Grow Your Business

The prevalent belief is that the family business is a small enterprise, a unique occurrence in the business world. In fact, says De La Salle management professor Elfren Cruz, that belief is an inaccurate one.

 

STRATEGIC PLANNING APPLIES, TOO

A family business is defined as a business that is “owned, controlled or managed” by a family.  “As long as one of those three ingredients is there, it’s a family business,” says Cruz.  This includes everything from a small sari-sari store to a billion peso corporation.

According to Cruz, strategic planning in a family business is no different from a non-family business—there are no management strategies, advantages or disadvantages unique to it—except for the added factor of maintaining family relationships in a business setting.

“Whatever is the relationship in the family extends into the business,” says Cruz.  “The challenge of the family businesses here is how to maintain a relationship which is harmonious, or, failing that, how to separate the relationship in the family from the relationship in the business.”

A lot of a family business’s success hinges on the last statement.  “Most family businesses do not last beyond the second generation,” Cruz observes.  “As the… family becomes bigger and bigger and bigger, the probability of harmony becomes more difficult, so there has to be some institutions or practices in place in order to make sure that the family business remains.”

DRAFT A FAMILY CONSTITUTION

There are many ways to do this, but it starts with drafting a family “constitution”—a written set of business rules that shall apply to all family members.  It may address issues like family bonuses, which members are allowed to join the business, and the like.

According to Cruz, the family constitution need not be legalized, but it has to be written down, and it has to be a formal agreement among the family members.      “Any rule governing behavior is always better written.  Because if it is not written, you can misinterpret, or you can forget it,” he says.

Another way to maintain family harmony within a business is to hold regular family meetings separate from the business meeting.  “[In a family meeting], you should not [discuss business, but the] family issues that are affecting the business,” Cruz says.  This is to help clear the air of strain that may disrupt the business.

To help keep the business competitive, Cruz suggests following the practices of successful multinational companies, which include setting up a management training program for incoming family members.  “Well-run companies… start their management training… right after graduation,” Cruz says.  “It’s got nothing to do with the fact that you’re a family or non-family [business].”

Family business should also have a mentoring program and a succession plan for young family members.  “The mentoring process, which is different from training, should begin in college,” he says.  “The mentor should not necessarily be in the same field [of activity]. The important thing is the trust [in the mentor] and [his] capability,” he adds.

FOCUS ON STRATEGIC MANAGEMENT

Another thing that family businesses should perfect is strategic management.  Strategic management is knowing how to manage the business from the top.  According to Cruz, this is a skill that not a lot of entrepreneurs develop.  “The bigger your business gets, the more essential it is to learn this skill.  Either you learn through school or you get a professional manager to do it for you or you read.  There are many ways to do it but you must learn,” he stresses. This is especially important, he says, for younger family members, who come in when the business has already been built.

The family business may also opt to hire a consultant, but this should be done after careful consideration.  “A lot of consultants don’t know how to work with family businesses,” says Cruz.  “In fact, some of them, especially if they are Western-oriented, come in with [the thought] that the family business [model] is not a good way to run a good business.  You should get a consultant who knows how to professionalize a family business.”  A consultant may cost a lot, but Cruz has a pragmatic way of looking at it.  “It’s not a matter of if it will cost a lot, it’s if you need one, you’d better get one,” he says.

The bottom line is, the family business is on the right track “if both the family and the business are on the right track.”  The business side can be measured by income, market share, and other business tools, while family harmony can be measured by examining family values and making sure that the family constitution is followed.

“The family business is the most dominant form of organization in the Philippines and in Asia.  This is our culture, our values,” Cruz says.  “What we must do is… to arrive at how to make this form of organization successful…  We must seek our own formula, but we must never apologize.  This is our form of business.”

Setting Frameworks: Family Business and Strategic Management by Elfren Cruz can be found in Powerbooks.