MGT 4550 - Family Business ManagementMANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESSChapter 11Family Business Management, Concepts and PracticeBy A. Bakr Ibrahim & Willard H. EllisInstructor: Dr. Irene Duhaime

Questions and Cases Questions 87-89, 95-97, 100, 101 FBAB

Case: Monticello Pottery, Inc., p. 481 FBM

Class Schedule - Week 9 (03/22)MANAGING STRATEGIC CHANGE IN THE FAMILY BUSINESS Reading: Chapter 11 FBM Questions 87-89, 95-97, 100, 101 FBABCase: Monticello Pottery, Inc., p. 481 FBM

ContentsStrategic ChangeResistance to ChangeThe Changing AgentThe ClienteleOrganizational Change Techniques

Strategic ChangeObjectiveTo move the existing system to a more efficient statePossible ReasonsSuccessionGoing publicIntroduce professional managementRestructuring

Planning & strategic changes in the family firmOwnership dimension

ownership transfer, wealth transfer

going public

Planning & strategic changes in the family firmFamily dimension

succession

leadership development

assessment of familys management skills

Planning & strategic changes in the family firmBusiness dimensioncorporate and business strategygrowthdiversificationretrenchment, turnaroundintroducing professional management

Effective Change Management

Step 1

Identify areas of behavior to be changed.

Step 2

Provide time to learn desirable behavior

Step 3

Give positive reinforcement

Resistance to ChangeUncertainty about future under new leadershipFear of personal lossStatus, money, level of authorityPerception that change might not be in the best interest of the firm May weaken the firms competitive position

Techniques to Reduce Resistance to Change

Communication

Education through Communication

Explain the need

Adequate accurate information

Participation

Getting employees involved from the beginning

Leads to support and endorsement

Facilitation

Helping employees through the change process e.g. training, or support

Negotiation, Manipulation and Co-optation

Provide something of value in return for support.

Use of false or partial information to generate support

Coercion

Use of threats

Question 95What is the purpose of the family business family retreat?

Ten Reasons To Hold Family Meetings1.Build a stronger family.2.Build a stronger business.3.Plan for the future ownership of the business.4.Plan family participation in the business.5.Help children manage inherited wealth.6.Open up the succession process.7.Preserve family values, traditions and history.8.Professionals the business.9.Manage family-board relations.10.Recognize and resolve conflict.Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

Who should be invited?Make a list of attendeesin-laws? Younger children?Outsiders only to help the family achieve the meetings goals, hold more productive discussionsfacilitatorprofessionals or employees to provide information needed for topic

When Is the Right TimeInformal family meetings are often held while children are still considerably young

Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

The Importance of the MeetingTo teach the importance of listening, understanding each others logic and values, and following up on results

To teach conflict-resolution skills

To reinforce a childs self-esteem by showing that he or she is important to the process, and that his or her opinions are valued Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

The Meetings ProgressionAs children grow older more time is spent talking about the businessTeenagers are exposed to the burdens and rewards of business ownership, as well as opportunities that the business may offerAs children reach their 20s and beyond, the meetings tend to become more formal. Policies for family participation in the business and leadership succession are introduced.Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

Who Should Run the Meeting?The meeting leader should be someone who commands the familys attention and respect.

It does not have to be the owner-manager of the business.

The familys leadership base can be broadened by rotating the chairpersons role among capable family members.Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

Family Meeting LocationOffices have benefit but more drawbacksMeeting rooms in hotel or clubArrangements should convey importance of meeting

Family Meeting AgendasHelps keep discussion on trackConveys importance of the meetingPrint and distribute in advanceItems of mutual concern to family members (facilitator can help early on)

Question 96Where do you find a good facilitator to run the retreat?What criteria do you use to judge a facilitator and what kind of experience should that facilitator have?

Opening a Family MeetingReassuranceconflict and disagreement are part of family lifecompliment family for dealing with them in a constructive wayFamily is specialBe clear and explicit that proceedings are confidential, if want them to be

Critical Issues for a Familys FutureSuccessionHow do we assure our parents lifelong financial security?What nonbusiness interests will keep the parents fulfilled during retirement?How do we choose the next president?When does the presidential transition take place?How do we decide that?How do we evaluate the next presidents performance and consider his or her replacement?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

Critical Issues for a Familys FutureParticipationHow do we decide which family members can join the family business?What preparation, if any, is required?How do we determine titles and authority?What if a family member employee doesnt work out?What if a family member chooses to leave the business?Do we permit spouses or other nonblood relatives to work full or part time in the business?Do we allow the next generations children to enter the business?Under what circumstances?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

Critical Issues for a Familys FutureCompensation and OwnershipHow do we evaluate and pay family members?Who participates how much in the financial growth or future of the business?Who can own stock in the business?What returns and rewards do shareholders get?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

Critical Issues for a Familys FutureHarmonyHow do we deal with conflicts between generations?How do we deal with sibling conflict?How do we teach in-laws the business and our family traditions?Who will lead the family activities and customs into the next generation?How do we make future family decisions?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

Critical Issues for a Familys FutureResponsibilityHow do we help family members in financial and/or career need?What responsibilities does one family member have to the other?What if there is a divorce?What if a family member breaks the law or acts in a seriously irresponsible way?How much financial information do we share with whom?How do we protect the contributions of good, nonfamily employees?How do we support family members new business venture ideas?How do we cope with public visibility and the publics expectations of successful families?What responsibility do we have to the community?Source: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992. Citing Ward, 1987, p.138

How Family Meetings Change As The Business EvolvesSource: Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D. Family Business Resources, Marietta, GA 1992.

Business Phase

Participants

Typical Issues

Founding or entrepreneurial

Nuclear family

Family participation, succession, leadership transition, "letting go," cultivating family skills

Sibling ownership

Second generation family members and spouses

Teambuilding, establishing common goals, stressing mutual interests, family harmony, family education

Family dynasty

Members of third and subsequent generations, including cousins, in-laws and other relatives, both active and inactive in the business

Shareholder issues such as liquidity and allocation of capital; fostering family commitment to the business; family tradition and history; family projects

Closing the Family MeetingAsk family members for suggested topics for subsequent meetingset a datedelegate roles to family membersfosters spirit of involvement and participation

The Changing AgentManagement ConsultantAccountantLawyerBankerNeutral relative or friend

The Changing Agent - QualitiesPrestigeWell respected, trustedPower

ExperienceOrganizational change techniques and methods to reduce resistance to change .. continued

The Changing Agent - QualitiescontinuedInterpersonal SkillsNegotiation skills, Mediation skills, Counseling skillsInfluential, patient and accommodating

The ClienteleThe Change Agent Must focus on the needs of the firm regardless of who hired him/herFocus on the problem not personnel

Organizational Change TechniquesAction Research Model

Organizational Change TechniquesThe Change Process

Organizational Change TechniquesTeam BuildingImprove communication, Clarify roles, Diagnose problems, Find solutions for improvement

Organizational Change TechniquesSurvey FeedbackCollect data from employees, Hold discussion sessions, Hold feedback sessions

Organizational Change TechniquesSensitivity TrainingForum for free and open discussionUnstructured group integration

Class Schedule - Following week (03/29)STRATEGIC MANAGEMENT OF THE FAMILY BUSINESS Reading: Chapter 10 FBM Questions 1, 2, 38-41, 69, 71, 72 FBAB Cases: Tender Touch Car Wash Ltd., p. 465 FBM