Soriano: Importance of strategic planning in family-owned businesses-A A +A
Monday, July 21, 2014
Inside family business
“In peace prepare for war, in war prepare for peace. The Art of War is of Vital Importance to the State (512 BC)”
IT is strategic planning season once again! Usually, strategic planning sessions are conducted during the last four to five months of the year.
According to Wikipedia, strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.
It may also extend to control mechanisms for guiding the implementation of the strategy. Clearly strategic planning—for both business and family—can help to strengthen the family enterprise and extend its lifespan.
Professor John Ward looks at strategic planning as the process of developing a business strategy for profitable growth. It is designed to create insights into the company and the environment in which the company operates. It provides a systematic way of asking key business questions.
Such an inquiry challenges past business practices and opens the way for choosing new alternatives. The result should be a well-prepared strategic plan—usually a written document—that spells out specific steps to improve customer satisfaction, increase profit, and revitalize and prepare the company for the next generation. The plan also states the chosen mission of the business, identifies the direction of future growth, and describes programs that can help to achieve that growth. It thus indicates ways in which the business can compete more effectively.
On the other hand, Jane Hilbert-Davis, founder of Key Resources, an international business consultancy based in Boston, defined strategic planning as simply creating a plan of action. Originally from the Greek roots, ‘STER’ which means to spread out, usually in a military sense, and AG to drive or to lead, the word ‘strategy’ conjures up images of preparing for battle, or competition. It’s different from ‘vision’ which is a future imagined, a hope of how things can be in the ‘farther into the future’ horizon, 10-20 years from now.
A strategic plan describes how you can get there. It’s about making decisions in the present state for the future and usually involves a three to five-year time frame. It is both written and lived. It cannot be pieces of paper stuck in a drawer and forgotten, but must be thought through carefully. It should reflect a flexibility and readiness to whatever the future may bring.
The first efforts of the planner, as he or she begins to intervene, are usually to profile the current situation, using financial, competitive or customer analyses, and to interview the senior managers on what they see as the key strategic issues facing the firm. The interviews often uncover all sorts of family business issues, such as uncertainty about succession, rivalries among family members, and discrepancies between position and performance.
Benefits of Planning
As we have seen, formal planning helps to prevent family businesses from “undershooting” their strategic potential by articulating assumptions and perceptions.
Planning encourages commitment from family members as a part of the process.
It provides techniques that help managers to assess the company’s rate of reinvestment and assure that the business is retaining sufficient cash for a solid future.
The planning process increases business knowledge throughout the company and provides outstanding training for the children who are the successors and future leaders of the company.
Planning provides one other key benefit. Because it requires the participants to answer tough questions about competition and reinvestment, the planning process helps all managers and family members to develop a common understanding—that is, the same assumptions—about the world in which the company operates.
Strategic planning strengthens the ability to share decisions and value orientations.
Both are critical requirements for success in perpetuating the family business. So, in addition to providing a framework for evaluation and choice of a business direction and family goals, strategic planning is a process that prompts healthy communication on critical family business issues. It is also a valuable tool that helps build qualities such as the ability to work toward consensus, team management, and shared decision making. It identifies the fundamental business and family assumptions in a constructive way.
There are many challenges to sustaining a family’s emotional investment in an enterprise from generation to generation. Deliberate strategic planning is one key to success. It helps create motivation that can sustain the family and business through inevitable differences in individual perspectives. Good planning releases energy that the family can use to fulfill the dream of many family businesses: creating and sustaining a healthy family enterprise for the next generation. It is clear that business and family strategic planning promote continuity in family businesses.
(Professor Soriano is an Asean Family Business Advisor and Chair of the Marketing Cluster of the Ateneo Graduate School of Business. He is a National Agora Awardee and book author of Kite Runner, a book on Family Business Governance and Succession. For comments, you may email the writer at firstname.lastname@example.org)
Published in the Sun.Star Cebu newspaper on July 22, 2014.