The prerequisites for long-term success
I’ve recently been working with an organisation that specialises in family businesses, to try and help them understand the unique challenges faced by their members. The research we did was informal, anecdotal and anonymised, and it’s certainly not of the quality and rigour required for formal publication, but nevertheless, what came out was fascinating, and its implications go far beyond the family business community.
We looked at almost 300 family businesses, with all their identifying characteristics removed, and went through the issues that they’d shared with the organisation to categorise their problems. As you’d expect for a family business specialist, many of their members’ challenges were around next-generation succession: sometimes the older generation passing on the title but not the authority; sometimes the younger generation lacking the interest or talent to take over; along with half a dozen other “typical” succession situations.
But what also became clear very quickly, was that these “succession” problems rarely existed in isolation. While nearly three quarters of the businesses that had asked for help, had succession as one of their issues, the majority of those also had other issues going on at the same time. Dysfunctional family dynamics in the background; tensions between Board and Executives; operational or profitability issues within the business itself, and so forth.
In all, we ended up with over 20 categories, only a third of which were directly related to succession, and the majority of which, in any given story, had been there long before the generational transfer began. While they’d been manageable during the steady-state, and supportable while the business was doing OK, as soon as the major pressures of leadership transition came onto the horizon, all the other issues began to emerge.
The reason this is so relevant to non-family businesses is that the same pattern happens with any business when put under stress: the issues that may have long been there under the surface all have a tendency to break out.
Some organisations that undergo a period of rapid growth manage it without major disasters. Others overstretch, the wheels start to come off, and customers and investors end up paying the price. In hindsight, the reasons are often easy to see: the failures had less developed infrastructure, weaker recruitment and management, underdeveloped culture, processes and governance; essentially, they didn’t have the organisation to support such a high rate of growth.
McKinsey recently came to a similar conclusion with mergers and acquisitions: the successful ones tended to be organisations that had excellent talent management, high external focus and strong internal disciplines. Those that failed generally did so because the added pressure of making a deal and integrating another business, opened up the cracks in culture and capability that were already there, but hadn’t caused a big enough issue to resolve beforehand.
Most of these pressure points, be it M&A, high growth or Brexit for that matter, are visible a long way in advance. The issue is that preparation for them tends to focus only on the obvious: raising capital, expanding the workforce, securing the supply chain. Almost all the literature and advice about family succession, for example, is around the two obvious elements: the replacement and the incumbent, their respective grooming and graceful exits.
They’re all important, but the evidence suggests they’re not the critical factors in a successful outcome. What really matters is the “health” of the wider organisation: the depth and unity of its leadership, the range of its vision, the strength of its capabilities, and the resilience of its people and culture.
Often these are add-ons to a strategic agenda that’s built entirely on products, services and markets. For resilient growth however, they appear to be the deciding factors in strategic success.