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APPLIED PROJECT - LOREE REYNOLDS ID# 2010032 Page 1

APPLIED PROJECT

STRATEY AND LEADERSHIP FOR THE CONTINUITY OF A FAMILY CORPORATION

SUBMITTED TO: DR. TERESA ROSE

REVIEWED BY: DR CONOR VIBERT

APRJ 699

BY: LOREEN REYNOLDS

SEPTEMBER 30, 2013


Table of Contents 1 INTRODUCTION ........................................................................................................................................... 3

2 EXECUTIVE SUMMARY ………………………………………………………………………………………………………………………………. 4

3 LITERATURE REVIEW ................................................................................................................................. 6

3 PREDICTIONS ............................................................................................................................... 13

4 METHODOLOGY ............................................................................................................................... 14

5 RESULTS / DISCUSSION .............................................................................................................................. 16

6 CONCLUSION .............................................................................................................................. 36

7 REFERENCES ……………………………………………………………………………………………………………………………………37


INTRODUCTION

What would happen if Wal-Mart closed today because the family corporation did not have a solid plan in place

to provide stability for the future? Customers would be flabbergasted; they would wonder why would a

corporation not spend the time on future planning? How could they be so short sighted?

This is a problem that many family corporations will be facing in the future; how will the organization exist

when the present management passes on the management to the next generation, either through death or

transition. The organization will not immediately shut down the day the transition takes place, but it will only be

a matter of time before it will slowly lose market share and slowly be shut down if there is not a good solid

transition plan, and good solid leadership with skills necessary to develop strategy to keep it competitive for the

future. A key assumption is that a family corporation can have successful succession through effective strategic

planning and strong leadership. Another assumption is the corporation can define what the key goal of the

company is and align all forces to this strategy to gain long term viability. Another basic assumption is the

corporation can begin mentoring the next generation leaders and develop key leadership skills to ensure strong

leadership. Thirdly, it is the lack of strategic leadership that leads to the demise of the corporation.

This document is a study into family corporations and how they can successfully transfer the knowledge and

business success to the next generation. Studies have shown that over half of the businesses in North America

are family owned business and the statistics reveal that less than 30% will be successful in succession planning

to the next generation. Through effective utilization of strategic planning and development and learning better

leadership skills a company can better align itself to competitive and viable into the future.

This study will draw from ideas learned from leadership and strategy experts and utilize both disciplines to help

provide a guide and a successful road map for family corporations to utilize. The writer will begin with a

literature review of various strategy and leadership experts and will utilize this data for the purpose of

discussion purposes and to arrive at a conclusion.


EXECUTIVE SUMMARY

“If you did not look after today’s business then you might as well forget about tomorrow”. Isaac Mophatlane

If a family corporation is going to exist in the future it has to look after its business today. It is the dream of

every family corporation to exist indefinitely into the future, but is this a reality? Not according to statistics.

The issue of successful succession planning is very real in family based business in North America as over 50%

of businesses in North America are family owned. Statistics show that very few companies can make a

successful transition between leadership to the second generation (less than 30%) and even less to the third and

fourth generation. This report aims to uncover reasons why the success rate is so low and what areas of

expertise managers should learn to provide a successful transition for the company to last into the future.

The research conducted reveals that family conflict, lack of leadership, and lack of strategic planning all are

reasons why there is such a poor rate of survival among family corporations in succession planning.

Family conflict is one of the main reasons family corporations are not successful in lasting to the next

generation. Conflict is a part of the dynamics of a family corporation that draw it apart from any other

organization because it involves family and business and often the two are not separated. Family corporations

have to be proactive to not let conflict destroy the organization and the senior management must be

communicating clear expectations and goals of the organization, as well as clear roles and responsibiities of all

individuals.

The Family Business Institute rates the top 15 sources of conflict in a family business (Wayne Rivers): direction

for the business, decision making, roles and responsibilites, compensation and benefits, ownership, distributions

to non-employee shareholders, personality differences, in-laws, accountability, succession, sibling riavlries,

entry and exit rules, communication, estate plans, and finances. Each one of these factors should be analyzed

and understood in the context of the corporation and a procedure created to provide solutions. Often in

understanding root causes managers can develop preventative policy to avoid running into such conflicts.

Leadership or lack thereof is another main reason for poor succession planning. If the managers of a corporation

want to ensure their businesses survive into the next generation they need to learn how to not only be better

leaders themselves, but also nurture leadership skills in the next generation. “You must either modify your

dreams or magnify your skills.” Jim Rohn Leaders are often not born and often need to be trained within a

family business, it is beneficial to allow young family members time to work in all areas of the business to give

them an understanding of how the business really works. It is equally important for them to be trained and have

to qualify for a position rather than be given a management position. The leadership skills that are imprinted on

the individual at a young age and into the mentoring stages will be important for the long term survival of the

company.

The third discipline that must be learned for successful succession is effective strategic planning. If you fail to

plan, you plan to fail. This report delves into expert advice from various strategy experts. Ultimately, it is the

senior managers who manage risk and commit to a specific strategy, and it is the operational management who

implement it on a daily basis.

Robert Grant summarizes how to develop successful strategy; start with clear consistent long-term goals, have a

deep understanding of the competitive environment in which the company operates, and understand clearly the

resources and capabilities of the company. Once these factors are determined and understood and effectively

implemented managers will realize successful strategy. Effective implementation stems from consistency of


management to work the strategic plan. Consistency can be achieved by consistent governance procedures,

which is simply consistent meetings to monitor progress and will help to keep the strategy on track. Governance

procedures will also keep the company efficient and help to monitor expenses more closely; inefficiencies will

lead to insolvency.

Essentially the family corporation can control its destiny if it is actively engaging in learning family succession

strategies and taking advantages of outside knowledge. Collaborating within the family organization can help to

decrease family conflict as well as increase profitability. It is important to be a leader and commit to strategy

and be consistent to keep the family corporation viable from one generation to the next.

.


LITERATURE REVIEW

Research Questions

Why are family corporations not achieving successful succession of the organization past the 2nd

generation?

What factors contribute to this demise? What strategies can a family corporation utilize to increase the

likelihood of corporate continuance?

The following literature review will take into account many works from various strategy experts and leadership

experts to help to qualify the above questions on how a family corporation can achieve successful succession

for future generations.

Robert Grant’s Contemporary Strategy Analysis (2006) delves into the company and the aspects that make a

successful strategy. The book studies the company and the many aspects of the company that will help it to be

viable long term. It is very applicable to this applied project in helping to understand how to integrate into a

family corporation a strong strategy that will keep it viable for the next generation.

Grant summarizes the “Common Elements in Successful Strategies” with the following figure: (pg7 Figure1.1)

(6th

Edition)

In many family corporations the goals are not clearly articulated in writing or verbal context to everyone in the

organization. Often it is the owner or CEO or Father of the corporation who has a set goal in his mind and that

is his focus and directs the other individuals to do certain tasks to achieve this goal without those individuals

understanding how or where this desired contribution will lead.

Many of the lower level management individuals within a family corporation are busy working on the daily

operations of the company but do not have clear consistent goals that they are working towards and they do not

have a clear understanding of how reaching those goals helps the strategy to succeed.

The family corporation must take the time to write down as stated above “clear, consistent, long-term goals” so

everyone within the organization understands exactly what they are working towards that will help the

organization effectively implement a strategy as well as ensure that the strategy is successful.

The dynamics of a family corporation are such that some family members within the organization have a sense

of ownership and entitlement without realizing the need to acquire skills necessary to help the organization to

Profound

Understanding of

the Competitive

Environment

Objective Appraisal

of Resources

Simple, consistent,

long-term goals

Successful Strategy

EFFECTIVE IMPLEMENTATION


succeed. These members become a drain on the organization and subsequently derail many strategies due to the

company’s inability to work towards consistent and long term goals.

This one dynamic alone can affect many other aspects of the family corporation for a number of reasons. There

is a lack of understanding of what makes the corporation successful. There is little to no understanding of the

competitive environment in which the company operates. There is a sense that the resources and capabilities of

the corporation are endless and, the financial demands on the corporation become endless. This dynamic is not

an easy problem to solve as it deals essentially with emotional family members. There is a need to have

structured procedures on handling various issues relating to family conflict.

Another similar attribute of a family corporation is not ensuring each management individual has a deep

understanding of the environment in which it competes. When given a “profound understanding” each

individual is equipped to make educated decisions and through open discussion can brainstorm and help the

corporation to attain a higher level of competitive advantage. If the competitive environment is not clearly

understood there is a breakdown of what truly makes the company successful to its customers.

The last common element in successful strategy is an “objective appraisal of resources”, what really are the

resources and capabilities of the firm and how is the firm working to ensure these resources are maximized?

Another resource question needs be answered objectively, are the present management resources available to

keep the organization operative long term? Does the next generation obtain the capabilities to lead the

organization? If not, then there needs to be increased training or an outsourcing to hire a qualified person to

lead.

Grant (2006) follows this up with “effective implementation” as a key element in successful strategy. Effective

decision making, capacity to lead, and implementing strategy through daily operations is all a part of

implementing a successful strategy. A simple plan to begin implementing a strategy in a family corporation is

to have consistent frequent meetings wherein the progress of the implementation can be tracked regularly and

monitored and open for all of the management to see and understand.

Grant (2006) says that a company must have a vision of what it is that makes it successful and areas where it

needs to improve; Grant states “exploit the internal strengths while protecting areas of weakness”. Another

quality quote from Grant’s work states “success has gone to those who managed their careers most effectively

by combining the four common elements of successful strategy”.

The next area is Grant’s (2006) Basic Framework for Strategy Analysis, this is “linking the strategy with the

firm and with the industry environment” Grant calls this “strategic fit”. Management within a family

corporation must not get stuck on what has always been done, because if the strategy is not directly linked with

the external environment in where it competes and firmly backed up by its internal practices then it will become

out of touch with its market and its resources within.

Grant states that a firm must answer two basic strategic questions:

1. Where to compete (corporate strategy)?

2. How to compete (business strategy)?

These are questions a family corporation must put on paper.

In subsequent chapters of the book Grant (2006) goes into deeper industry and competitive analysis to help a

company distinguish where it will compete and how it will compete and how to analyze the probability of future

outcomes to develop better strategy. This book is very detailed in understanding strategy analysis and is a good

foundation work to establish solid strategy.


