“If your actions inspire others to dream more, learn more, do more and become more, you are a leader” – John Quincy Adams
Entrepreneurial leaders encourage entrepreneurial behavior and innovation in all that they do, which enables others to see things differently, and capture and act upon the problems and opportunities they see every day, in all their walks in life.
Entrepreneurship is really a life philosophy composed of attitudes and behaviors that can be applied professionally and throughout one’s life. An entrepreneur believes that he can affect change, that there is a better way, that opportunities are everywhere and that there are no mistakes. Failure is just about learning, and it’s important to embrace innovation, change and growth. By persevering, pursuing opportunities and being willing to take risks the entrepreneur influences her business, family and herself.
Be an agent of change in your family business, or family office, by designing your own dream, by looking outwards and by empowering the organization to do the same.
At the heart of a discussion about recognizing complexity and managing change in organizations is how to help people shift their behavior in positive ways – hopefully improving their own productivity and increasing the level of their own commitment as opposed to simply being compliant. This applies to everyone from line workers to CEO’s.
But achieving high levels of commitment from people is not always the simplest thing to accomplish. In fact, many otherwise successful business leaders wind up simply focusing much of their time and energy on a laundry list of activities around creating strategies and re-arranging structures because those activities tend to seem more tangible and easier to measure. While those tasks are certainly important within themselves, ignoring the human behavioral aspects of successful change management is a serious miscalculation for any business, whether family owned or not.
The good news is that family businesses are ahead of the game in many ways simply because of the old adage, “blood is thicker than water”: The commitment that comes naturally within families (with a few exceptions) makes for a business made up of committed individuals – of both family and non-family members. But that doesn’t mean that all family businesses are naturals at managing change effectively, particularly when that commitment translates into resistance to talk about difficult topics, like succession and death.
So, it comes back around to change in behavior as the primary key to successful organization change and leaders of even the most successful enterprises are not exempt. Business researchers and authors, Jim Kouzes and Barry Posner reinforce this concept as the first of their five identified practices of exemplary leaders in their book, The Leadership Challenge to “model the way”.
John Kotter puts this critical behavioral aspect of change management into perspective around his 8-step change model, (http://www.kotterinternational.com/our-principles/changesteps) “For change to be good, it’s got to be in a positive direction. Initial stages of transformation are usually positive, but the change effort gets perverted as it becomes successful and as executives become more arrogant. Change isn’t the issue; arrogance is. As some leaders start running into problems, in their arrogance they say, ‘No problem. We can handle all this. We can cut corners and make our own rules.’” (Kotter in Leadership Excellence at HR.com) It’s at this moment that commitment of most everyone else in the organization begins to fall apart, jeopardizing the success of the change.
Bottom line is that successful change isn’t primarily about structures and strategies, it’s about a permanent change in behavior from everyone in the organization.
In keeping with the theme of change and complexity, it is well known that families who own and operate successful enterprises manage both of those at the same time and, it may seem, all the time. It isn’t enough to create both long and short-term strategic plans for the business: Family leaders must also balance family dynamics, family interests, family future engagement, and sometimes, family conflict. Of course, that doesn’t mean that managing the change that comes from those complexities are always quickly accomplished or immediately appreciated.
That’s where Dr. David Cooperrider’s development of an OD (Organizational Development) or change management tool called Appreciate Inquiry comes into the picture. This tool, or process, has gained a great deal of attention in recent years because it is based on the homespun notion that what we learn and know about, what truly works and “gives life”, is actually more effective and sustainable than what we learn from breakdowns, problems or pathologies. Most businesses are trained to focus on fixing the latter while taking for granted the wisdom that comes from the former.
Cooperrider’s basic philosophy in developing Appreciative Inquiry was that “organizations are heliotropic” – that is they are like a plant that leans toward the sun. He identified key assumptions about A.I. that can have significant influence on how change is experienced and managed: That every organization has at least some things that work well and that what we focus on becomes our reality.
This positive focus does not mean that problems do not exist or are to be denied or ignored but that they are purposefully just not the primary frame of reference in managing the results of large scale change. John McKnight in, Building Communities from the Inside Out, relays the story of a carpenter who lost a leg in an accident. According to McKnight, the carpenter can choose to focus on his capacity for woodworking, or on his deficiency due to his missing limb. The positive principle underlying Appreciative Inquiry says that by focusing on his capacity, the carpenter is more likely to sow the seeds for creating his desired and most productive future reality, even though it is through significant change.
