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Breaking the growth gridlock in family business

Breaking the growth gridlock in family business

Why do growth-oriented family businesses hit a grid lock, like a super speeding car getting caught in a traffic jam at a crowded multi-point road cross? Fundamentally, growth-oriented family businesses have a rich supply of resources, such as entrepreneurship, funds, industry insight, social network and emotional support. What should such well-led family businesses that maintain steady high growth do to avoid getting trapped in a “grid lock” leading to an unfortunate situation of growth crisis and stagnation?

This happens when the business starts facing multiple challenges simultaneously with accelerating intensity. As the gridlock gets tightened, decisions and actions slow down. Profitability either stagnates or nosedives. With impatience mounting, complexity gets compounded with different stakeholders starting to play politics. In a traffic jam, people will wait for police intervention to ease tension. In a family business, such outside intervention may not happen always before a terrible blood bath of inter-personal relationship happens. While some family businesses untangle the lock and move forward, several remain stuck, and many fall apart with divisions in the family.

WHY GRID LOCK

Most entrepreneurial leaders are like tuskers and are used to taking most decisions themselves. As they grow older and younger family members acquire experience and become wiser, naturally they ask for more freedom to take decisions. Also, they want to be consulted on key decisions. Actually, this is an ideal situation for the leader to start redesigning the decision-making systems and processes. Self-made leaders often find this difficult, partly for fear of loss of power and identity, and partly for want of trust in others’ capabilities.

In a specific instance, the founder could not accept the reality that his three younger brothers with considerable age gap had already got 15–20 years of experience behind them, and were capable of challenging the quality of some of his decisions. With no clear criteria for taking decisions when there are differing opinions, decisions and actions are delayed, frustrating everybody, like all drivers and passengers stuck in a traffic jam.

Gridlock is the outcome where leaders do not delegate authority clearly, and to capable individuals. Lack of role clarity in an ever-growing organisation leads to a mix of too much action and inaction happening at wrong places. Conflicting instructions by enthusiastic family members to execute the growth agenda send confusing signals to the team, family or non-family. It is like the saying— “There was a work to be done by a family of four brothers, everybody thought somebody would do it, but nobody did it, though anybody could have done it”.

In most family businesses, new positions are carved out to accommodate next generation members as they get ready to join the business. Since their arrival does not often overlap with the growing requirements of the business, changes in organisation structure and decision-making processes do not happen in a systematic and planned manner. To add, building parity across family members of same generation might create uncomfortable situations of confused decision-making. Family leaders may not have solutions to all questions.

In essence, a family business that has clocked sustained growth over the years faces the dilemma of multiple stakeholders trying to direct the business from different directions. In the absence of accepted road discipline, family businesses experience traffic jams repeatedly, affecting their capability to move forward smoothly.

WAY FORWARD

Family business leaders should accept two things. One, as leaders, their role is to not only to see opportunities for growth but also adapt themselves to play new roles. They have to set standards of performance as well as flexibility. Proactively redefining their roles alone will enable them to remain leaders. It is not attachment to what they already have, but what they need to be, that will make them good drivers.

Two, they should review and make changes in the organisation structure and decision-making processes at regular intervals. Many leaders make good decisions on growth strategy, little anticipating the possibilities of them getting into grid locks as they continue to implement their plans. Even family businesses with fewer members can get into such situations for want of shared goals and role clarity. Preparing three years’ business plan on a rolling basis, if not in detail, will help businesses anticipate some of the major grid locks in the making.

Possible options for changes in organisation structure should happen as the organisation is undertaking new growth initiatives. Simultaneously, leaders should improve their knowledge of possible alternative decision-making processes involving others. Grid locks are made by families, not by outsiders, most often without any idea of the emerging traffic scene; they should constantly prepare themselves to drive carefully to avoid traffic jams from happening.

About the Author

Professor Kavil Ramachandran is the executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business.

Source: This article is reproduced from the Economic Times Blog dated June 18, 2016.

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