Another strategy expert is Michael Raynor (2007) in his book the “Strategy Paradox” he explains there is a

strategy paradox when there is a “collision between commitment to a strategy and the uncertainty of the future

outcomes”. He also states that the true failure of a company is remaining mediocre and never daring to commit

to a strategy. Raynor brings forth a compelling idea that “research misses the strategy paradox because few

studies ever examine failure” and that “factors differentiating winners from losers can be identified only by

analyzing both successes and failures”. This insight helps the reader to understand that in order to make this

Applied Project solid, answers must be obtained when interviewing companies on both successes and failures.

This will provide a more thorough understanding when identifying what makes a family corporation very

successful and conversely causes it to fail.

Raynor (2007) seeks to illustrate a way to “mitigate risk without compromising performance” and help

companies to get out of the rut of being mediocre and start committing to stronger and bolder strategy. He offers

numerous ideas important to managers of businesses large and small. A first, termed, capture value, encourages

managers to develop strategies that cannot be copied by competitors. This, he suggests, requires commitment to

unique assets and capabilities. Second, he argues that most success strategies are aligned with tomorrow’s

circumstances, what he terms the ‘collision of commitment and uncertainty’. Third, according to Raynor (2007),

the management of commitment should be separated from the management of uncertainty with one side of a

company focusing on the former while the other deals with the latter. Specifically the role of corporate

management is to handle risk while the operating division create and capture value. This he terms, ‘requisite

uncertainty’ which is illustrated below. Following this train of thinking, Each level of management is defined

by its relationship to managing strategic uncertainty.”

“

The implications for managers of family businesses are two-fold. CEOs should not make the strategic

commitments or choices but create strategic options enabling the company to pursue alternative strategies

CEO and Senior

management– delegated long term plans

Operational

Management –

medium term strategies

Front Lines– short

term strategies

-focused on delivering

the goods

Manages strategic

uncertainty

Focus on present

Commitments

REQUISITE UNCERTAINTY


depending on how key uncertainties are resolved. The role of managers of operating divisions is to create and

capture value by committing to a specific strategy.

Many of the above points are so interesting but this last one is of very significant importance because it takes a

certain degree of risk to make a commitment, and in a family corporation it is usually the CEO only that will

make a true commitment to risk. This can be an area of advantage of being a family corporation but it takes

communicating that strategy and allowing the other levels to commit to that strategy that will make it truly

successful.

To review the concept, the CEO comes up with the strategic options and the middle management commits to

getting it operational, then the front lines exemplifies it in getting things done, it seems so simple yet so

revolutionary. This book is so good for broadening the mind on the concept of strategy; it is inspiring and

thought provoking. Two particular statements are of particular interest to family businesses.

o “Operating divisions cannot manage their own long term strategic uncertainty because for the sake of

survival they will avoid taking risks.”

o “Since great performance demands relentless focus on a particular strategy, devoting resources –

especially management time and attention – to creating options is typically beyond the capacity of an

operating division.”

This is of significance to a family corporation especially if heavy operational demands are placed all on one or

two people; through experience the CEO must delegate daily management operations to a manager, and that

manager must delegate the daily activities to a controller and the front lines to get things done. Otherwise, the

CEO is overburdened with daily operations and has no time to conduct or create strategic opportunities. In a

family corporation this can be achieved if you delegate responsibility according to the individual’s capabilities.

One member may be good with numbers and they should be delegated to be that type of role, where another

member may have strengths with daily operational management; there needs to be time and energy for the CEO

and senior management to create opportunities.

Another important idea is strategic flexibility presented in the (Grant 2006) text as a corporate level framework

for managing strategic uncertainty the through creation of strategic options. He argues, “there is a difference

between growth options and true strategic options. Growth options are small investments into new ventures to

see where they will go. Strategic options, on the other hand, enable established divisions to pursue

fundamentally different strategies. It is an option on an element of an alternative strategy that may or may not

be implemented not an option on further investment into a new business that may or may not succeed.” A

second point is that, “competition starts at the top and not only at the product level. The corporate office must

aim to improve operational division’s competitiveness by facilitating the capture of synergies between operating

divisions.”

As previously stated the dynamics of a family corporation give it an immediate advantage when using this top

down theory, but where it is weak is in providing the “synergies between operating divisions”. This weakness

can stem from a variety of angles. First, the family corporation CEO may ultimately wish future management

to have synergy but has a heavy degree of control not to allow those members to have a strong synergy or to

ever experience that synergy. This can be also personal insecurity which is a weakness of many leaders. Second,

the CEO may delegate orders rather than vision to operations. Third, emotional conflict disrupts synergies and

creates hostile environments. Fourth, the senior management may not want to hear or be open to new

synergistic ideas of lower level up and coming management who would eventually be ones to manage the

family corporation. Finally, due to limited vision of different family members a good strategy can be derailed or

disrupted. This can also be a selfish minded individual is seeking self-interests rather than the interests of the

whole corporation.


Raynor (2011) offers ideas that can help steer family business CEO’s. Three important ones are quite

complimentary in nature. “Operating divisions must focus on competitive strategy to create and capture

value.” “Separate how to generate returns from how to manage uncertainty.” “The smaller the organization, the

greater the temptation of senior management to involve itself in operating decisions while leaving the

management of uncertainty to chance.” These three rules are indicative of how this book provides a deeper

understanding into strategy and integrates this with leadership as well which is a premise of this applied project,

linking strategy and leadership to equate to successful succession planning and longevity of the family

corporation.

In their book, The Three Rules for Making a Company Truly Great, Michael Raynor and Mumtaz Ahmed

(2013) provide the reader with an understanding on what it takes to make a company outstanding and begin to

grow. Their three rules are first, better before cheaper. Companies need to compete on differentiators other than

price. Second, revenue comes before cost. Companies should prioritize increasing revenue over reducing costs.

Third, there are no other rules. According to Raynor and Ahmed (2013) outstanding performance is caused by

greater value and not lower price. They also suggest that companies seeking sustained, exceptional profitability

should pursue strategies that are consistent with this rule and avoid those that are not consistent with it. Their

final point is that, “you can lower your price but your price must remain higher than others.”

Experience in business as shown that often in a family corporation there is an attention to detail and quality and

customer service like no other business; this is a competitive advantage of a family corporation. Someone came

up with a quality product or service and exemplified it year after year causing a good solid company to be built.

If the second generation management decides to change that business philosophy which does not promote

“better before cheaper” or “revenue before cost” that competitive advantage can be lost. A company, especially

a family corporation must make this a part of their clear concise goals so as not to lose sight of what makes it

successful. On this matter, Raynor and Ahmed’s (2013) advice is straightforward, “companies must not only

create value but also capture it in the form of profits.” Further, “by an overwhelming margin, exceptional

companies garner superior profits by achieving higher revenue than their rivals through higher prices or greater

volume.” This book also speaks on capturing value suggesting that it is essential to the sustainability of a firm

that there is value captured and not eroded through excess spending, lowering performance, or decreasing

product quality.

In The Innovator’s Manifesto (Raynor, 2011), “the constant challenge is to find “diamonds in the rough” the

concepts that have within them the seeds of sustainable success and perhaps greatness. It is a risky undertaking,

and the only way to avoid failure entirely is to do nothing, in which of course reduces one’s chance of success

to zero as well.”

In this book by Michael Raynor it is his challenge to find out how to predict the future success of new ideas by

using the “disruption technology” (Christensen 1997); “Christensen observed that when entrants attacked

successful incumbents by adopting the incumbent’s models and technological solutions, they tended to fail.

They tended to succeed by combining a business model suitable for a relatively less attractive market – the

entrant’s foothold – with an ability to improve their original solutions in ways that allowed them to provide a

superior performance in a manner incumbents were unable to replicate – the upmarket march. Christensen

called these two elements disruptive strategy.”

This is a very solid reason why the management of an organization must understand its competitive

environment and be aware of what is going on around it. Corporations can become complacent and lose the

ability to respond to the market changes fast enough or even at all. And even more subtly, an emerging

company is able to develop a foothold and become so large that they are difficult to compete with. If the second

generation management of a family corporation does not understand their competitive environment and are


complacent in their management skills and expertise, they will soon find themselves behind the pack of

emergent competitors. There are enough skills and manpower in a strong family corporation to actively protect

the interests and growth of the corporation if utilized properly. Of course you will not have or maintain a

complete monopoly in all markets or the market you compete in, but you will not fall behind or are less likely to

fail.

Jim Collins in Good To Great (2001) studies the concepts that make a good company great which he calls the

Good to Great Framework and teaches companies how to apply this framework to their organization. Collins

(2001) states that Level 5 leaders are “ambitious first and foremost for the cause, the organization, the work, but

not themselves and they have a resolve to do whatever it takes to make good on that ambition”. This is

something that must be learned and accquired within the minds of whomever it is that takes over a family

corporation, if this mindset is not first and foremost in the mind of that individual, they are not the right ones to

lead the organization. Because ultimately it will not be the interests of the organization but self preservation

which is ruling and this will lead to a non-existence of the next generation.

The leadership in the organization is ultimately a very important cog in the wheel, some say leaders are born

and some say they are taught; in a family organization leaders have to be taught in most cases. So it is important

to begin mentoring and teaching new leaders to understand what it takes to run a successful company.

Collins insights into leadership are outstanding and thought provoking and will be a strong foundation for the

basis of the leadership module of this applied project.

One aspect often affecting a family corporation is conflict; conflict will never be avoided completely but can be

managed more effectively. Resolving Family and Business Conflicts by Don Hofstrand is a good article which

outlines conflict management styles. Don brings in a framework by Guy Hutt and Robert Milligan (2012) which

introduces conflict styles.

This article states that there are two variables working against each other; cooperativeness and assertiveness.

Cooperativeness is the “extent the individual attempts to satisfy the other person’s concerns”, wheras,

assertiveness is the individuals attempts to satisfy his own concerns. There are five conflict management styles:

competition, collaboration, avoidance, accomodation, and compromise. Competition is “the desire to meet one’s

own need and concerns at the expense of others, the most assertive and least cooperative people use the

competitive style”. Individuals use whatever means to obtain what they want, ie. Power, rank, persuasion,

expertise, economics, coercion. The writier states that competition is neither good or bad but one of many styles

that may or may not be appropriate given the situation.

Accomodation is when an individual puts others needs above their own; cooperativeness with unassertiveness.

