company, market in which it operates and stage of evolution, among many others, we can list 4 edges as the most frequent where those skills of managers are tested.
And that they are the key to understanding the concept of their resolution.
Rather than interpreting the presence of these external or internal factors as sources of conflict, it is necessary to understand that it is the absence of these that generates the crises.
The first three edges are perfectly studied and rehearsed in the vast bibliography on the subject.
The fourth edge is latent in the same organization, this one, as it grows, goes through successive stages of internal crises that are what drive the changes it must make, and, many times, those changes are what generate the crises.
The entrepreneur must evolve in his actions together with the company.
The objective of this work is to demonstrate that the application of the methodologies to dilute or avoid the conflicts inherent to PE, must be adequate to the stage of growth that the organization is going through
The conflicts inherent in PE are.
Family Values - Vision
In RUs, the strategy will be strongly influenced by the philosophy, values and goals of the owner family, we must study how to do so that they do not become an obstacle and their companies endure through successive generations.
It is obvious that if the family culture is not aligned with the needs of the company, the joint existence of both is not possible.
We discard that the essential values for a Family company to be compatible are present in all the cases studied.
The absence of a common goal is one of the main sources of disagreements, since each member of the Family has their own company as a goal and, unlike non-family employees who submit to comply with what they say, the family member believes he is upholding a higher goal, that of his own vision of the future, and rebels against all decisions made by others
Defining a vision and reaching consensus with all the members of the Family is an essential element to reduce possible differences.
The decision of day-to-day actions, which is generally made and imposed by whoever holds power in the organization, which often generates resentment or rebellion, is subordinated to achieving that position desired by all.
That Vision, which arises from a common need, makes personal needs take second place, leaving the self aside to make way for us, feeling that the long-term future of the organization is more important than any personal aspiration.
And, most importantly, it shifts the focus of power, ceases to be reflected in people and is located in objectives. This we must do so, not because I say so, but because, if not, we will not achieve the objective we said we want to achieve.
Family Values → Family Vision → Company strategy
This would be the logical sequence of evolution.
• Bearing in mind family values, that is, ignoring that they are compatible with the needs of the company (otherwise the existence of both is not possible).
• A shared vision is discussed and accepted
• Using the strategic approach, a competitive strategy is developed.
Strategic approach
- Where we want to go à Family Vision Where we are à Analysis - Diagnosis How we got there à Strategy
In short, the lack of a joint Vision is one of the causes of disagreements in the company and in the family.
The usual methodology is to develop this vision together with all the members of the family nucleus, and this must be carried out at the earliest stage of the company.
Forms of government
The problems faced by the Family Business are exactly the same as those of the corporate companies, only the family problems are added to the former.
It is very normal that in a company someone's attention is called for not achieving the objectives, promoting an employee to a higher position and that former colleagues must subordinate themselves, fire another for not meeting the requirements of the position, or not be aligned with the objectives of the company. But when this happens in a Family Business and that someone is a father, a son, a brother or a cousin, the problem takes on enormous dimensions, because it also affects the family.
Many families, by structure, culture, etc., face these processes without major crises, because they can speak about it and decide to avoid conflicts, that is, by consensus among all interests. Others live in constant discussion and even separate. And the others do not argue, avoid conflict and, in these cases, the company suffers.
There is only one way to lessen the impact of these problems: to establish a form of government. (Antognolli; 2006).
The scheme that best represents the PE system is from the three circles of Jhon Davis - Tagiuri, where the three subsystems that come into play and interact with each other are represented.
Family - Company - Property
The biggest difficulty to overcome is understanding that each of the three subsystems evolves over time in its own direction and meeting its own needs.
These evolutions, which take place in different time frames, produce interactions between the three subsystems that, if they are not framed in defined and precise rules, can generate tensions within each one, and often until the breakdown of one or more of them.
With a form of government, defined by consensus, for each of the three subsystems (Family Board for the family, Board for the company and Board of shareholders for the property) the differences that occur between the inter-system boundaries are cushioned.
Professor Jhon Davis reflects the problem of this difference in evolution in the enunciation of what he calls the Four Natural Laws of PE.
• Families grow faster than companies
• The economic expectations of families are higher from generation to generation
• As a consequence of the other two, families are increasingly economically dependent on the company.
• The fourth law maintains that families usually put all eggs in the same basket.
I add a fifth law.
• The possibilities of conflicts are directly proportional to the distances between the family ties of the members of the PE. This implies that as generations go by, the likelihood of conflict increases.
So the need for regulation and form of government of each subsystem becomes essential.
