Challenges of change management in a Family owned business Module By: Prof. Patrick Flood

Submitted By: Siddharth

FT-MBA – Class of 2015

Email: Siddharth.jain@fs

Challenges of change management in a Family owned business

Module – Change Management

By: Prof. Patrick Flood

Submitted By: Siddharth Jain (4999302)

Class of 2015

Siddharth.jain@fs -students.de

Challenges of change management in a

Change Management

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Table of content Introduction ………………………………………………….2

Models of business……………………………………………3

Factors affecting family business……………...........................6

Challenges of managing change………………………………7

Conclusion and recommendations……………………………10

References…………………………………………………….13

Bibliography………………………………………………......14

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Challenges of change management in a

Family owned business Introduction What do some of the most famous names, such as Wal-Mart, Koch industries, Ford motor co, in the business world have in common? They are family run businesses which have become business leaders over time. Although, not all family businesses are as big as the examples given above, some of them are run by two or three members of a family. Family businesses continue to play a big role in economies of various countries.In fact, around one-third of all companies in the S&P 500 index are family-controlled, and many are outperforming their competitors [1]. According to a Harvard business reviewstudy, family businesses strive for resilience more than performance .In times of crisis family businesses are better off than non-family controlled businesses [2].The emotional investment and internal family dynamics in a family run business differentiates it from traditional non-family run organizations. In this paper, we will divulge into details about the internal dynamics in a family business, challenges faced by the people affecting change in the family run organization and the steps required to make changes in a smooth and efficient manner.

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Models of business

<http://www.slideshare.net/BLHantsiow/ensuring

The two circle model [3] has befamily run business viz ownership and business. The model consists of a business circle (whichfocusses on orgprocesses) and a ownership circle value, governance and ownership distriintersection contains stakeholders and employees. However, the two circle model is unsufficient to finvolvement in the business because relations have on the business model) has been introduced [4

Owners

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The Two Circle Model

http://www.slideshare.net/BLHantsiow/ensuring-the-succcess-of-your-family Figure 1

has been introduced to represent two aspects ownership and business. The model consists of a business

focusses on organisation culture, mission and values and businesses ownership circle (which focusses on aspects such as shareholder

overnance and ownership distribution). In this model, the circle intersection contains stakeholders and employees.

However, the two circle model is unsufficient to fully represent the family involvement in the business because it does not factor in the infuence family relations have on the business . Consequently, an improved model (three circlemodel) has been introduced [4] to overcome the limitation of the two

Ownership BusinessOwners

Stakeholders

Employees

family-business>

two aspects of a non-ownership and business. The model consists of a business

values and businesses pects such as shareholder

In this model, the circle

ully represent the family it does not factor in the infuence family

. Consequently, an improved model (three circle ] to overcome the limitation of the two circle model.

Business

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The Three Circle Model

Familybusiness has been an area of interest for a long time because of it’s importance in the economy .In fact, to understand family business in a better manner ,the Three-Circle Model of the Family Business System was developed at Harvard BusinessSchool [4] consisting of family, ownership and family circle.

Figure 2 Family circle consists of all the members in a family. Family members may never own shares or work actively in the business. In a family business people play

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multiple roles-an owner maybe the head of a family and the business decision maker in the company. The interplay among three circles determines how a business transforms itself. A balance among three aspects is an essential requirement for a sustainable growth.

<http://www.slideshare.net/BLHantsiow/ensuring-the-succcess-of-your-family-business>

Figure 3 When a family run organization goes through changes, the people affecting change have to create a shared vision, and keep the business and family side of things in harmony. If the change manager does not take into account all the aspects, it can harm the business in the long run. The ‘Three circle model’ is still widely used by consultants and family business executives to understand family run businesses.

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Factors affecting family business A family business, as it evolves, bigger so do the challenges. Most family businesses start out as an entrepreneurial venture by an individual, business.The failure on the part of people generation can lead to disastrous results. survival rate has reduced drastically with changes in 3%.

<http://www.signs.com/blog/family Both, external factors (macroeconomic environment) and internal conflicts family run business; however External environment and mdetermining the success of businesses.internal factors, for e.g. generational the downfall of a family run importance to understand the Keeping the same level of trust and transparency as the business goes through different phases is a difficult task for a change manager, but, its be undermined.

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actors affecting family business

A family business, as it evolves, goes through different stages, and as it grows bigger so do the challenges. Most family businesses start out as an entrepreneurial

who gradually brings in newer generationre on the part of people affecting changeto integrate newer

generation can lead to disastrous results. For example, Figure 4 shows that has reduced drastically with changes in generation-

http://www.signs.com/blog/family-business-succession-planning-101/>

Figure 4

Both, external factors (macroeconomic environment) and internal conflicts family run business; however, they may not affect the business equally.

environment and macroeconomic factors do not always ng the success of businesses. In most cases, it has been observed that

generational change and management failures, havedownfall of a family run venture [5]. For a change manager, it is of utm

importance to understand the internal issues before any change can be effected.Keeping the same level of trust and transparency as the business goes through

difficult task for a change manager, but, its

through different stages, and as it grows bigger so do the challenges. Most family businesses start out as an entrepreneurial

ally brings in newer generations to run the to integrate newer

shows that the - down to almost

Both, external factors (macroeconomic environment) and internal conflicts affect a they may not affect the business equally.

always play a big role in it has been observed that

failures, haveled to For a change manager, it is of utmost

internal issues before any change can be effected. Keeping the same level of trust and transparency as the business goes through

difficult task for a change manager, but, its importance can’t

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Challenges of change management Change management is a difficult and time taking process in any business let alone family owned business. However, challenges faced by change managers in a family owned business, although requiring the same strategic thinking and long term vision as a non- family run business, are different in nature compared to challenges in a traditional business setup.