“It is effective when preserving harmony and avoiding disruption, it builds good will and leads to cooperative

relationships”.

Avoidance is when the individual will not address the conflict and “are indifferent to others needs and

concerns”. Uncooperative and unassertive behavior by both parties. “Avoidance is a good strategy to

incorporate until emotions cool down”. “It can be used as a permanent strategy is the probability of satisfying

on’es needs and concerns is exceedinly low”.

Collaboration aims to satisfy the needs of both parties. “It involves the maximum use of both cooperation and

assertion”. “Collaboration requires more commitment than the other styles and takes more time and energy”.

“The parties are more committed to the resolution because an outcome that meets the needs of both parties is

more likely to be supported”.


Compromise is the middle road, it “leads to partial fullfillment of the needs, concerns, and goals of both

parties”. Few issues are confronted. “Compromise is appropriate when the goals are moderatley important and

not worth the effort and time required for collaboration”.

Holfstrand states that there are 6 techniques to use for manageing family dispute issues:

1) Initiate Dialogue – discuss only present problems and discuss them one at a time, everyone has a right to

talk, it is important to understand every person’s position.

2) Involve all Parties – Asking questions and encouraging others to answer. “Listen” to the answers given.

3) Assimilate Information – Everyone has to consider all of the facts and feelings. Clarify every position

expressed and its cause.

4) Reinforce agreements – “powerful psychological tool this process builds trust and understanding and

makes negotiating easier, always reinforce agreements before negotiating disagreements”.

5) Negotiate Disagreements – review and rank the disagreements, when issues are ranked, seek

adjustments from each adversary with the most insignificant or easiets problem first. Remind everyone

you cannot negotiate disagreements until the facts and feelings are understood by everyone.

6) Solidify Agreements – Solidify and confirm solutions to the problem. Begin by reviewing the changes

agreed to, and ask if compromises are still acceptable. Review proposed actions carefully. Commitment

to the adjustment can be confirmed through formal or informal contracts, a checklist, a handshake, or

even a hug.


PREDICTIONS

This concludes the literature review. It suggests three predictions. These include:

Prediction 1: Family corporations are not achieving successful succession past the 2nd

generation because the

organizational structure of most family corporations is not a formal system wherein decisions are made and

effective communication is promoted. Family corporations are being destroyed by unnecessary conflict arising

from a misunderstanding of the business as an entity rather than an inheritance; family corporations who want

to exist into the future need to be managed as professional entities and all members of the family must be aware

of why the corporation exists and how it will continue to exist into future generations.

Prediction 2: The factors that contribute to this demise are lack of strong leadership within the organization

which has an understanding of the importance of strategic planning and communication. Lack of formal

business meetings, structural governance procedures, and a lack of formal succession planning for future

generations are all extenuating factors that result from weak or unprepared leadership.

Prediction 3: Strategies that a family corporation can use to increase the likelihood of corporate continuance

include: top down strategy creation with senior management developing strategy and operational management

responsible for implementation. Understanding the competitive environment in which the firm operates is very

important to increase the likelihood of corporate continuance as well as understanding how to effectively

manage and utilize the firm’s resources and capabilities. Conflict management will also increase the likelihood

of corporate continuance.


METHODOLOGY & RESEARCH SITE

The following section is a discussion of the methodology that will be used to explore these predictions. The

background of the writer’s personal history is working within a family corporation and thus will form the basis

of the research site.

The problem of a successful succession to the next generation is one facing our own organization and is a

subject that I understand well. I feel this knowledge base will help to establish more thorough research. I hope

that through this research I can make a quality contribution to the study of successful succession planning for

family corporations.

Our organization was established by my great grandfather when he came to Canada from Norway in 1904; he

homesteaded and created the beginning of the family legacy. My grandfather and grandmother continued with

this legacy and they too worked hard to make the organization grow; however, the dirty 30s hit and affected

their generation to the point where they could only maintain what was built.

My father and his brother began farming with my grandfather in the 1950s and began purchasing more land and

growing the organization. This generation took the farm and turned it into a business enterprise working with

cattle and grain farming and further diversified into the gravel and aggregate materials business for the

expansion of the oil industry in North Eastern Alberta.. The strategy of the company was to reinvest every profit

dollar into real estate and equipment.

My brother and I began in the organization and have been working for over 20 years to learn the business.

During this time our organization has further diversified into restaurants, the transportation of oil for major oil

companies, convenience store and gas station operation, elk ranching, and real estate sales. Now it is my

generation that is mentoring to take this large organization forward and not only maintain it but to help it grow.

Technically we are the 4th

generation since the original homestead back in 1904 but it is now a much larger and

greater entity that must be ready to move on to another generation.

The key of the organization has historically been the ability to effectively utilize our strengths and continue to

build on this strategy. However, the key players have been the CEOs of the company which are my Father and

Mother; together their management skills and determination have been instrumental in bringing the company to

where it is today.

However, it will take a great amount of organization, strong leadership, and extremely good strategy to take the

company forward and not only maintain it but help it to grow.

The writer will take a “qualititative approach” to conduct the research on family corporations as this is a

subjective analysis that requires thought and theory rather than numerical and statistical analysis. Much of the

information has been learned through years of management experience of successes and failures within the

writer’s own organization. The writer has applied this knowledge to the knowledge gained by researching the

disciplines of conflict management, leadership, and strategic planning from various experts in each discipline.

The success of a family corporation to the next generation, is highly dictated by the phsycological and

theoretical approach that the CEO of the company or senior management have towards mentoring next

generation management. A company can have all the attributes and financial numbers to be successful, but

when it is governed by a unexperienced management, it can go backwards very quickly.


Firstly, it is important for the reader to understand the magnitude of family corporations in the world and to

what extent this type of corporation affects the economies of many countries. Family succession planning is

fundamental and will affect many companies and jobs in North America and Europe if it is not done carefully.

A paramount problem in a family corporation is conflict and when conflict is left unattended to it mushrooms

into very distructive patterns and problems; the writer will incorporate methodologies for handling family

conflict in business and systems that can provide a guide to overcoming conflict within the business. This

integrates with the concept of corporate governance procedures and how to tie this in to help the company

become consistent in its practices.

The aim of the document is to show key principles in strategy formulation and help the reader to understand

how to begin to develop strategy and who should develop the strategy. Then the aspects of leadership will be

integrated into the paper as leadership is 100% responsible for successful succession; if there is no plan for the

next generation, then the corporation is doomed to fail.


STRATEY AND LEADERSHIP FOR THE CONTINUITY OF A FAMILY CORPORATION

RESULTS & DISCUSSION

Overview

According to the Globe and Mail (Golob, 2012) family corporations struggle to be viable past the 2nd

generation

and rarely past the third due to poor succession planning and lack of strategic leadership. Various references

state that family corporations make up 80% of the businesses in Canada (Taylor 2012; Golob 2012); only 30%

of family corporations survive into the second generation, less than 12% continues to the third generation, and

less than 2% into the fourth generation. (Golob 2012; Ernst & Young, 2012) This bears an imminent threat on

the Canadian economy if these company’s do not understand how to successfully transfer the goals and values

of the company to the next generation. Golob also states that one of the top ten reasons family corporations fail

is that the fundamentals of management that apply to all businesses do not fully apply to a family corporation.

So how can current educational management models become enhanced to help family corporations achieve

continuity?

To understand this concept further, the writer will take existing ideas in leadership and management, and

strategy, to understand how to effectively utilize them and enhance them to be effective within the dynamics of

a family corporation.

Research Questions

Why are family corporations not achieving successful succession of the organization past the 2nd

generation?

What factors contribute to this demise? What strategies can a family corporation utilize to increase the

likelihood of corporate continuance?

A key assumption is that a family corporation can have successful succession through effective strategic

planning and strong leadership. One basic assumption is the corporation can define what the key goal of the

company is and align all forces to this strategy to gain long term viability.


Another basic assumption is it is the lack of strategic leadership which subsequently leads to the demise of the

corporation. Managers of the corporation should begin mentoring the next generation leaders and develop key

leadership skills to ensure strong leadership and deliberate succession success.

A company’s ability to control the growth, direction and development of its resources through coordination of

goals, daily tasks, and people, to achieve long term goals and success; is strategy.

The ability to look at all levels of a company and understand how each part works together for the good of the

company, and motivate people to handle all of the tasks required to meet those goals, is leadership.

Strategy and leadership are the sails that propel a boat across the ocean; both are management fundamentals that

are intricately woven into the threads of a company, and for long term success one cannot exist without the

other.

A family corporation is the same as any business in its fundamentals; however, there are dynamics within a

family corporation that make it different from other businesses. These dynamics can be advantageous and

provide a different playing field than the standard business model, and conversely, there are dynamics that can

hinder a family corporation and are quite destructive.

The dynamics in a family corporation inter-mingle family members and values with business processes and

goals. The goals of a family corporation are often long term, the intent is to continue building the corporation

indefinitely by handing down management of cherished assets and values from one generation to another, with

the hopes that the next generation understands and holds on to those values. This one dynamic is called roots;

there is no other business model that produces such firm roots than a family corporation. This is because the

roots have emotional value and solidity. Such a solid foundation is a source of competitive advantage in a

family corporation because it causes the managers to make long term decisions that make the firm stronger.

This solidity is also a commitment to making the firm successful and it is a commitment from the core of the

management. The managers do not have in their minds that if this company does not pay enough or fulfill the

manager’s own expectations then they will move on. This is a commitment that the managers will contribute all

that they can to fulfil the organization, and in doing so, they too will benefit because they have a vested interest

emotionally and financially.

Another dynamic in a family corporation is dedication to value creation and opportunity creation. Historically

there is something of value that was created when the firm began and then that value turned into opportunity,

and this becomes a cyclical dynamic because one feeds off the other. It is an entrepreneurial model and that is

why so many family firms are diversified into other businesses.

Family corporations are said to be the “backbone of economic systems in most countries” (Englisch, Ernst &

Young, 2012: European Commission DG Enterprise, 2009) making up “60% of all companies in Europe and the

Americas and account for 50% of employment” (Englisch, Ernst & Young, 2012: preface), while in Canada an

estimated 80% of the businesses are family corporations. Ernst and Young report that since the global financial

crisis, more people have come to realize that the stability and resilience of a family corporation are desirable;

“they see the benefit of businesses that think not in months, but in generations.” (Englisch, Ernst & Young,

2012: preface) “They own without the intention to sell and this makes a difference because you think of the

company as creating a stream of revenue from the assets”. (Aminoff, Ernst & Young, 2012: pg9) The assets are

viewed as something that can be developed and are cherished rather than depleted.

