PROFESSIONALIZING FAMILY BUSINESS

Family businesses are the growth engines of the country’s GDP, contributing significantly to the development of the society, and the economy and generating employment as well.

At the same time, due to their unique competencies, the deep-rooted spirit of entrepreneurship, and relationships, family businesses are the most complex form of organization.

Ownership, leadership, succession, governance, and talent management are some of the common challenges faced by any family business.

With the increase in family members, changes in generations, and expectations, complexities in the family and the business pose a threat to the survival of the family business. Less than 10% of the family businesses survive beyond the 3rd generation.

“As the family businesses grow, the family business owners or the business leaders
who have controlled and managed the family business are either weary by now or are
looking to accelerate the growth, think of “Professionalizing” their business.”

WHY SHOULD A FAMILY BUSINESS PROFESSIONALIZE?

Family businesses must professionalize for the following reasons:

1. The revenue growth is faster than the talent growth in the organization, resulting in system failure
2. The family members lack the desired capabilities to grow the business beyond a certain point
3. The family controls create bureaucracy within, choke the pace, and fade away the competitive edge of the family business
4. Lack of decision-making due to internal conflicts, is a roadblock to the execution of key long-term strategic actions
5. Favoritism and nepotism by family members demotivate other employees and affect their performance as well

MEANING OF PROFESSIONALISING THE FAMILY BUSINESS

Professionalism means adhering to the core values, business philosophy, high-performance standards, and ethics which increase equity value and benefit the customers, stakeholders, owners, etc.

In a professional culture, there are processes for setting up an organization’s vision, goals, performance measurements, and management systems. Professionalism is the result of attitude, behavior, performance, and discipline.

Professionalism is independent of the identity tag of a family member or non-family member attached to the individual. In the family, due to the emotions, relationships, and expectations, every member is treated equally. While in the business, it’s the performance and the returns which decide the meritorious and the rewards.

Family businesses, with management systems in place and operating standards being monitored are quite professional in nature. Professionalization is often thought of as having more outsiders (non-family members) in the business.

In short, there is a need for experienced and trained human resources who can propel the organization forward. When a non-family member is chosen to lead the business, it is one of the elements of professionalism, but certainly not the only route for the family business to transition to professionalism.

“Vision, Goals, Ethics, and Performance are the pillars of Professionalism”

HOW CAN A FAMILY BUSINESS PROFESSIONALIZE?

Family businesses can professionalize themselves by adopting principles such as:

• Building the foundations of professionalism through family discipline and commitments
• Creating an organizational culture that nurtures performance and business ethics of the highest standards
• Defining the organization’s vision, goals, and objectives
• Creating the organization architecture
• Defining roles and responsibilities for all employees
• Setting up policies for performance measurement, promotions and career growth
• Instilling the spirit of ownership in the non-family members by involving them in key decision-making, recognizing their efforts, and providing security through ESOPs, etc.

“Define, Monitor and Improve Management Systems driving the Family Business”

10 WAYS TO PROFESSIONALIZE THE FAMILY BUSINESS

Family businesses have their own unwritten rules and run-on mutual understanding. When conflicts erupt and growth is stagnated, the need for professionalism arises.

The 10 ways to professionalize the family business are:

1. Define the boundaries of the family, the business, and the ownership. The family and the business must be separate and must be independent in functioning
2. Family goals and business philosophy must never be hazy or get diluted with growth challenges. Stick to them, no matter the circumstances
3. A clearly defined strategy along with objectives and performance measurements paves the way for a great professional culture
4. Rewards, recognitions, and growth should be strictly in line with performance
5. Educating the next generation of family members is the best way to pave the way for transforming the family business into a professionally run entity
6. More than an educational degree, a few years of working experience outside the family business works out to be the best catalyst for embracing professionalism in the family business
7. Structured growth policies for the family members helps them understand the family business
8. Hiring non-family employees, so-called professionals, having the right education and rich experience can bring about the desired changes in the management systems quickly for attaining professionalism
9. An experienced Board of Directors, bringing an outsider’s perspective, enhances the performance of the business leader and the management team in fulling the expectations of the family members
10. Make decision-making a formal structured process, which involves the key employees, making them feel part of the family

PROFESSIONALIZING THE FAMILY BUSINESS IN A NUTSHELL

With the increase in the number of family members and complexities in the relationships, along with business demands, the process of professionalizing the family business is a must to move to the next level.

Family forums, family councils, family meetings, and other governance structures are great platforms supporting the transition process.

It’s the preparedness of the family members and the clarity of the business leader which decide the smoothness of the transition.

Defining boundaries, roles, and responsibilities, of the family members, eliminate the ambiguity and conflicts arising in day-to-day operations.

Standardize the key processes. Review and monitor them frequently.

Have a well-qualified and experienced Board of Advisors, and independent directors, to build and mentor a cohesive management team, to infuse growth in the organization.

ADDVALUE is one of the leading Family Business Advisors assisting members of family businesses to professionalize their family business, under the guidance of expert Family Business Consultants.