Finally, according to Sue Annis Hammond, one of the key aspects of Appreciative Inquiry revolves around the idea that “if we carry parts of the past into the future, they should be what is best about the past”. That seems to make good sense to me and is consistent with what I know about the best of the family enterprise.
For family businesses, this perspective is baked-in to the process of effective continuity planning, for example, for the next generation’s involvement in the enterprise. That process is underpinned with strong desires followed by clear plans to pass along the strengths of the organization’s most life-giving narrative and behaviors rather than it’s difficulties and potential dysfunctions. Given these realities, family businesses are naturals to engage in Appreciative Inquiry as one of their primary change management tools.
David L. Cooperrider (2000), “Positive Image, Positive Action,” in Appreciative Management and Leadership.
Sue Annis Hammond (1998), The Thin Book of Appreciative Inquiry, 2nd ed.
John McKnight (1993), Building Communities from the Inside Out.
There seems to be so much written and discussed about change these days. From an increasing cultural acceptance of marriage equality to keeping up with the latest technology advances (that smart phone you bought last month is already outdated), change not only is a fact of life, it also challenges our thinking and sometimes our comfort level.
Even business schools are obsessed with trying to teach current and future managers about change – sometimes even with some success. Interesting thing is, it’s not really the change itself that creates the need to talk about managing it, but the complexity that surrounds the change.
What is striking about all the hyped talk about change, is how most family businesses seem to most naturally thrive in it simply because of the complexities a multi-generational enterprise naturally bring to the table: Strategy certainly includes market considerations but in a family business will likely include a plan for how G3 will engaged in it’s implementation; Increasing shareholder value is still central, but the relationships across family branches of owners means a deeper set of goals and assumptions are likely in place.
This particular view of change and complexity is referred to, quite blandly, as organizational development. OD, as it’s called, is a process to help organizations be more effective in everything from making profits to improving the quality of work life. “…the focus is on building the organization’s ability to assess its current functioning and to achieve its goals…in the context of the larger environment that affects them.” – Cummings and Worley, (2001)
So, whether they realize it or not, many family businesses are naturals at OD thinking that might actually give them a “leg up” in effectively managing change and complexity. That doesn’t mean that process will always easy, but it does mean that some of the best examples of successful OD in practice, happens to be the family enterprise.
One of the fastest growing fields of study these days is the way Complexity Theory increasingly plays out in businesses and society. Originally, Complexity Theory was mostly used to describe mathematical problems according to their level of difficulty, which simply means that for some of us, Algebra II represented complexity theory in action back in high school!
But the conversation around Complexity Theory today is more about the pace, volume, and weight of change that leaders in business have to manage. Place those complexities in the middle of a multi-generational family business and complexity seems to multiply (and we’re back to the original mathematical use of the term!), requiring constant adjustment and change of its leaders.
And this is what successful family business leaders know: Balancing the key aspects of a successful enterprise may be made more complex by the need to manage all the inter-related relationships – both inside and outside of the family, and the need to leverage the multi-layers of legacy and continuity, are simply core requirements of family businesses. This means that family businesses may be the ultimate definition and example of change well managed.
With the reality of complexity theory at work in family businesses, I’ll be blogging about three change management tools and how they can best be applied in the complex world of family business.
“You need to change” must be one of the ugliest, most unwelcome sentences in any language. Neuroscientists David Rock and Jeffrey Schwartz have a good explanation why. Using functional Magnetic Resonance Imaging (fMRI) and Positron Emission Tomography (PET), along with brain wave analysis technology, they can actually see neural connections in the brain for the first time ever. Rock and Schwartz contend that when we tell another person or groups of people what to do, such as change, the human brain automatically pushes back like a two-year old child. One reason for this is homeostasis—all organisms naturally move toward equilibrium and away from change. According to Rock and Schwartz, “Brains are pattern-making organs with an innate desire to create novel connections.”
It seems that when people come up with their own solutions to problems their brains release neurotransmitters such as adrenalin. So not only do our brains scream “No!” like a typical two-year old when told what to do, but they also follow up with another familiar toddler line, “I do it by myself!”