Another key point from Ernst and Young’s Built to Last study (2012) is most private equity firms focus entirely

on return on equity and top-line growth and key growth ratios. The paper argues states the easiest way to do that


is to load up on debt. Whereas, a long term family business doesn’t do that, “a long termist family corporation

does not load the balance sheet with too many liabilities that could hinder the long term development of its

assets”. (Aminoff, Ernst & Young, 2012: 9)

The article also states that “the more embedded the family business culture and values, the more likely firms are

to be thriving in these difficult times”.

But why is it that only 30% of family corporations survive into the second generation and even less into the

third? (Golob, 2012) What is hindering these firms in transferring wealth and knowledge from one generation to

the next? Golob (2012) highlights 10 reasons why family businesses fail:

Reasons What to do

1 Poor Succession Planning Seek outside advice and create a roadmap

2 Lack of Trusted Advisors Hire professionals who understand family corporation

dynamics

3 Family Conflict Develop procedures to handle family conflict

4 Different Visions Between Generations

5 Governance Challenges Commit to regular business meetings

6 Exclusion of family Members outside the

Business

Have family forums to include everyone so those not

directly involved have a clear understanding of

company goals.

7 Unprepared Next Generation Leaders Create guiding principles for required education and

experience before making offers of employment.

8 Use of Familiness Advantage Promote the security, loyalty, and commitment within

and without the company.

9 Deeper Understanding of Family Corporation

Dynamics

Standard business fundamentals do not cover the

dynamics of a family corporation.

10 Poor Strategic Planning

(Golob, 2012, www.theglobeandmail.com)

Golob’s points are simple and direct reasons why companies fail; essentially, failing to plan is planning to fail.

The essential part of planning is communication within the business, and learning to develop a strong strategic

plan.

The Family Business Institute (FBI) states that “succession planning although a very tough and critical

challenge can be a great opportunity to maximize opportunities and create a multi-generational institution that

embodies the founder’s mission and values long after he is gone”. (FBI website: Succession Planning, para1)

This is a powerful statement, every family CEO truly wants this for their organization but rarely will achieve

this goal due to lack of formal succession planning.

In agreement with the statistics above, the FBI states that 88% of family business owners think their family will

still control their business in 5 years but statistics state otherwise; statistics show that due to a lack of formal

succession planning the next generation cannot run the business successfully.

A successful family corporation runs the risk of giving too much financially to their children, according to the

Family Business Institute it is a double edged sword, they quote Warren Buffet as stating “the perfect

inheritance is enough money so they feel they could do anything, but no so much they can do nothing”.

(Rivers, How Much is Too Much, FBI website, para2) In this article Rivers states “it was in the fire of the day-

to-day struggles in business that tempered the character of successful family business owners”, (Rivers, FBI


website para4) and he states that “most wealthy family business owners made their money the old fashioned

way – they earned it”. Rivers also states in the same article “inherited wealth can undermine a grown, mature

child’s sense of perspective”. Through experience some individuals feel that they are rich and above the need

to achieve or be accountable to themselves or the organization. Without an understanding of how things were

obtained and are maintained, these individual’s perspectives are entirely misconstrued and they do not live in a

real state with a business perspective. This occurs when there is a sense of entitlement or a right of possession.

The Family Business Institute promotes the idea of a “Family Incentive Trust”; this trust can be used to provide

work incentives to family members growing up in the organization. The family incentive trust promotes an

achievement based reward system where if certain levels of achievement are obtained then it is rewarded. The

Family Business Institute president claims the purpose of the incentive trust is to provide a safety net for the

family if required, secondly to provide family incentives for responsible, productive behavior, and to function as

a private family bank or charitable device. This applies to very successful organizations who are asked by their

family members to dole out money time after time. The incentive trust means that it is given on an as needed or

as earned basis only.

Ideas like incentive trusts and properly structuring the shares in an organization are all a very important part of

succession planning. Succession planning strategies are very unique to the individual organization, so it is very

important for companies to seek out advice from firms who specialize in family-corporation succession

planning. These professional organizations understand the dynamics of the family corporation and can provide

guidance to change the share structure accordingly and develop corporate plans.

A quote from key resources website states that the key to longevity and success in family owned businesses is

strategic planning and conflict management, but another key dimension is leadership. In the first segment of this

report the writer will discuss where family conflict arises, the second segment is on leadership and how

becoming a better leader can strengthen your ability to create a successful succession plan for a family

corporation. The third segment will understand how to develop strategic planning techniques and ideas and how

strategy is formulated.


Prediction 1: Family corporations are not achieving successful succession past the 2nd

generation because

the organizational structure of most family corporations is not a formal system wherein decisions are

made and effective communication is promoted. Family corporations are being destroyed by unnecessary

conflict arising from a misunderstanding of the business as an entity rather than an inheritance; family

corporations who want to exist into the future need to be managed as professional entities and all

members of the family must be aware of why the corporation exists and how it will continue to exist into

future generations.

The following discussion will substantiate Prediction 1 on how conflict, which is detrimental to a family

organization, can be managed more effectively.

Conflict is a major weakness in a business especially when emotional conflict is allowed to disrupt cooperative

working synergies; it drains the main management core of energy required to run the business. Emotional

conflict caused by deep rooted resentments will eventually lead to the creation of a hostile and volatile

environment. The element of conflict in a family business is the one element which can derail the best laid

strategies and can be very disruptive and detrimental to the corporation if the issues are not handled in a

professional manner. Conflict is not easily mitigated but can be understood in a deeper measure as to what is the

root cause of the conflict.

The Family Business Institute rates the top 15 sources of conflict in a family business ( Rivers, 2012): direction

for the business, decision making, roles and responsibilites, compensation and benefits, ownership, distributions

to non-employee shareholders, personality differences, in-laws, accountability, succession, sibling riavlries,

entry and exit rules, communication, estate plans, and finances. This shows how family corporations truly

differ from other organizations because the above dynamics are very real within a family corporation. It is

beneficial to have a procedure for how to handle conflict so that it does not become a larger problem.

The first point on “direction for the business” is why there needs to be a communicated strategic plan in place

which provides a road map which everyone agrees with. If two horses are hooked to the same wagon and one

wants to go one way and the other a different way the wagon does not go anywhere; they have to work together

to go forward. (Elaine Aarbo) The corporation must take the time to formulate goals and develop strategy to

obtain those goals so everyone is aware of the direction the company is headed, and everyone is working

together in that same direction.

Secondly, decision making is a source of conflict because often everyone in a family corporation wants to be

the leader, or feel equal to the leader. Whether it is a corporation or an army battalion, there needs to be a

leader, one whom everyone can look to to solidify agreement and cooperation among members. Rivers states

that conflict arises over who can and how to make decisions, everyone can provide input through open

communication in formal meetings, and the pros and cons of each decision can be discussed, and then the

chairman can formalize the decision when everyone is in agreement or have reached an understanding of why

certain decisions are made.

Thirdly, roles and responsibilities, Rivers (2012) states that everyone must understand and agree on their roles

within the organziation, he further states that performance expectations be clearly stated, and to prevent overlap

of responsiblities. Every person who is directly or indirectly a part of the corporation should have a clear

understanding of their place in the structure of the organization. This will alleviate future family conflict. Often

with a sense of entitlement comes a sense of ownership and power, conflict arises when an individual feels that

this power is taken from them even if it wasn’t allotted to them in the first place. A clear transparent picture of

the organization is important for anyone involved directly or indirectly. It is important for those particular

individuals to have a clear understanding of why others have the position or responsibility they do, it is based


entirely on the ability of those individuals to lead and to direct the organization because of their commitment to

the organization rather than to themselves.

Fourthly, compensation and benefits is always a tender subject if not handled in a professional manner. When

individuals work for independent firms they are hired for a position within the company and negotiate

compensation based on their individual abilities. In a family corporation, often everyone feels they should be

equally compensated just because they are family members and they argue that if it is not equal it is not fair.

This is a falicy and is poor reasoning for establishing compensation; everyone is not equal when it comes to

roles and responsibilities so everyone will not be compensated equally. A family corporation is still a business

and must be viewed by all as a serious business entity. Compensation is earned, benefits are earned, any

compensation taken from the organization must be deemed as earned or it is in essence a gift. If it is a gift it

should come from an established portion of the company allotted to give occasional disbursements to family

members for agreed upon purposes or loans. Upon receipt of the gift, the family member should sign an

acknowledgement of receipt and the purpose thereof so years later it is not deemed as something other than a

gift or loan.

The fifth point is ownership and is often a very tempermental point in a family corporation. If it is the goal of

the organization to be a stable entitiy for future generations, then it is important to establish ownership to those

who understand this model and are capable to hold the entity stable. It does not necessarily have to be equally

divided and it should be clear to all of the members in the family as to who has control. This will alleviate any

future conflict when successors have to take over control due to a death of the leader.

The sixth point is distributions to non-employee shareholders, this is similar to the above discussion on

compensation and benefits. It has to be understood clearly what the distributions are and why they are given, it

has to be clearly understood by the person receiving the distribution and others in the management giving it.

Written acknowledgement is the best form of receiving because it will not be deemed as earned in any way.

The seventh point is personality differences, it is a fact of life that everyone is different and thus will not always

work or think the same way. Are we open to understand everyones differences and work to accommodate those

differences within the family? It is very difficult sometimes for certain personalities to work in a cooperative

manner but cooperation is the only way that business moves ahead, so it is important for each individual to

understand that they have to be willing to do whatever it takes to achieve a sense of cooperation. If one is a

controlling personality and the other is timid usually the timid one will never get heard and will often

disassociate themselves from the business entity, if not physically they will separate themselves mentally from

the goals of the operation.

The eighth point in conflict arises from in-laws, Rivers (2012, quote #8) states that “spouses unknowingloy

generate conflict” he asks three questions: “What do they hear about the business?” “About other family

members?” “What should they hear?” Golob’s theory is to ensure that everyone is made aware of the goals of

the corporation in terms of long term general goals, they should be aware of what the corporation is trying to

achieve and how it affects them as an individual and their individual families.

