Fernando Alberti , PhD

1. RENEWAL PROCESSES IN FAMILY FIRMS Fernando Alberti, PhD

2. Transition from entrepreneurial to professional management The most likely causes of business failure are the problems encountered in the transition from a one-person, entrepreneurial style of management to a functionally organized, professional management team. Accomplishing such transition is a difficult task……so difficult that some said that the best way to make such transitions in organizational evolution is to pursue them when the entrepreneur retires or dies and a new generation of management takes over the direction of the organization. How to make successful transitions without a drastic change? Fernando Alberti, PhD

3. SMEs RENEWAL PROCESSES THROUGH GROWTH Entrepreneurially managed firms • Identifying opportunities • Vision • Moderate risk taking • Charismatic leader • Hate for bureaucracy • Oriented towards the environment • Decision making style based on intuition • Very personal leadership style • Action oriented • Search for direct personal feedback • A highly centralized decision making system; • An over-dependence on one or two key individuals for its survival and growth; • An inadequate repertoire of managerial skills and training • A paternalistic atmosphere Fernando Alberti, PhD

4. SMEs RENEWAL PROCESSES THROUGH GROWTH Professionally managed firms • A formal organization structure • A formalised management system • delegation and management by exception; • profit centres; • formal plans and budgets; • written rules and procedures; • information systems; • formal coordination and integrations; • mechanisms and control systems. Fernando Alberti, PhD

5. SMEs RENEWAL PROCESSES THROUGH GROWTH The transition Given the characteristics of the typical entrepreneurially managed firm, it is not likely that successful transitions to professional management will occur very often unless they are planned carefully and implemented gradually. In general, the transition process is slow since it involves organizational and personal learning and because it is necessary to preserve old strengths while developing new ones. The transition itself will usually involve five or more of the following seven steps… Fernando Alberti, PhD

6. SMEs RENEWAL PROCESSES THROUGH GROWTH Steps to transition Fernando Alberti, PhD

7. SMEs RENEWAL PROCESSES THROUGH GROWTH Steps to transition Fernando Alberti, PhD

8. SMEs RENEWAL PROCESSES THROUGH GROWTH Factors favoring the transition from entrepreneurial to professional management • 1. Management support for intrapreneurship. • Management encouragement for innovative activities • Top management experience with innovation • Top management sponsorship • “Risk-taker” is considered a positive attribute • Small and experimental projects are supported • 2. Organizational structure. • Mistakes as learning experiences • Team building • Lack of excessive concern for job descriptions • 3. Reward and research availability. • Flexible budget process • Additional rewards/compensation • Problem solving time Fernando Alberti, PhD

9. SMEs RENEWAL PROCESSES THROUGH GROWTH Transition from entrepreneurial to professional management in family firms In family firms, transition from entrepreneurial to professional management is even more problematic. This is due to the interplay between family and business typical of such firms. family firm Fernando Alberti, PhD

10. SMEs RENEWAL PROCESSES THROUGH GROWTH What is a family firm? • some degree of effective control by the family over strategic direction (family members sitting on the board or owning a significant percentage of stocks) • business it is intended to remain in the family • the founder or a descendant runs the company • multiple generations involved in the business • direct family involvement in daily operations • more than one family member have significant management responsibility Fernando Alberti, PhD

11. SMEs RENEWAL PROCESSES THROUGH GROWTH Transition from entrepreneurial to professional management in family firms By calling attention to the transitions, it does not mean to imply that periods of stability within each stage should be taken for granted. Transitions are opportunities for reassessment of the coursee the business is following and for fundamental change. Stability periods are opportunities for focus and growth. Fernando Alberti, PhD Fernando Alberti, PhD

12. SMEs RENEWAL PROCESSES THROUGH GROWTH Transition from entrepreneurial to professional management in family firms The vast majority of family businesses disappear or are sold and continue to exist outside the family’s hands. The succession stage, in particular, is the most critical transition a family firm can face and is often accompanied by a transition from an entrepreneurial to a professional management. Transitional periods in family firms are: Controlling owner Sibling partnership Cousin consortium Fernando Alberti, PhD Fernando Alberti, PhD

