Don't be trapped by past success

Nation's Business, March, 1992 by John L. Ward, Craig E. Aronoff

The business was still quite profitable. Indeed, it poured fourth cash. With little debt, more funds flowed as dividends.

Next-generation successors and non-family key executives offered ideas almost daily for using the cash. But the ideas were never evaluated, much less seriously considered.

Frustration at the lack of new growth strategies increased. After a series of meetings in which younger executives tried to persuade the founder to get the company out of its strategic rut, one manager said: "Our founder's brilliance is the major reason we can't change. It's tough to criticize success--but it's deadly to presume it for the future."

Many family firms are trapped by their past success. Their early stategies are so powerful and so deeply ingrained that change is all but impossible.

At the same time, we all recognize that constant change is essential for survival. Challenges to the status quo come from unpredictable and often unimaginable sources. The life of a good stategy grows shorter and shorter as technology increasingly permits competition to come from different industries or distant countries. As product life cycles grow shorter, so does the viability of a company's strategy.

Strategic renewal is increasingly important to company growth and survival. Businesses now need stategic change several times per generation, rather than every generation or two as in the past. Still, we find strategic renewal to be rare in family firms. The reason is often found in the origins of their success.

The business strategy that eventually emerges from the entrepreneurial trial-and-error period is a product of years of gestation. One business owner put it this way: "Our recipe comes from a lifetime of hands-on, personal experience. It's a sum of all I know. No one can learn what we're doing in textbooks!"

Consider a bold manager challenging the future viability of the president's strategy. On one hand, to question it could be seen as criticizing the boss. After all, if the strategy could be improved, wouldn't the boss have already done so?

On the other hand, entrepreneurs with highly creative and successful strategies are often so charismatice that few managers would have the self-confidence to fight for dramatic change. Great respect for the boss can discourage contention.

There's another reason that strategic change is tough in successful family companies. Part of the founder's genius is to surround himself or herself with people who believe in the same things and see the world similarly. This organizational homogeneity can come from hiring practices, effective training, inspiring leadership, or even from intense loyalty.

Such homogeneity is fostered and reinforced by a deeply shared company culture, which greatly helps as the firm's insightful strategy fosters rapid growth. With everyone thinking along similar lines, the company can grow faster, and its customers will be served consistently well.

But when significant strategic change is necessary, all these great implementers are not likely to bring fresh perspectives. As one might suspect, they are the greatest living experts on the reasons for past success. The ability for them to also see a different strategic future would be at the least a coincidence--and more likely a miracle.

In short, the founder's great strategic insight and great organizational leadership usually will create blinders to the need for fundamental change. When everyone shares the same assumptions and same experience, we have a vulnerable business--even if it currently enjoys success.

Our studies of the strategic history of family firms bear this out. The founder invents a great strategy. New strategies rarely emerge until a new generation of leadership also emerges. If potential successors eagerly champion new strategies before they are in control, painful generational conflict often ensues.

If you're a founder or a longtime leader, what can you do to avoid the trap of strategic stagnation? First, of course, recognize the tendency of any company, including yours, to stagnate. In addition, we make several suggestions:

* Depersonalize the reasons for past success. Describe them to the organization as a group insight or perhaps as a lucky break rather than "my" strategy. Preach the message that change is prerequisite to survival. Allow everyone to feel a certain discomfort with the status quo. Express frequent concerns over threats to the current way of doing business. Don't underestimate the competition.

* Encourage variety in organizational thinking. Find ways to bring new people into the organization. Champion outside experience for successors. Even consider hiring people who bring very different perspectives.

* Charge the organization with the responsibility to challenge strategic assumptions. In planning or management meetings, ask everyone to identify the critical assumptions to continued success. Ask your outside board to question your mission statement and your intended source of future growth.