Chapter 8 Leading the Evolution Family Business, First Edition, by Ernesto J. Poza Copyright © 2004 South-Western/Thomson Learning

10-2 Changing Leadership Tasks Founding generation—build from scratch and ensure survival Second generation—grow enterprise by rejuvenating and changing Following generations  Adapt firm to changes in competitive environment  Must be stewards of enterprise and family legacy

10-3 Continuity and Culture Culture: collection of beliefs, values, and ground rules that influence company behavior Businesses with strong culture perform at high level over long period of time Company culture composed of unique values that define company’s commitment to  Customers and shareholders  Employees and suppliers  Community in which company operates

10-4 Changing Organizational Culture Strong culture can be barrier to necessary change Changing culture requires leadership that  Challenges the status quo  Has an external (customer/competition) perspective  Has the capacity to forge a new direction  Can generate a sense of urgency

10-5 Evolution Leader... Builds case for change and establishes sense of urgency Communicates customer-based vision and strategies to entire organization “Walks the talk”—takes action and behaves consistently Recognizes that change takes time, yet acts with speed

10-6 Traps for New Leaders Assuming succession confers authority to lead Becoming isolated from others Being distracted by those with other agendas Having to have answers to all problems Keeping existing management team too long Attempting too much too soon Being overly cautious or rebellious

10-7 Change Formula C = D x V x FS >> RC where C = Change D = Dissatisfaction with status quo V = Vision of desired future FS = First steps in getting from here to there RC = Natural resistance to change

10-8 States of Evolution Present state Transition state Future state

10-9 States in Change Process Present State Future State Transition State

10-10 Achieving the Change FM O Present State O MF Future State O MF Transition State

10-11 Future State Define future state before beginning process of change  Scenario should be precisely defined  One scenario for business and another for family  Scenario should be concrete and honest Precise definition helps prevent uncertainty and resistance Positive prospects allow leader to pull rather than push toward future state

10-12 Present State Assessing current situation key task when facilitating evolution Assessment approaches include  Employee, family, and customer surveys  Educational sessions with top managers and family members  “Open-ear” meetings with sections of organization Assessment must include evaluation of readiness for change

10-13 Transition State Work in this period consists of forming action plans Leader must decide where to begin change  With top management?  With family?  With ownership?  With systems most ready?  With new or temporary teams?  With best practices for family business continuity?

10-14 Ensuring Continuity Plan estate and ownership transfer with business agility in mind Assume appropriate leadership roles Promote strategic growth Develop leadership capability of next generation Hire capable and dedicated nonfamily managers Welcome review of outside board members Promote communication among family members

10-15 Commitment Planning Commitment required for evolution Plan commitment by identifying key individuals in firm and family and asking  What will individual do about planned changes?  Where does the leader need individual to be with regard to planned change?  What can the leader do to move individual from current position to position that facilitates change?

10-16 Institutionalize Change Change: unfreezing stage, making changes stage, refreezing stage Institutionalize change so future state becomes present state Use governance bodies to institutionalize change  Frequent family meetings or family council  Board with independent outsiders