13. SMEs RENEWAL PROCESSES THROUGH GROWTH Fernando Alberti, PhD

14. SMEs RENEWAL PROCESSES THROUGH GROWTH The interplay between family and business in family firms Fernando Alberti, PhD

15. SMEs RENEWAL PROCESSES THROUGH GROWTH The interplay between family and business in family firms Fernando Alberti, PhD

16. SMEs RENEWAL PROCESSES THROUGH GROWTH 6 components of transitions in family firms • The continuous accumulation of developmental pressures (the process of aging; psychological and family changes; economic or political change) • The trigger (mandatory retirements; trust or legal enactment dates; unanticipated events) • Disengaging of the owner/entrepreneur • Exploring alternatives (testing, learning, revising) • Choosing (selection of an alternative to follow) • Commitment to the new structure (declaration, actions) Fernando Alberti, PhD

17. SMEs RENEWAL PROCESSES THROUGH GROWTH Management succession in family firms Fernando Alberti, PhD

18. SMEs RENEWAL PROCESSES THROUGH GROWTH The relevance of a management succession plan After having considered that the management of succession is a process that requires time and it is not a single event in time, a management succession should be accompanied by a plan in order for a transition to occur, minimizing the risk to transform in a failure. Planning succession is often at odds with being a family firm and having an entrepreneurial management, so it is a process which is frequently introduced by the outside (business associations, consultants, lawyers, etc.) Fernando Alberti, PhD

19. SMEs RENEWAL PROCESSES THROUGH GROWTH STEP 1. Select the successor • based on a real personal interest, skills, abilities and experience • involving relatives and outsiders in the decision; • don’t postpone naming the successor; • consider also non family members. Fernando Alberti, PhD

20. SMEs RENEWAL PROCESSES THROUGH GROWTH STEP 2. Create a survival kit • strategic analysis for the future • share vision • teach and learn • explain strategies • explain k.s.f. • people in the business • key customers • how to manage people • knowledge and job inventory Fernando Alberti, PhD

21. SMEs RENEWAL PROCESSES THROUGH GROWTH STEP 3. Groom the successor • gradual transfer of power • the successor will make mistakes • good communicator / tolerant listener • establish reasonable expectations • articulate keys to successor’s performance Fernando Alberti, PhD

22. SMEs RENEWAL PROCESSES THROUGH GROWTH STEP 4. Promote an environment of trust and respect • The successor can be developed in a period of 5 to 10 years. • During this period the successor must be empowered: • Gradually delegating responsibilities; • Hence allowing customers, creditors, suppliers, employees, other relatives to evaluate him/her; • Hence allowing a gradual development of confidence in the successor. Fernando Alberti, PhD

23. SMEs RENEWAL PROCESSES THROUGH GROWTH STEP 5. Cope with the financial realities of estate and gift taxes • There are several alteernatives: • Buy/Sell agreement • Lifetime gifting • Setting up a trust • Estate freeze • Family limited partnership Fernando Alberti, PhD

24. SMEs RENEWAL PROCESSES THROUGH GROWTH 10 most prevalent obstacles to family business succession planning • Lack of appreciation, recognition and love • Lack of forgiveness • Control • Other-oriented regarding change • Overlook history • Scarcity of resources • Sense of entitlement • Indirect communication • Differences are liabilities and not assets • Poor expression of feelings and wants Fernando Alberti, PhD

25. SMEs RENEWAL PROCESSES THROUGH GROWTH Quebecor case discussion • What kind of overlap can you identify in the case between the family system, the ownership system and the business system? Who is belonging to what? • Where does prevail the family perspective and where the management perspective in critical issues (recruitment, salary, evaluation, …) • Which of the 6 components of transitions in family firms can you identify in the case? • Which obstacles you see in this renewal process? Fernando Alberti, PhD