It is then when the “Family Protocol” must be raised. ((The form and use of this document is sufficiently studied and raised in the literature on the subject).
The succession
This edge is the one that, if not carried out properly, produces the deepest conflicts.
In the succession stage, a series of personal conflicts come together temporarily.
Those who must or decide to leave the company, if they did not prepare for it, must face the crisis of the change of activity, begin to feel that they are aging and must adapt to this new stage with what this adaptation entails.
The decision maker (s) must face decision-making and assume management responsibility.
Employees must adapt to a new style of leadership, which requires changes that are often impossible for older people.
All these conflicts, as I have pointed out, converge temporarily and have repercussions both for the family and for the company.
It is for this reason that only 10% of PE manage to pass the third generation.
The solution to this conflict is to prepare and schedule this generational change.
(See Family Businesses: The succession - by the same author)
In these 3 edges, the study of the discipline has been significantly deepened.
We understand that it is possible to define one more edge, as a complementary approach to the previous ones and in search of adding knowledge to the focus of conflicts in the matter of study, with the aim of trying to define actions that mitigate or avoid those conflicts.
The study methodology consisted of studying the different crises that the entrepreneur must go through throughout the growth cycle of the organization and adding the sources of conflict, typical of PE.
The study is based on experiences in small and medium-sized companies in Argentina and was carried out while the management consultancy was carried out.
The focus of the stages of evolution -
The previously described, edges of conflict generalization, are combined in the different stages of evolution of PE.
Adding the stages of PE growth as an analytical variable will be key to understanding the different behaviors that manifest.
In addition to understanding the possible actions to be carried out before each stage and before each crisis that is faced.
The intensity and depth of the management professionalization measures must be adapted to each stage, it is not possible to carry out professional practices or try to write a family protocol at the stage of company management.
Many times carrying out policies in the initial stages of the organization adds unnecessary costs that can jeopardize its evolution.
The changes must also be accompanied by the evolution, both emotional and professional, of those involved in PE.
Methodological framework:
This work is based on experiences carried out in the field in SME companies in Argentina, each one in different stages of evolution in the years 2002 - 2007.
It is not possible to isolate the company system from the context, it should be noted that the years of study were years of GDP growth in Argentina, so the activity of companies was increasing as a result of that growth.
The generation of the typical growth crises and the good economic situation allowed the possibility of hiring a consultancy to help them solve that situation.
The study was carried out on 27 companies.
15 of them for the production of goods, 5 for marketing or distribution and 7 for services.
11 are managed by the first generation without the second one yet appearing, 7 are managed by the second generation already defined (the first has already retired and in some cases the death occurred) and 9 are in the coexistence stage between the first and second generation.
6 employ 1 to 5 people, 3 between 5 and 10, 3 between 10 and 15, 14 have between 20 and 40 employees and 2 more than 40.
In addition, 126 SWOT analyzes of companies of different sizes and activities from different Spanish-speaking countries were analyzed, which were received through the www.pymesdefamilia.com.ar site.
Results of the work
Companies are complex systems that depend on infinity of variables (market in which it is developed, legal form, culture of the founders, vision, values, etc….), making it very difficult to generalize as to what behaviors and strategies are appropriate. The same problem is solved in each organization in a different way and generally with good results in all of them.
But all, as they grow, go through stages of evolution that are very similar in most. Just as people go through childhood, adolescence, maturity and old age, and in each of these stages they behave and think differently, and each one arrives at different times, the same thing happens with organizations, with the only difference that Businesses, if transformed correctly, can outlive their founders. In the EF, in addition, the interaction with the other subsystems is added, which comes to add an additional component to each of the stages.
In each of the stages a crisis appears, which is the one that generates the need for change, this crisis can be more or less short, or more or less traumatic, depending on whether the reasons that produce it are known and the orientation is Regarding the first actions to carry out.
Depending on the culture prevailing in the organization, if it is proactive or reactive, actions can be taken before the crisis occurs, or once it is triggered, knowing the causes, taking it more calmly and with less anxiety and making the necessary changes.
At each stage, along with organizational changes, it must evolve in the form of leadership and in the culture of the company, and these may be intended objectives or emerging behaviors as a consequence of the crisis undergone, and, often, both., where changes influence the crisis and it is this that produces the changes.