The corporation should also understand how difficult it is for someone working within a family business model

to ensure that their own family and that is of the corporation is separate. Often conflict arises when the one

person takes their emotional conflict home from the business and pours it out on to the spouse who cannot make

a fair judgement because they do not understand why or in what nature decisions were made. They then offer

counsel and they too become part of the conflict which spirals into a larger problem. Personal realtionships can

often suffer because of fighting over the business issues which should not even be a part of their own individual

planning. Each family member should treat their positions with the family corporation as a profession.


Professional meetings with professional governance procedures can do away with a lot of unnecessary family

conflict. Often the spouse will feel that everything should be “fair” and “equal”, and the spouse will continually

harp on these issues at home until the family member becomes so engrossed with that issue that it becomes a

major conflict within the organization or in the marriage. Getting to the root of the conflict is important because

this is where major conflict can stem from; it may appear as small conflicts on a daily basis but the root of the

problem is why there is discontent.

The corporation can include spouses in general family forums to provide a open communicative enviornment,

specific strategy details do not need to be discussed in these forums, it is just an open discussion on the general

direction of the company. This is a very important issue because when there begins to be issues within

relationships and there is a divorce arising because of ongoing conflict in the marriage over family corporate

issues, then it is the corporation who suffers as well. Ensuring that the roles and responsibilities of each member

are clear to the member and the spouse is important so as not to create a false impression that everyone is equal

within the organization can alleviate many of these issues. Once roles are understood it is helpful for each

individual member to discuss goals with his or her spouse of their own. Goals that are separate from the

organization and are beneficial for their future as well.

This segment is not to surmize that in-laws are always wrong, they may be given the wrong information and be

a sounding board for family members. It is important to ensure that everyone can live cooperatively together

and still work together in harmony as well. Everyone in the organization must respect that there is a business

entity that is separte from the marriage entity and should always be separate. A relationship is to be cherished

and respected and the family member working in a family business has to respect and honor their own

relationship separately and keep their business issues separate.

The ninth point from Rivers is accountability, “whom are family member accountable?” “What happens if a

family member isn’t performing up to expectations?” “what discipline is required?” Rivers (2012, quote #9)

states that this is a sure source of conflict “usually avoided until resentments build into confrontations”.

Everyone has to be accountable for their services to the corporation, if there is no accountability then there is no

structure, and no foundation to grow upon. It should be clear to all within the organization that if they are to

grow as a part of the corporation they are responsible to ensure they are accountable in every way whether it is

financially or performance based.

The tenth point is succession and who will be the one to be the next leader, Rivers (2012) says that it is

important for everyone to know who it is and why they are chosen and when the transition will occur.

Sibling rivalries is the eleventh point and stems from children wanting to get their parents attention which ends

up continuing on into the work environment. Sibling competition can be destructive, and both siblings should be

aware that once they are adults they need to be conscious of how their actions affect those around them. If they

are competing to make the other one look bad there is no grounds for growth for the company or themselves.

Creating a clear division of work and homelife is important, try not to discuss business issues out of the

workplace, and parents need to circumvent these issues by being up front and straight with each child. They can

not entertain continual complaining about other family members and have to be clear that everyone is important

in their own way and cut short petty accusations and bickering. Do not get involved but be professional. A

biblical proverb states to be swift to hear, slow to speak, and slow to wrath (James 1:19); this wisdom can

alleviate many problems especially among family organizations. Often people have too much to say and bring

up old forgotten disagreements and forget the real issue at hand.

The twelfth point is entry and exit rules, how do you get a job within the family corporation and what happens

when you leave, these are very important issues and governance procedures that should be written down to


create a clear understanding of what is a right and what is an expectation. Family members often feel that they

have an inherited right rather than feeling like they have to earn a place and contribute to the company, so when

they want to enter the company they feel it is their right and when they leave they feel that they are entitled to

something. Be clear and concise in entry and exit procedures with written acknowledgements.

Estate plans is the fourteenth point and Rivers askes if the senior generation has one and if anyone knows what

it says, and will it achieve the desired results. It is a sure thing that there will be conflict after a death if no one

knows what the estate plan involves and how it will affect them. If they know that there is not a large

inheritance waiting for them, then they can prepare their own lives accordingly; if they fantasize about what will

occur in the future and are greatly disappointed there will be great conflict which will go on for years.

Finances is the last point Rivers makes on how conflict arises and should be handled professionally. Each

person should be paid according to what they earn and must understand that they are accountable for their future

retirement and must manage their money very wisely. Poor money management by one person can not be

subsidized by the organization nor should it be expected to do so. It is a good idea to have each family member

whether or not they participate in the family organization or not, to provide a general description of what they

are doing to ensure they are taking care of themselves for the future. The company can then provide guidance

and help those that are less financially capable to develop a good solid plan. They should know that the

corporation is only there to guide not to continually provide financial assistance indefinately.

Communication is discussed throughout this paper; the lack thereof is usually the cause of many conflicts in any

type of relationship or organization. Many studies have been done to show that when people resolve that they

are willing to do anything it takes to collaborate together then there will be success. Full collaboration involves

working to overcome every obstacle until there are no obstacles left to overcome.

The above point on communication brings in the idea of collaboration and cooperation, Hutt and Milligan

(2009) introduce different conflict styles and illustrate how each style works and the level of communication in

each style.

This article states that there are two variables working against each other; cooperativeness and assertiveness.

Cooperativeness is the “extent the individual attempts to satisfy the other person’s concerns”; whereas,

assertiveness is the individuals attempts to satisfy his own concerns. Hutt and Milligan (Hofstrand; 2009, pg2)

share five conflict management styles: competition, collaboration, avoidance, accomodation, and compromise.

Competition is “the desire to meet one’s own need and concerns at the expense of others, the most assertive

and least cooperative people use the competitive style”. (Holfstrand, 2009, pg2) They state that individuals use

whatever means to obtain what they want, ie. power, rank, persuasion, expertise, economics, coercion. The

writer states that competition is neither good or bad but one of many styles that may or may not be appropriate

given the situation.

Accomodation is when an individual puts other’s needs above their own; cooperativeness with unassertiveness.

“It is effective when preserving harmony and avoiding disruption, it builds good will and leads to cooperative

relationships”. (Hofstrand, 2009, pg2) Although through experience the accomodating individual will often

always be accomodating and never has their own needs met. This can cause health and wellness issues for that

individual if this occurs for many years. This is a reason leaders need to be objective in their actions and realize

the affects their decisions may have no others.

Avoidance is when the individual will not address the conflict and “are indifferent to others needs and

concerns”. This leads to uncooperative and unassertive behavior by both parties. “Avoidance is a good strategy

to incorporate until emotions cool down”. “It can be used as a permanent strategy if the probability of satisfying


one’s needs and concerns is exceedinly low”. (Hofstrand, 2009, pg2) However, avoidance on major issues over

a long period of time is not recommended, this leads to resentment and the re-occurrence of a small issue which

will mushroom over time.

Collaboration aims to satisfy the needs of both parties. “It involves the maximum use of both cooperation and

assertion”. “Collaboration requires more commitment than the other styles and takes more time and energy”.

“The parties are more committed to the resolution because an outcome that meets the needs of both parties is

more likely to be supported”. (Hofstrand, 2009, pg2) Collaboration is the best solution to any issue or problem,

and is the most likely to provide long term stable results for the family corporation and individuals. Family

members should understand how to fully collaborate together until successful solutions are achieved. This can

be a good tool not only for conflict but for solutions within the business.

Compromise is the middle road, it “leads to partial fullfillment of the needs, concerns, and goals of both

parties”. Few issues are confronted. “Compromise is appropriate when the goals are moderatley important and

not worth the effort and time required for collaboration”. (Hofstrand, 2009, pg 2)

CONCLUSIVE ARGUMENTS ON CONFLICT MANAGEMENT

In conclusion, conflict is a part of the dynamics of a family corporation that draw it apart from any other

organization, because it involves family and business and often the two are not separated. Family corporations

have to be proactive to not let conflict destroy the organization, and the senior management must be

communicating expectations and goals clearly to all of the members within the organization.

By not making decisions and allowing resentment to grow by not doing anything, and thinking it will all work

out in the end is naïve, the truth is the corporation is actually making a decision to fail in the future. Failing to

plan is planning to fail. It important for the management of a family organization to embrace the idea of

collaboration to overcome difficult obstacles when it comes to conflict management. This style is conducive to

long term succession planning.


Prediction 2: The factors that contribute to this demise are lack of strong leadership within the

organization; leadership which has an understanding of the importance of strategic planning and

communication. Lack of formal business meetings, structural governance procedures, and a lack of

formal succession planning for future generations are all extenuating factors that result from weak or

unprepared leadership.

This next segment is on leadership and how good leadership can lead to successful business transition in the

future.

The leadership in the organization is ultimately a very important cog in the wheel, some say leaders are born

and some say they are taught; in a family organization leaders have to be taught in most cases. Often leadership

within a family corporation is not mentored; although born into a family corporation, individuals may not

naturally have leadership skills and should be trained accordingly.

Leadership and strategy coincide, it takes individuals who train themselves to be leaders, who can become

experts in their fields, and as a result learn and anticipate changes within the industry that are important for

strategy formulation in the company. Reactionary leadership is detrimental to the long term success of the firm

and equally detrimental is laid back mediocre leadership.

Leaders need to learn their industries and become experts in their field; “if you want to be a leader you need to

start to think like a leader”. (Howes, 2012, quote #1) A true leader focuses on how to achieve growth and

profitability by being creative and innovative and is continually learning how to be better and always learning

how to make the company better.

Not only must a leader think like a leader and do what it takes to become a better leader, the same goes for the

management of a company, the company must focus on being a successful business and have a successful

business mindset. Traditionally many family corporations were agricultural based and did not see themselves

first and foremost as business entities; typically they considered themselves to be farmers and price takers but

over time their mindset evolved and they saw that in order to be competitive they needed to be business people

and price setters. “No business will ever survive long term if it is subject to just being a price taker.” (Harvey

Aarbo)

Allowing your company to be in a price taker position means you are subject to the whims of the markets, this

can be the case in some businesses; however, it takes a strong leader to create a diversified playing field where

the company is not dependant on one source of income. This is an area of strategic planning and must be

carefully analyzed to ensure the company is not going to suffer if markets change in the future. This is why

delegation plays an important role in leadership; management must have the time dedicated to create

opportunities and growth and stability for the company and not be tied to everyday tasks of daily management.

