By John A. Davis
The performance edge family businesses have over their nonfamily business counterparts has been explained by their dogged pursuit of operational excellence. Family firms tend to take a long-term view of investments and relationships, stay in ownership control to do things their way, focus on persistent improvement and innovation, develop loyal stakeholder relationships, build key talent in select individuals, carry lower debt and build greater financial stability.
Family companies that have persisted over generations despite changing conditions strive for operational excellence, but not exclusively. They also are skilled at migrating to new value-creating activities and at leaving activities and practices that destroy value. They don’t become stuck in traditional businesses or outmoded practices.
An Owner’s Mindset recognizes the importance of operational excellence, but insists on being in activities that create value (financial, social, relational and reputational) according to the key values of the owners. Those with an Owner’s Mindset ask: Where are we creating value? Where should we invest our financial and human capital? How do we develop leaders and organizations with the right culture? All these questions are rooted in the values of the owners.
To develop and protect an Owner’s Mindset, key owners need to:
• Develop family and company missions that focus on creating various kinds of value.
• Design activities (an owners’ council, board meetings, conferences, meetings with experts) to gain a high-level view of firm and family assets, as well as changes in the size and nature of the family and its activities.
• Develop an integrated plan for the family and its enterprise over time.
• Develop family and nonfamily talent to support value creation.
• Move thoughtfully into new growth opportunities by learning to experiment.
• Challenge businesses and other activities that destroy value but remain because of old attachments.
• Detach from businesses, investments, practices and people that aren’t adding value.
If there is anything that families in business have to be good at in these disruptive times, it’s letting go of what isn’t working.
John A. Davis leads the family enterprise programs at the M.I.T. Sloan School of Management.
Image credits: Nuthawut Somsuk | Dreamstime.com