I insist that each company is a unique and unrepeatable entity, so the need for change comes to each one at different times, and the symptoms may differ in intensity, depending on the prevailing culture at that time. The important thing is to perceive the need for change and normally this occurs when: sales fall, a climate of disorder prevails, there is the impression of losing control, the clear objectives are not seen, the proposed objectives cannot be achieved, the conflicts (between family members, with the operators, outside the company), each member of the management has different objectives, each time a problem is solved a greater one appears and, in general, when we are not enjoying the task we carry out daily or we are clear for what we do everything.
In PE conflicts are more acute especially when they meet temporarily those sources mentioned: Family culture - Vision, form of government or succession.
I will use the Gifford Pinchot III “Vision - Action” grid to graph the cultural models that represent each stage of evolution.
I do not think it is necessary to explain that all the actions and measures taken in the organization aim to keep it continuously in the upper right quadrant, that is, with an entrepreneurial culture.
In addition, at each stage, it will be indicated what measures are advisable to reduce the level of conflict, attending to the three causes identified: Family values - Vision, Form of government and succession.
First stage - enterprising
The company is born, one or more people start an activity to manufacture a product or provide a service.
This first stage, regardless of whether the company has resources or not, the manager (to simplify when I say Manager, I mean the person responsible for generating the strategy, the leader of the organization) is THE PROPHET, with a high dose of Vision and Action it is the one that breaks the mold, the one that pushes the company forward. The founder accompanied by a generally small group of highly motivated collaborators solves all the problems that appear.
Everything is new, the energy level is very high. This stage is also known as CREATIVE CHAOS, everyone does everything, everyone knows where they are going, each one can solve almost without asking how they know the Vision, the north.
Strict control is not necessary because the company is small and easy to manage.
The only drawback is the lack of resources that is overcome and avoided with enthusiasm and creativity.
At this stage the founder is normally part of the operational wheel (buy, produce, sell, deliver, collect, pay) in almost all its stages.
As the company grows, people are incorporated who, at first, easily adapt to the rest. Because as those who are already arriving can instill in them the Vision and spread enthusiasm.
Many times in this stage the second generation joins in pursuing two purposes, the help itself and the illusion of the founder that the children are learning the business.
Symptoms of crisis: The number of people increases, and the new ones do not receive the communication because they are all very busy. These begin to work without a global Vision, but with a lot of energy and then a ROUTINE subculture is generated, these new ones cannot solve many of the problems that arise. There's no time to think. The Founder has to take care of everything, he cannot delegate a little because he does not know how, and another little because the personnel who do not have the Vision do not solve anything without asking.
The feeling that controls are missing begins, the information generated is not enough, everything depends on the Manager, who, logically, cannot be in everything.
Then sales start to drop, or the climate of the organization is tense, or there is not enough data to make decisions or nobody deals with the problems that appear, everything has to be resolved by the Manager. Everyone works to the limit of Stress. The Manager becomes THE BARBARIAN who takes the reins, the one who dominates the crisis, the one who must produce the necessary changes to move to the other stage.
Measures to take
Family Values - Vision
In this first stage, the definition and transmission of the Vision is essential to avoid reaching this crisis with the divided family.
New employees are not going to have a clear direction since they lose contact with the founder, but if it is very likely that they will have it with future successors, then it is essential that they have a clear and defined vision.
All the effort must be made in the government of the family, since it is this that will support and help overcome all the inconveniences by providing the necessary resources, financial and people.
Form of government
It is not so necessary to formalize forms of government for the three subsystems at this stage, first because normally there are no profits, nor is there a formal management structure for the company (they all do everything) and, if the vision is defined and known, first there is the company.
Yes there are two practices that are essential to start practicing:
• Set a salary for everyone who works in the company. At this stage it is not so important that they are differentiated, they can be the same for everyone, what is asked for is effort or creativity, the results do not matter so much since everyone is responsible.
Setting a salary is not normally done in entrepreneurial stage companies, and this can mask the lack of profitability or make believe that this is greater than the real thing, since there are many management personnel who work for free. It also helps to build the culture that the company's economy must be separated from that of the family.
• Use a method of meetings, both with family members and with employees, to organize tasks. This is an unusual habit in the companies analyzed.
Succession.-
No one thinks of succession in this first stage, the founder (s) are young and the second generation is learning.
Second stage - Structuring
To solve the crisis of this first stage, PE must change to face the environment, it is time to look inside the organization without neglecting the outside. But the greatest effort must be put in the change of structure, in the training, in the step of "command and command" to that of effective leadership to obtain collaboration.
The Vision must be shown to each and every one in the company.
The Manager must be able to leave the operational wheel and dedicate himself to generating strategies for each sector as part of a complex system.