Diversification is a good strategy but it too must be done conservatively to not over work your management

capabilities. Do a good job at what your company is best at and recognize when certain areas have become

drains on the organization. It is important to view the company in an objective way to make the best decisions

for the future; often emotions or tradition play a role in family corporation decision making, and emotion is not

a good basis for making a decision. A committed goal has to make long term viable sense for the corporation.

Where emotion is effective is in creating loyalty within the organization; don’t be afraid to laugh at yourself and

with others, don’t be afraid to be compassionate to others, don’t be afraid to smile and allow others to smile and

enjoy their work. “Morale is linked to productivity, and it’s your job as the team leader to instill a positive

energy”. (Prive, 2012, para7) This is one of Sam Walton’s rules for success “celebrate your success and find


humor in your failures, don’t take yourself so seriously. Loosen up and everybody around you will loosen up.

Have fun and show enthusiasm”. (Brinkopf; 2011, Rule#6)

We can unknowingly put a large amount of undue pressure on those within our organization if we are overly

hard on ourselves; we will find that we will lose employees and customers if we are continually furrowing our

brows. People want to enjoy coming to work. As humans we give off a positive or negative energy depending

on our mood; it is a good leadership quality to have the ability to control mood behaviour and to not affect

others negatively, but rather positively.

A great leader knows how to communicate goals and dreams and vision to the rest of the organization, and

inspires others to reach that vision. Communication is the foundation of all relationships, but it is even more

important in a family business where there is often a lack of communication among the generations involved.

Another one of Sam Walton’s Ten Rules of Success states to “communicate everything you can to your

partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care.

Once they care, there’s no stopping them. Information is power, and the gain you get from empowering your

associates more than offsets the risk of informing your competitors”. (Brinkopf, 2011, Rule#4)

Communication has another dimension, it is listening. Do we truly listen to those we work with? Are we open

to listen to new ideas? What are our customers saying? Are we listening to what is going on around us?

Listening is one of Sam Walton’s rules of success, “listen to everyone in your company, and figure out ways to

get them talking. The folks on the front lines – the ones who actually talk to the customers – are the only ones

who really know what’s going on out there. You’d better find out what they know”. (Brinkopf, 2011, Rule #7)

The art of listening inspires others and makes them feel empowered, it is a powerful leadership tool and it helps

us to understand root causes of conflict even before it becomes an issue, and it helps other to know that we care.

When we take the time to listen it tells someone that they are important and what they feel or say is important.

Our businesses are not lone sails and we require the input and work of others to be successful, it is wise to take

the time to listen.

Good managers learn to trust their intuition, “The most successful leaders have learned to trust their gut”, ”it

takes practice to know when it’s not your fear or pride speaking, but actually what you know to be true”.

(Howes, 2012, Quote #6) Mentoring leaders to understand how to trust their decision making skills is

important. If you never have to make a decision you will never understand what it is to trust your gut. It takes a

degree of risk, but often you will be glad you did. Learn how to discern the situation and see it from all sides

then make a decision. Experience has shown that those who never make decisions will actually refrain from

making any decision at all and start to go backwards in their management skills.

Those learning the skills of leadership should begin slowly and they will learn from their mistakes. It is better

they learn on the small decisions rather than get thrown to the wolves with no experience on major decisions. A

very large detriment occurs to a family business when they do not train and mentor their up and coming new

leaders; they leave them out of the decision making until it is their role to become the leader in the family

corporation, but by then they do not have the leadership skills necessary to lead the organization. This falls back

on delegation and leadership mentoring, new leaders must not always be on the front lines doing the daily tasks,

they must have some experience to develop their skills and self-confidence in management type decisions and

roles.

This does not mean putting young inexperienced family members into high management positions right away, it

means allowing them to participate with small and larger major decisions and know and understand the vision

of the organization. It can be very destructive to give out managerial positions to very young inexperienced

family members not only to the organization but those members as well. Management skills are learned and


developed, it should be encouraged that advancement within the organization is based on personal achievement

rather than given right. It should be earned and not gifted.

“In successful transition cases, the next generation is not parachuted into a top position. Successors must learn

all the ropes of the business. Create guiding principles outlining required education and experience before

making offers of employment.” (Golob, 2012, Quote #7)

The member must be able to do the job to the same level an expectation you’d expect of anyone you have hired

for the job, and thus should be appropriately trained to meet that level. Choose a role that best suits each

individual so their contribution is an asset and is valuable; they can see the value they are adding to the

company and will be motivated to do better and more within the company. A gifted position based on blood

relationships will not and does not promote growth of the individual, it will become an expectation. Leadership

of family corporations must be very good at providing training and guidance to children growing up within the

organization. Things that come easily will be wasted and not valued; “Give a man a fish and you feed him for a

day. Teach a man to fish and you feed him for a lifetime. (Chinese Proverb)

Great leaders are “ambitious first and foremost for the cause, the organization, the work, but not themselves and

they have a resolve to do whatever it takes to make good on that ambition”. (Collins, 2006, pg 4) Whomever

leads the organization will have this leadership quality, if this quality is not ruling in their management, it will

ultimately not be the interests of the organization but self preservation which is ruling, and this will in time lead

to a non-existence of the next generation and ultimately of the company.

It is important in a family corporation that the leadership know how to delegate; it is very difficult to do a good

job of leading if you are tied down to only doing the daily tasks of running the business. Learning when to say

“no” is important to keep control of your precious time. It takes time and energy to see the whole picture and

create opportunities and vision for the organization, and then it takes trust and delegation to hand over

responsibilities to others to allow that vision to materialize. “The key to delegation is identifying the strengths

of your team and capitalizing on them”. (Prive, 2012, para3) Learn what people do best and allow them to do it,

it will empower them to do more and allow leadership time to work on management of the organization.

Leaders within a family corporation have a large responsibility to the next generation, they need to know how to

successfully lead the organization in a way that provides a stable entity that will provide a support to family

members in such a way as not to bleed the organization, but rather to help the individual and the organization to

grow together for the next generation. It is a very difficult undertaking and a long term strategy which requires

much planning.

CONCLUSIVE ARGUMENTS ON LEADERSHIP

In conclusion, the following is a summary of leadership principles as they apply to a family corporation. The

leadership of the family corporation is responsible for the success of the corporation long term. It is the skills

and direction of the leader that will create a vision and encourage active participation from all members of the

family. This leader will encourage accountability and achievement to help provide the skills and education to

develop the next generation to successfully lead the corporation to another generation.


Prediction 3: Strategies that a family corporation can use to increase the likelihood of corporate

continuance include: top down strategy creation with senior management developing strategy and

operational management responsible for implementation. Understanding the competitive environment in

which the firm operates is very important to increase the likelihood of corporate continuance as well as

understanding how to effectively manage and utilize the firm’s resources and capabilities.

The next segment of the report will discuss strategy and will draw on studies by various strategy experts to

show the corporation how to develop strategy, and will also give insights into who develops the strategy.

Developing strategy and goals is one of the most important aspects of being a leader. Without a clear concise

strategy it is impossible to guide the organization; it is akin to a captain guiding a ship without a destination.

The leader must paint the picture of where he wants to organization to be in 5, 10, and even 25 years into the

future; this will help others to do the necessary tasks required to get there.

It is imperative that any corporation develop strategies that will make it successful in the long term, this comes

with creating a plan; many companies fail to write down a long term plan. “Develop a plan and work the plan”,

(Earl Reynolds) this is a simple statement with complex results; develop a good solid plan for the future and

embrace it by ensuring that daily tasks are geared towards reaching that plan. It is in daily consistency that

strategies take shape and develop solidity and strength.

Learning how to develop strategy is important for a family corporation. Robert Grant (2006, pg7), a strategy

expert, summarizes the “Common Elements in Successful Strategies” with the following figure:

In many family corporations the goals are not clearly articulated in writing or verbal context to everyone in the

organization. Often it is the owner or CEO or father of the corporation who has a set goal in his mind, but this is

not clearly articulated to the next generation.

Many of the lower level management individuals within a family corporation are busy working on the daily

operations of the company but do not have clear consistent goals that lead to a particular strategy. The family

management core must take the time to write down as stated above clear, consistent, long-term goals. Everyone

within the organization then understands exactly what they are working towards and how this will help the

organization effectively implement a successful strategy.

Setting goals should be a priority task in managements minds; it is often taken too lightly and set aside as a nice

thing to do. However, Jim Collins (2001) states that this is one step in making your company great. Collins

Profound

Understanding of

the Competitive

Environment

Objective Appraisal

of Resources

Simple, consistent,

long-term goals

Successful Strategy

EFFECTIVE IMPLEMENTATION


argues that to “set a 15 to 25-year big, hairy audacious goal (BHAG)”, the goal has to be “concrete enough, and

ambitious enough to guide your company’s progress for years”. (Weisul, 2012, quote # 4) Collins (2001) uses

the example of Sam Walton’s first goal to be the best, most profitable store in Arkansas in five years; and now

there is a Wal-Mart in every mid-size town in North America, and according to a Business Insider 2011 report

Wal-Mart is the largest family corporation in the United States at 421.85 billion in sales.

A second point from Collins’ (2001) Good to Great is to “commit to a 20-mile march that will bring you to your

big hairy audacious goal”. (Weisul, 2012, quote#5) Every day you consistently do 20 miles towards that goal,

and whether it is raining or shining you have to make your 20 miles, “it is a milestone that you reach day in and

day out”. Collins states that “companies that perform consistently do much better than those who are

spectacular one year and feeble the next”, “you overextend in good years when opportunity appears to be

everywhere, and you don’t have the resources to carry you through the poor years”. (Weisul, 2012, quote #5)

Conversely, Collins (2001) says in conjunction with setting goals to do, you need to set goals to stop doing

things that are not working within the organization. A drawback of a family corporation is tradition, some

things were done because that was the best way at the time but there can be benefits to seeing the need for

change.

Jim Collins (2001) also points out to “commit to a set of core values that you will want to build your enterprise

on without changing them for 100 years”. (Weisul; 2012, Quote #10) This is something that a family

corporation does without knowing it, the core values are there, but they need to be written down for all in the

corporation to know and to understand and embrace. Core values help provide a foundation for the company to

work from. Honesty, integrity, longevity, stability, are all part of the core values. These are the roots that give

the tree its fruit. From there the organization can work to become better at what it does.