Rock and Schwartz suggest that their research provides a scientific basis for leaders to ask questions and let people come up with their own solutions rather than telling them what to do. Asking good questions to modify behavior goes back thousands of years; Socrates candidly admitted, “I cannot teach anybody anything, I can only make them think.”
One way to facilitate change on a large scale, according to Drs. Rock and Schwartz, is to have some kind of event that allows people to have the opportunity to think for themselves. They site the work of Mark Jung-Beeman of Northwestern University’s Institute for Neuroscience and others who have found sudden bursts of gamma waves in the brain right before people have moments of insight. This means a new set of connections is being made, which makes it easier to overcome the brain’s resistance to change. The researchers claim the best thing leaders can do when dealing with the challenge of change is to help their followers focus on solutions instead of problems and to let the followers create their own solutions.
In a business, when we pay people to work for us, it seems to be fair game to tell them what to do and that they have to change when it is necessary for improving business or the bottom line. If employees refuse, everyone understands the ultimate dire consequences—an escorted trip out the front door. But when change needs to occur in a family enterprise, especially when family members are also owners, it is vital that the family members spend time together considering the situation, asking the right questions, and discovering the answers together. Heeding the warning of the neuroscientists, if we simply tell family members what to do, or that they need to change for any reason, their brains are likely to go into temper-tantrum mode, and that’s not good for the family or for the business.
Family businesses tend to pursue incremental opportunities rather than radical new innovations. Growing by incremental innovation steps has proven to be more sustainable than giant leaps of change. This incremental approach is prevalent partly because family businesses are less prone (not adverse) to taking high risks and leveraging large amounts of debt.
One finding that stands out when reviewing Family Business research is that successful, long-lasting family firms exercise moderation. Typically, family firms do not over leverage, over risk, over plan, or over innovate. Seldom do we read about a family firm that has discovered or developed a groundbreaking new product, like the iPod or Viagra! These developments emerge from the heavily funded research and development departments of large public companies like Apple or Pfizer.
Whereas venture capital firms talk about burn-rate, the amount of cash a start-up venture plows through in the early stages, family businesses talk about less exciting things like self-funded developments or modifications to existing products. This moderate approach to business, while less exciting, has for the most part served family businesses well. The steady, moderate approach creates a more stable firm.
Unfortunately, at times this status quo climate can be the underpinning cause of the decline of a family business. When factors change and a family business does not adapt quick enough, there can be a noticeable drop in the value of the family business. The print media industry is one of those very visible industries, populated by many family-owned firms, that has faced rapid transformation mainly because of the delivery of content through channels very different from traditional printed formats. The digital age, specifically the internet, has changed this industry dramatically. Some have adapted. Some have not, and suffered for it.
While moderation in a family business may be admirable, is your family business adapting to new trends in today’s accelerating pace of change?
One of the key differentiators of family businesses is a committed ownership group who are proud of the legacy their family business represent. Research shows that family businesses outperform non-family businesses, and this focus on the importance of legacy is one of the contributors to superior performance. However, an overemphasis on the past can also have a negative impact on family business performance.
Ability to change is also important. Every generation is different, and requires different structures and rules to succeed. Take just one element – ownership structure. In earlier generations, many family business owners created a structure where stock was consolidated in the hands of those who involved in the business. Many felt the alternative of entrusting ownership to family members who may not be as interested in the business could lead to non-employed owners getting in the way of family management’s ability to make decisions. Further, some thought it unfair that those not involved benefit from the hard work of those involved in the business by participating in the financial gain created by employed owners.
While this model of ownership may have served a family and company well in the past – as the business evolves and typically gets larger, there can be many benefits to cultivating a group of informed and committed owners who are not employed in the business. In the interest of brevity, lets just focus on the financial benefits.
By limiting the ownership group, family businesses may limit the pool of capital available for investment in the business. For instance, if a business founder has 3 children, only one of whom goes into the business, and he decides to give the business to that child, he will often make a financial gift to other children to treat them equitably. That money could have been used to fund business growth. Or, if he gifts shares to all three children at a young age but requires them to sell back their shares to the company if they decide not to pursue a career with the business, again the business capital is limited.