Figure 5

challenges

Succession

challenge

promotion

and

incentives

transition

challenge

Change in

ideology

change in

culture

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Succession challenges Planning succession is an inherently important activity in any family run business. Whether the successor is a family member or an outsider is an issue many CEO’s appointing their successors face. A very famous example of an outsider brought to the helm is that of Cyrus Mistry who was appointed as the chairman of the TATA sons Board in December 2012[6]. Once selected, there was a year-long transition where Cyrus Mistry worked directly under Ratan Tata (former chairman) to get ready for the top job. Promotional challenges Incentivizing non-family executives in the business can be a hurdle for the majority of family businesses [7].How a family member is incentivized and promoted in a changing business environment of a family business is of utmost importance. Incentivisation strategies should be changed according to the changing business requirements. Some family members may not play a very active in the functioning of the business but may still get incentives. This sort of strategy can create unrest among non-family stake holders. Transitional challenge Transformation from one generation to other process can be a challenging task in a family run business. A changemanager has to make sure that the communication between the incoming members and the existing members is transparent. Young generation family members should feel comfortable in conveying their ideas to the experienced family members of the business. Multi-generational board Boards of big multinational family owned businesses change as newer generation comes into the business. The changes in governance structure of the business have to be managed by the change manager a in manner which does not lead to any conflicts.

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Changes in ideology Sometimes the family business can be heavily influenced by the ideology of an individual, most of the times it is the person who founded the business, which makes it difficult for the business to deviate away from that ideology. Resistance to change can drag these family owned businesses back. Changes in organizational culture Cultural change is inevitable in any family run business. Cultural and ideological changes are closely related aspects which are influenced by the most senior members in the family business. Whenever the style of management changes, which can be due to various reason, people in the organization have to percethat change and adapt accordingly. Making people adapt to the new culture is a challenging task faced by a change manager.

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Conclusion and recommendations Change management is an essential requirement for the sustenance of any family owned business. Resistance to change can lead to downfall of the business. The change process takes place in organizational behavior and the different intra- personal relationships among the family members. For any change to be effective, particularly in a family run business, family members involved should be on the same page and then the change can be filtered through to the employees and non-family stake holders. For an effective management strategy, the change manager has to carry out change management in an effective and timely manner. The change process should be a gradual and smooth transition rather than a knee jerk reaction.

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Here is a proposed framework to tackle some of the challenges involved in the transformation process of a family run business.

Stages of change management

Figure 6 Need for change In family business the need for change can arise due to death of a prominent member occupying a decision making position in the business. One more reason can be the conflicts among family members which deter them from working together. A change becomes necessity in that case. Gathering data Once all the family members and involved stakeholders are on the same page, a series of brainstorming have to be done about the areas to be targeted. Gathering data to assist in this change is also a part of this procedure.

Recognising the need for change

Gather data about the areas

requiring change

Application of the new framework

Promoting and internalising the

new framwork

Self suppoting structures to keep

the framework into place

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Application The new framework is put into practice in this stage. This stage makes sure that the changes that the changes in the processes agreed upon are introduced in the organization in the right manner. Promotion and internalization Once the new changes are introduced, they are promoted and internalized among the members of the family and the other stakeholders in the company. Employees and other stakeholders can be incentivized on accepting these changes Self-Sustenance The new changes should be able to sustain themselves on their own. The members of the family should work on continuous improvement of the organization.

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References

[1] http://www.businessinsider.com/the-10-largest-family-businesses-in-america-2011-11?op=1&IR=T

[Accessed: 11/03/2015]

[2] https://hbr.org/2012/11/what-you-can-learn-from-family-business

[Accessed: 12/03/2015]

[3] http://www.slideshare.net/BLHantsiow/ensuring-the-succcess-of-your-family-business

[Accessed: 11/03/2015]

[4] Davis, J. A., and R. Tagiuri. "Bivalent Attributes of the Family Firm." Family Business Review (summer 1996) [5] http://www.slideshare.net/evrenyuksel5113/reasons-of-family-business-failures?related=2 [Accessed: 13/03/2015]

[6] http://www.tata.co.in/aboutus/sub_index/Cyrus-P-Mistry

[Accessed: 13/03/2015]

[7] http://www.howespercival.com/resources-and-events/articles/article/running-a-successful-family-business

[Accessed: 14/03/2015]

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Bibliography

� kets de Vries, Manfred F. R. &Carlock, Randel, with Elizabeth Florent-Treacy (2007). Family Business on the Couch: A Psychological Perspective

� Sciascia, S., Clinton, E., Nason, R., James, A., & Rivera, A. 2014. Family Communication and Innovativeness in Family Firms. Family Relations,

� Kelin E. Gersick, Ivan Lansberg, Michele Desjardins and Barbara Dunn Stages and Transitions: Managing Change in the Family Business