Robert Grant (2006) states that a firm must answer two basic strategic questions; where to compete (corporate

strategy) also called segmentation and how to compete (business strategy) called differentiation. Grant states

when analyzing differentiation opportunities the company can look at two dimensions of differentiation;

tangible, being the actual product characteristics that differ according to the customer’s needs, and intangible

which relate to the intrinsic value a customer places on your product or service. Intangible value is that which

appeals to the consumer’s “social, emotional, and psychological” side. These are questions a family corporation

must put on paper and will be based upon the organization and its resources and capabilities.

A company should have a clear understanding of the resources and capabilities of the firm and understand how

the firm is working to ensure these resources are maximized. Are the present management resources available

to keep the organization operative long term? Does the next generation obtain the capabilities to lead the

organization? If not, then there needs to be increased training or an outsourcing to hire a qualified person to

lead.

In understanding where to compete, family corporations are culprits for not ensuring each management

individual has a deep understanding of the environment in which it competes. With this knowledge each

individual becomes more equipped to make educated decisions, and through open discussion can brainstorm

and help the corporation to obtain a higher level of competitive advantage. If the competitive environment is

not clearly understood, there is a breakdown of what truly makes the company successful to its customers.

Learn what you can do to give the company a competitive advantage.

Competitive advantages are very difficult to maintain in a highly competitive market, but Sam Walton gave us

an insight into Wal-Mart’s competitive strategy, Wal-Mart is ranked one of the highest retailers in the industry

for the “lowest ratio of expenses to sales”. This success strategy is to “control your expenses better than your

competition” Walton stated “you can make a lot of different mistakes and still recover if you run an efficient


operation. Or you can be brilliant and still go out of business if you’re too inefficient.” (Brinkopf, 2011, Rule

#9)

A family corporation can be run very efficient as long as every expense is monitored and recorded and

accounted for. This is why it is important for everyone to understand that they must be fair and accountable to

the company; if you have each individual taking a little bit here and there from the company, eventually it will

begin to hinder the viability of the company. It is like the old saying of the golden goose, if you are not fair to

the goose and you do not feed her but continue to take from her, she will die a slow death and will be gone

forever.

This slow death comes in the form of slowly depleting the organizations assets and finances; a family

corporation must be extra diligent to ensure that resources and capabilities and thus competitive advantage, is

not whittled down by being frivolous or too charitable to its members. Everyone must work to keep the business

running efficient or the business will cease to exist. This also means that each individual whether involved

directly or indirectly must be 100% fair with the corporation; if the corporation has to freely give to individuals

it will eventually suffer in some way. In no way should one part of the organization have to subsidize the other

parts of the organization otherwise the resources and capabilities will quickly become depleted without any

realization of profit or potential growth in the future; and subsequently, the longevity of the company will

suffer.

This problem alone can affect many other aspects of the family corporation because these individuals who

continually take from the organization do not have an understanding of what makes the corporation successful.

They have little to no understanding of the competitive environment in which the company operates, and in

their minds, the resources and capabilities of the corporation are endless. With that mindset, the financial

demands on the corporation from these individuals become endless. The corporation must develop policies and

guidelines to help those family members have a greater understanding of the goals of the corporation and the

reason it is in existence. They must also have an understanding that the corporation does not intend to sell at

any point, nor is there going to be a large payout to any one individual; it is a business that is designed to go on

as long as good management and good strategy stays consistent.

Robert Grant’s (2006) strategy formulation is summed up with effective implementation of the strategy as a key

element in successful strategy. Grant states that effective decision making, capacity to lead, and implementing

strategy through daily operations is all a part of implementing a successful strategy. A simple plan to begin

implementing a strategy in a family corporation is to have consistent frequent meetings wherein the progress of

the implementation can be tracked regularly and monitored and open for all of the management to see and

understand.

Grant says that a company must have a vision of what it is that makes it successful and areas where it needs to

improve; and also warns to work hard to promote and encourage internal strengths but protect areas of

weakness.

Grant’s (2006) Basic Framework for Strategy Analysis links the strategy with the firm and with the industry

environment which Grant calls “strategic fit”. Management within a family corporation must not get stuck on

what has always been done. If the strategy is not directly linked with the external environment in which it

competes and firmly backed up by its internal practices, then it will become out of touch with its market and its

resources within.

It is very important to understand the industry environment, if there are those within the family corporation who

are not involved within the daily operations and are not up on the industry environment, there will be a

breakdown in understanding of what is really required to be competitive.


It is equally important for all those in management to recognize or anticipate industry changes as they start to

formulate, without this knowledge, management will be left behind in the industry and the company will lose

market share rapidly as well as miss out on key opportunities. First mover response is only achieved by those

who are first to move on an opportunity and it is the first movers who realize the best profit. Strategy

formulation begins long before the actual implementation, and those companies who take the time to plan and

communicate the plan, realize long term strategic success.

A simple and effective tool to keep on top of industry changes is simply by communicating industry changes in

regular meetings. Good managers are business savvy and they will be alert to changes whether through internet

research, industry publications, or media, or public networking; companies need to make sure that these people

can communicate with the other management team.

A leader within a family corporation must learn how to develop strategy for an uncertain future. Michael

Raynor (2007:4) a strategy expert defines the term “Strategy Paradox” as when there becomes a “collision

between commitment to a strategy and the uncertainty of the future outcomes”, he states that “the most

successful strategies are those best aligned with tomorrow’s circumstances”.

Raynor (2007:3) brings forth a compelling idea that “research misses the strategy paradox because few studies

ever examine failure” and that “factors differentiating winners from losers can be identified only by analyzing

both successes and failures”.

The corporation must research and identify what makes a family corporation very successful and conversely

causes it to fail. It is beneficial to study leaders in other industries and learn what makes them successful and

conversely what has caused them to fail. And equally as beneficial is to look back on experience within the

organization and create an understanding of why certain strategies worked and others did not, this will help the

new managers learn how to develop better strategy for the future.

Raynor (2007) encourages companies to “mitigate risk without compromising performance” and help

companies to get out of the rut of “being mediocre and start committing to stronger and bolder strategy”.

Raynor (2007; 2) makes a strong statement “the true failure of a company is in remaining mediocre and never

daring to commit to a strategy”. Commitment to a strategy is what will make the strategy materialize in the

future, without a specific commitment the strategy will erode and the company will not arrive at the desired

outcome. Commitment is the key to any successful endeavour or relationship; ensure that the strategy is

formalized in writing and visited frequently by the management.

Raynor (2007:4) outlines the idea of “capturing value”, to do this he states that the company needs to “develop a

strategy that competitors cannot copy and this requires commitment to a particular strategy, to unique assets,

and particular capabilities”. Raynor states that “success stems from commitment to what few competitors have,

and when a product or service is deliberately strategized it can be difficult to duplicate”. Companies can try to

copy the successes but miss out on the first mover profit advantage.

Raynor (2007:9) speaks of requisite uncertainty which is to separate the management of commitment and

uncertainty, it is delegating responsibility to one area of the company on present commitments and goals which

will then provide time and opportunity for higher level management to focus on risk management and

opportunity creation.

This philosophy on requisite uncertainty is important as it “delegates to corporate management responsibility

for managing strategic risk and opportunity while leaving operating division to create and capture value”.


(Raynor, 2007: 11) CEOs need to be responsible to create strategic options; this is a top down approach to

strategy development.

Senior management understand the playing field and the risks and uncertainties and are capable to determine if

the company can take on a certain degree of risk, this is not an area for the operating division. The operating

division does not take risks and will avoid risks to avoid conflict or failure; it should not be given as a

responsibility for them to make decisions that imply risk for the company. CEOs can look at all strategic

options and decide on how to resolve the uncertainties involved. Then senior management must commit to a

desired strategy. Raynor (2007:4) stated that the only way to really create and capture value is to make a

commitment to a specific strategy.

It takes a certain degree of risk to make a commitment, and in a family corporation it is usually the CEO only

that will make a true commitment to risk. This can be an area of advantage of being a family corporation but it

takes communicating that strategy and encouraging the other levels to commit to that strategy that will make it

truly successful.

The CEO (or senior management) comes up with the strategic options, the middle management commits to

getting it operational, then the front lines exemplifies it in getting things done. “Since great performance

demands relentless focus on a particular strategy, devoting resources – especially management time and

attention – to creating options is typically beyond the capacity of an operating division.”(Raynor, 2007:11)

This is of significance to a family corporation especially if heavy operational demands are placed all on one or

two people; through experience the CEO must delegate daily management operations to a manager, and that

manager must delegate the daily activities to a controller and the front lines to get things done. Otherwise, the

CEO is overburdened with daily operations and has limited time to conduct or create strategic opportunities.

In a family corporation this can be achieved if you delegate responsibility according to the individual’s

capabilities. One member may be good with accounting and numbers and they should be delegated that type of

role, where another member may have strengths with daily operational management and another may be good

with people; allow people to do what they are good at because there needs to be time and energy for the CEO

and senior management to create opportunities.

Raynor (2007:12) brings in the concept of “strategic flexibility” which is a “corporate level framework for

managing strategic uncertainty through creation of strategic options”. Raynor (2007:12) states there is a

difference between growth options and true strategic options; growth options are small investments into new

venture ideas, whereas, strategic options “enable established divisions to pursue fundamentally different

strategies, it is an option on an element of an alternative strategy that may or may not be implemented not an

option on further investment into a new business that may or may not succeed.”

Often strategy formulation is viewed only in terms of new investments or growth options but it is important to

differentiate between this avenue and an actual implemented strategy which is designed to enhance the business

activities and procedures to make a stronger business within. Raynor (2007:11) advocates that “competition

starts at the top” and “not just at the product level”; “the corporate office must aim to improve operational

division’s competitiveness by facilitating the capture of synergies between operating divisions.”

As previously stated the dynamics of a family corporation give it an immediate advantage when using this top

down theory, but where it is weak is in providing the “synergies between operating divisions”. This weakness

can stem from a variety of angles; the family corporation CEO may ultimately wish the future management to

have synergy, but because of a heavy degree of control ends up discouraging any synergy. Lack of

communication is another major weakness, this occurs when the CEO simply delegates orders rather than a


clear vision and strategy to operations. Another area of weakness is when senior management is not open to

new synergistic ideas of lower level management. Lastly, limited vision of certain family members can derail

or seriously hinder a good strategy; this can also be a result of a selfish minded individual seeking self-interest

rather than the interests of the whole corporation.