A great strength of family businesses is the patient capital they have by virtue of an ownership group that is interested in managing the business for the long term. This mindset leads family ownership groups to support management decisions that contribute to long-term business success even if they may not show immediate results. In fact, research shows that family businesses invest more in R&D and employee training than non-family businesses. The benefit of a larger ownership group is that they provide capital at a lower cost with a longer time horizon than other investors (including banks) – providing their businesses with a significant competitive advantage.
So, let’s circle back to legacy. A commitment to the principles that served the business well in the past is important. Equally important is a thoughtful analysis of what changes need to be made as the business evolves. Just as it would be impractical to use a typewriter to generate business correspondence today, it may be impractical to maintain the same ownership requirements from generation to generation (or the same employment requirements or other elements of the family legacy).
Honoring legacy is important, but if part of that legacy is a desire to maintain the business for generations to come, perhaps a new addition to the legacy needs to be an ability to change.
Business historians John Seaman and George David Smith wrote a superb article for Harvard Business Review (December 2012) that has particularly great value for family business leaders. Wise leaders can use their company’s history for many benefits:
Create a stronger sense of identity for employees ‐ ‐ they are affected with something larger than themselves
Show the need and capacity to adapt illustrating such from the past
Argue that successful change is possible and that adversity can be overcome with examples from before
Promote the enduring values that shape the culture ‐ ‐ especially drawing on stories from before
Learn the obstacles to change from understanding the history and culture
Broaden perspective when making significant decisions by exploring analogies from before and now
We find family businesses have an especially acute appreciation for history from which they can particularly benefit as outlined above.
The article reinforces some axioms we find well practiced by successful family business leaders:
Embrace tradition as a way to prove that, indeed, the company has a long history of change ‐ ‐ a tradition of innovation
When leadership changes, emphasize the platform of values that don’t change before promoting a new vision
Find those authentic values of the past that will enable the new behaviors for success ‐ ‐ reinterpreting their meaning in the contemporary context
Interestingly, the primary example used to argue these principles was the 3 generations of leadership history at IBM. The values regenerated to support a new future were:
Focus on customer needs and
customer service and
long term relationships and pursue
break through innovation
The authors conclude that IBM’s leadership, “found in IBM’s history a usable past ‐ ‐ one that helped them…persuade people to embrace necessary solutions to deep–seated problems, but also grasp the nature of these problems in the first place.”
As Seaman and Smith well show, history is a leadership tool more than an anniversary with “balloons and fireworks”.
I noted in my earlier blog three factors that inhibit change in a family: Inertia, Fear of the Unknown and Psychological Reactance. Here are three guidelines for promoting change.
Vision and Values Clarifying vision and values through family meetings or individual discussions, and documenting your findings, can add energy to a family system by raising hopes for the future and will help to alleviate Fear of the Unknown by articulating clear family goals.
Inclusiveness, Open Dialogue and Good Questions Much of the energy for change comes from process. How do you create a good productive process? Ensure open dialogue. How do you do that? Schedule opportunities to discuss change and why you want it to occur. I occasionally ask families to sit down with each other and give each person a chance to speak uninterrupted for 10 minutes at a time.
Asking questions ensures that people feel included and valued. This enhances the sense of choice in a family.
Questions are an opportunity to learn what a person is really thinking without his or her feeling coerced or pressured to do anything in particular.
There are some questions that persist in your mind for weeks, months or years, and continue to spur curiosity and engagement. You know that a question is effective in this way when the question is met with a long pause, or when the person says “Gee, I never thought of that before” or “I never knew the answer until you asked the question”.
Balanced Task/Process Orientation All of this requires a balance between leadership that is focused on accomplishing a task and leadership that is attentive to process. And sometimes leading change in family requires a very different set of skills than leading change in a business.
Some business leaders are incredible visionaries and very bold and they will “go where no one has gone before” because they are hard charging and tough. The problem is that sometimes these business leaders find that they have left their families behind. Or more accurately, the family has not decided to move ahead with them.
I worked with one family in which the family leaders created a transition agreement to the next generation that was visionary and generous and would have permitted the next generation to assume ownership at a very good price and over a reasonable period of time. They spent a small fortune on attorneys’ and consultants’ fees to create the plan. The problem was that the next generation as a group couldn’t tolerate each other personally; but the family leaders never had a real sit down to discuss the situation.
What helps in the business context – focus, drive, task orientation – may well get in the way on the family side.
Leading change in a family means being able to balance both of these orientations.