It must become THE BUILDER that plans and organizes, that trains and motivates, that must bring everyone to the high level of Action - Vision.
Symptoms of crisis: Generally, at this stage, crises are caused by changes in the environment when the directors cannot completely delegate the operational wheel and dedicate themselves to managing it from outside it. Entrepreneurial myopia occurs, only the operational wheel is evaluated and optimized. Sell more, manufacture more, promote more, charge more, etc. Without perceiving that each of these changes generate problems in the other sectors. It must be understood that the symptoms (sales fall, a climate of disorder reigns, one has the impression of losing control, the clear objectives are not seen, the proposed objectives cannot be achieved, conflicts increase, each member of the management has different objectives, each time a problem is solved a bigger one appears and, in general,when we are not enjoying the task that we carry out on a daily basis or we are not clear about why we do everything.) They are the consequences of a lack of global strategies.
It is a very big change to go from being the best seller in the company to dedicating oneself to looking at it from another perspective, from a global and systemic vision.
Problems constantly appear for not getting ahead of them, the organization is reactive, everyone is very good at solving difficulties. It can be grown or not, but many times everyone gets used to living waiting for problems to solve them.
Naturally, the company loses Vision despite maintaining a high degree of Action, it becomes routine.
Measures to take
Family Values - Vision
At this stage, if work began on this point in the first stage, the vision should only be reinforced, which is already understood and accepted by all.
If it is essential to start planning a strategy. This must take into account both strategic, cultural and structural aspects.
Form of government
Now it is essential to start defining the forms of government of the three subsystems, giving priority to the government of the family (Family Council), which is the one that will regulate the actions of the other two. They must begin to raise the needs of professionalization of the management and requirements of the relatives to enter the company.
Much emphasis must be placed on the governance of the company's management (the board of directors), since it is the one that will plan and carry out the strategy.
In this period, the shareholders' meeting is not so important. The company, most likely, continues to grow and needs to reinvest the dividends.
Succession
Although the problem usually does not appear yet, it is a good idea to start introducing the topic at family council meetings.
If it is not yet clear who the successor may be, a board of directors can be formed with potential successors, working as a team with situational leadership.
This diminishes the possibility of conflict and, normally, the natural leader arises as a consequence of daily actions.
Third stage
In this the company is already professionalized. There are some that remain stagnant in the previous stage. They are the ones that did not manage to propose a defined strategy and the directors are working on the operational wheel.
The biggest challenge in this period, and forever, is keeping the organization in the upper right quadrant of the grid.
Normally it is already a medium or large company, and it is in the succession stage or the second generation is already in full swing and the third is beginning to appear.
Measures to take
Family values - Vision
It is time to write the Family Protocol, it is not possible to continue with the company in the hands of the family without a regulation that regulates the interaction between the three subsystems.
Form of government
Now the family council, the board of directors and the shareholders' meeting must fully function.
The three subsystems grew and evolved, and constitute an increasingly complex system. It is essential
Succession
The first generation change is already underway or, many times, the second is already in full swing.
The chances of conflict are greater. There are more people depending on the company, family ties are more distant, the needs of the company are also more demanding in terms of knowledge and experience of those who work in it.
The plans and requirements of subsequent successions must already be governed by the Family Protocol.
Conclusions:
We all know that only 30% of family businesses survive the second generation, only 7% the third, and there are only 32 family businesses over 200 years old in the world.
It is deeply studied and proven that if PE is governed by certain practices, it is most likely to achieve the two essential objectives Profitability and family harmony.
What I propose in this work, based on field experience, is that these measures and practices must be started and developed according to what stage of growth the company is in.
Failure to do so may lead to bureaucratizing the company at an early stage.
That the owners do not understand the need for each of the practices, because the feeling is that the company needs something else, and this is true.
That the Family Protocol does not cover the true needs of the company in the last stage.
That the shareholders' meeting, when meeting without certain objectives, ends up being a boring process, instead of a meeting to provide solutions to the company's financial problems.
That the second and third generations believe that bureaucratization is the only way out for the company.
Bibliography:
Re-structuring companies Roberto Serra, Eduardo Kastika - Ediciones Macchi 2000
Family Businesses, their dynamics, balance and consolidation - Imanol Belausteguigoitia Rius - Mc Graw Hill - 2004
Success in family business - Grupo Norma editorial - 2006
The secret of successful family businesses - Santiago Dodero - Editorial El Ateneno - 2002
(Work presented at the First International Family Business Symposium organized by the University of La Salle - CEDEF in November 2007 in Bogotá - Colombia).