Ultimately, the senior management needs to focus on managing uncertainty and then develop strategy to

mitigate risk and provide the road map, it is then the responsibility of the operating division to create and

capture that value. Raynor (2007) states that when a business is small, senior management tends to get too

involved in the daily operating decisions while leaving the “management of uncertainty to chance”. The CEO

must trust the operations management to implement the desired strategy and spend more time managing future

risk. Managing uncertainty is not easy and it involves understanding the competitive market in which you

operate.

Michael Porter (1980) a recognized strategy expert delves into various methods of strategy formulation, and is

well versed in the areas of understanding the competitive environment and of maintaining a competitive

advantage. Porter (1980) introduced the Five Forces of Competition to help determine the profitability of an

industry: industry rivalry, bargaining power of customers, bargaining power of suppliers, threat of potential

entrants, and threat of substitute products.

Each one of these aspects pertains to how to establish a viable future strategy. If the firm understands how the

industry is structured it can actively engage in a deeper understanding on how to obtain a competitive

advantage. Threat of entry of new competitors is one of the five forces; this factor determines how easy it is for

new competitors to emerge into the industry, Porter recognizes various barriers to entry which vary according to

different industries and capabilities of the firm.

In some businesses a barrier to entry is simply the capital cost required to begin, if the cost is too high there will

be limited entrants. It is important to understand if the costs to get in are higher than others are willing to spend

then the threat of entrants will be low. Conversely, if the firm wishes to choose a strategy to invest into an

industry where the costs to start up are high, it will take a strong strategy to achieve the desired result and the

risk is great.

Sometimes a firm can achieve an absolute cost advantage, this is a very good barrier to entry for others;

however, if competitors realize how you achieve your cost advantage they will try to copy it. This means that

the firm must develop strategy to ensure that they can maintain a cost advantage if they possess it. For example,

if the cost advantage is in owning resources, then the firm must ensure that their present resources are not

depleted or are replaced and that other companies are not purchasing those same resources to begin to compete.

Various studies have shown that “industries protected by high entry barriers tend to earn above average rates of

profit” (Bain, 1956; Mann, 1966: pg296-307). It is wise for a firm to engage in protecting its cost advantage.

Retaliation (Porter, 1980) is a barrier to entry and can be any act of retaliation like cutting prices, and increasing

advertising, and even legal action (Grant, 2006) against possible entrants into the industry. Firms must have a

plan in place to ensure that they can maintain a competitive position and a strategy to engage upon when new

entrants try to get into the industry. If a firm does not have a plan in place it may not be able to act fast enough

to provide this type of barrier to entry.

Product differentiation is a barrier to entry as Grant (2006, pg77) states that “established firms possess the

advantages of brand recognition and customer loyalty”. A strong strategy is to ensure that you are spending the

time and money on establishing your brand recognition and loyalty; firms who take this for granted will soon

lose their market share.


“Whether barriers to entry are effective in deterring potential entrants depends on the resources and capabilities

that potential entrants possess” (Grant, 2006: pg78); this statement is very important for strategy as the firm

should understand what value they may possess in the resources they own or control and develop strategy

accordingly.

Threat of substitutes (Porter, 1980) is a force of competition because it presents options for customers to choose

from, factors contributing to this are how well the substitute products will compare to the products your firm is

promoting. This is an area where the firm needs to promote why their product is better than others.

Rivalry between established competitors is another of Porter’s Five Forces; this is affected by six factors:

market concentration, diversity of competitors, product differentiation, excess capacity, exit barriers, and cost

conditions. Grant (2006) stated that it is better to focus rivalry on advertising, and innovation rather than on

price to minimize decreasing profitability. Family firms have to focus on what they do well and promote that to

their markets rather than dilute their profitability.

Bargaining power of buyers is a competitive force which Porter states is dependent on two factors: buyer’s price

sensitivity and relative bargaining power. If a firm’s product is one of the leading costs of the buyer, then the

buyer will be very sensitive to any price increases. (Grant, 2006, pg82) Also if the firm’s product is very similar

to the competition then the buyer will be apt to change if the price is not competitive. Conversely the “relative

bargaining power” is an intense strategy because it relies on the “gamesmanship” and the ability to “leverage

your position” in the marketplace. Grant (2006, pg82) stated that the bargaining power depends on the

credibility and effectiveness that each power to the transaction can make their threat. One side can refuse to use

a product or be leveraged to do so. This strategy is very effective if you have the ability or resources capability

to leverage your position in the market. This strategy brings in again the firm’s resources and capabilities and

how well they are managed and leveraged.

Bargaining power of suppliers is a separate competitive force which is important for maintaining a competitive

advantage and this is similar to Sam Walton’s theory on keeping the company’s costs down. A family firm has

to be on top of its costs to ensure that it is competitive. Operating loosely can and will be detrimental to the

economic future of the firm. Firms need cost controllers who are actively engaged in ensuring that the lowest

costs can be achieved from all suppliers. Researching new firms and areas of cost savings is very advantageous

but one thing that is very important is to not diminish quality or services to the customers. It is a fine balance

but very important to stay competitive.

Porter’s five forces of competition theory is an important strategic tool to utilize to gain an understanding on

how to maintain a competitive edge in the market. Analyzing the industry using this knowledge helps to

develop short term and long term strategies.

Michael Raynor (2011) challenges to find out how to predict the future success of new ideas by using the

“disruptive technology” (Christensen, 1997); Christensen concluded that when entrants tried to attack

successfully established companies by copying what they do exactly they would not succeed, but if they tried to

compete in a less desirable market they could gain a market foothold which Christensen called “the entrant’s

foothold”.

This is a very solid reason why the management of an organization must understand its competitive

environment and be aware of what is going on around it. Corporations can become complacent and lose the

ability to respond to the market changes fast enough or even at all. And even more subtly, an emerging

company is able to develop a foothold and become so large that they are difficult to compete with. If the second

generation management of a family firm does not understand their competitive environment and are complacent

in their management skills and expertise, they will soon find themselves behind the pack of emergent


competitors. There are enough skills and manpower in a strong family corporation to actively protect the

interests and growth of the corporation if utilized properly. Of course you will not have or maintain a complete

monopoly in all markets or the market you compete in, but you will not fall behind or are less likely to fail.

CONCLUSIVE ARGUMENTS ON STRATEGY

In conclusion, the following statements can summarize who it is that develops strategy and what makes strategy

formulation successful. It is the senior management of the family corporation who is responsible for strategy

development, and it depends on the leadership ability of the senior management in how successful the strategy

development will be to sustain the next generation.

Secondly, it is in consistent governance procedures that a strategy can take shape; simply stated, effective

consistent meetings of the company to monitor progress will help to keep the strategy on track. Governance

procedures will also keep the company efficient and help to monitor expenses more closely; inefficiencies will

lead to insolvency.

Thirdly, the corporation must be held as a business and not a charitable organization, it must not allow its

resources and capabilities to become depleted by poor management or poor planning or continual financial

demands.

And lastly, ensure that the strategy is linked with the industry in which the company is to compete; understand

where the industry is and what it is you can do to obtain and maintain a competitive advantage within the

industry.


CONCLUSION

In conclusion, to succeed past the second generation a family corporation must be proactive in overcoming the

obstacles that can be created by family conflict within the business, the corporation’s leaders must not only

perfect their own leadership ability but nurture leadership skills in those that will eventually manage the

company, and lastly, the corporation must begin to set written short and long term goals and engage in strategy

formulation to meet those goals. If the corporation can utilize the ideas within this report they can increase their

likelihood of successful succession.

This research paper is a solid base foundation for conflict management, for leadership, and for strategy

formulation; however it does not go into depth on these subjects as much as the writer hoped to achieve.

Understanding how to handle family conflict within the business but applying it is much more difficult as

learned from experience. This is an area that the entire paper could be focused on due to its magnitude; the

writer would have liked to uncover more effective and solid means to challenge this age old problem of conflict.

Personalities and motives play such a large role in conflict that it is difficult to grasp how to effectively resolve

conflict issues.

Managers of family corporations have to become more knowledgeable about these disciplines and learn how to

apply them on a consistent basis to the management of the organization. Many ideas seem like good ideas, but

they will not be of any benefit unless the ideas and theories are applied within in their own organizations;

managers need to get a plan and work the plan, daily, yearly and well into the future. Consistency is so

important; it is in the daily execution of small steps that a large and successful future strategy will materialize.

If this research could be started again with the knowledge learned, the writer would conduct a more aggressive

approach and learn in a deeper measure the successful succession planning strategies designed by family

business experts. The writer would be more proactive to learn more about the successes and failures of large

family corporations. Further research can be done by engaging in conversation with successful family

corporations to gather this valuable information and into the areas of successful strategic planning for family

corporations.


REFERENCES

Author Unknown; Managing Conflict Creatively in Family Business (2013) Key Resources: Family Business

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Bain, J.S. (1956) Barriers to New Competition; Cambridge, MA; Harvard University Press & H.M. Mann

(1966) Seller Concentration, Entry Barriers, and Rates of Return in Thirty Industries; Review of Economics and

Statistics

Brinkopf, Ben. (Jan 25, 2011). Ten Rules of Success from Sam Walton; The Leadership Institute at Harvard

College (LIHC) Retrieved on August 14, 2013 from

www.harvardleadership.wordpress.com/2011/01/25/ten-rules-of-success-from-sam-walton

Christensen, Clayton M. (1997). The Innovator’s Dilemma, When New technologies Cause Great Firms to Fail.

Harvard Business School Press, © 1997 President and Fellows of Harvard

College. All rights reserved. ISBN 0-87584-585-1

Collins, Jim. (2001). Good to Great, Why some companies make the Leap….and Others Don’t. Harper Business

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www.jimcollins.com/tools/diagnostic-tool.pdf

Ernst & Young. Englisch & Aminoff (2012) Built to Last –Family Businesses Lead the way to Sustainable

Growth. Family Business Center of Excellence. Retrieved on August 2, 2013 from

www.ey.com/Publication/vwLUAssets/Built_to_Last/$File/Built_to_Last.pdf

Inclusive within the above article is the following reference also cited:

European Commission DG Enterprise and Industry – Overview of family-business-relevant issues: research,

networks, policy measures and existing studies, November 2009. Retrieved on August 2, 2013 from

www.ey.com/Publication/vwLUAssets/Built_to_Last/$File/Built_to_Last.pdf

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