From tradition to transformation in family business

Illustration by Ruth Macapagal

Today, change happens faster than ever before in history. Family businesses often struggle with the professionalization required to respond swiftly to evolving markets. The intricate blend of family dynamics and business objectives can lead to a lack of urgency in adapting to change, often due to the owners’ incomplete view of the business landscape. This sluggishness in decision-making can pose significant risks to their market position.

How do I know? As the founder and chair of Tom Oliver Group, a worldwide strategy and management consulting firm, I have had the privilege of advising a very diverse range of family businesses and their owners, together with my team. With over 83 percent of our clients hailing from family enterprises across various cultures, economic backgrounds and countries, we’ve gained a unique global perspective on the challenges they face, particularly in adapting to market changes.

Top or flop? The need to professionalize

However, this challenge is not insurmountable. To address it, one must first understand its root causes. The intersection of family and business often results in a hesitancy to disrupt the status quo. This is where an external perspective becomes invaluable.

It’s not uncommon for family businesses to fall into patterns of complacency, stemming from a traditional mindset that values stability over change. This mindset can result in a lack of urgency to adapt, risking the competitive edge of the business. To counter this, family businesses must cultivate a culture of agility and openness to change, starting at the leadership level. This involves fostering a mindset that embraces innovation and is receptive to new ideas.

Another crucial step is the implementation of structured processes for decision-making and strategy execution. This professionalization ensures that decisions are made based on data and market insights rather than solely on tradition or familial preferences. Regularly updating these processes can help maintain a forward-looking approach.

Success stories

Spanish fashion retailer Inditex, known for its flagship brand Zara, is a shining example of successful adaptation to market changes. Despite being a family business, Inditex has embraced professional management practices and innovative processes. Zara’s fast-fashion model, which relies on rapid design and production cycles, has kept it ahead of trends and in tune with customer preferences, enabling it to outperform competitors and expand globally.

Another notable success story is the Samsung Group that transformed itself from a modest trading company into a global technology leader. Samsung’s proactive approach to professionalization, strategic diversification and investment in innovation has allowed it to adapt to market changes swiftly. This adaptability has helped Samsung maintain its market leadership in various sectors, from electronics to semiconductors.

Cautionary tales

Once a giant in the toy industry, Toys “R” Us struggled to adapt to the changing retail landscape, particularly the rise of e-commerce. This family-founded business was slow to innovate and update its business model, which heavily relied on large brick-and-mortar stores. As a result, it lost significant market share to more agile competitors, eventually filing for bankruptcy in 2017.

Eastman Kodak also serves as a cautionary tale, of course. Once a dominant force in the photography industry, this family-founded company failed to adapt to the digital revolution. Despite inventing the first digital camera, Kodak was reluctant to move away from its profitable film business.

A mixed example is Ford Motor Company. This American automotive giant, still controlled by the Ford family, has successfully navigated numerous market changes over the years. However, it has also faced challenges due to its complex family dynamics and resistance to change. In recent years, Ford has made strides in innovation, focusing on electric vehicles and autonomous driving technology. This shift highlights the importance of continual adaptation in maintaining market relevance.

The family businesses that recognize the importance of adapting to changing market conditions can thrive and secure their legacy, while those that resist change risk falling behind or even fading into obscurity.

Your five to thrive

Here are five practical steps family business owners can take to adapt to market changes and ensure sustainable growth:

1. Engage external experts for a fresh perspective

• Why: Family businesses can become insulated, relying too heavily on internal opinions and traditions.
• How: Family businesses can greatly benefit from the guidance of experienced advisors who understand both the complexities of family dynamics and the demands of modern business. Such advisors can offer tailored solutions, helping businesses stay agile and responsive to change. Ultimately, success lies in striking a balance between honoring family traditions and embracing the innovative practices necessary for long-term growth.

2. Implement clear governance structures

• Why: Mixing family relationships with business decisions often leads to confusion and delays.
• How: Set up formal boards with external directors and define roles and responsibilities for both family and nonfamily members. This ensures that professional standards guide decision-making.

3. Invest in leadership development and succession planning

• Why: Many family businesses falter because they don’t adequately prepare the next generation for leadership.
• How: Enroll future leaders in executive training programs and assign them roles outside the family business to gain independent experience. A well-defined succession plan ensures smooth transitions and long-term stability. A tip: Have external experts decide if and when family members are fit to lead because the owners themselves often have a distorted view of reality. Why? Because they are too emotionally invested.

4. Prioritize innovation and digital transformation

• Why: Market leaders stay ahead by continually evolving their products and processes.
• How: Establish a culture of agility and openness to change, starting at the leadership level. This involves fostering a mindset that embraces innovation and is receptive to new ideas. Encourage younger family members to lead innovation efforts, leveraging their familiarity with new technologies.

5. Separate family dynamics from business operations

• Why: Personal relationships can cloud business judgment and delay crucial decisions.
• How: Create a family charter or constitution to set boundaries between family affairs and business matters. Holding regular family meetings alongside business reviews helps manage expectations without compromising operations.

Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email [email protected].