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Business

Critical role of strategic planning in a family business

PROF. Enrique Soriano - The Philippine Star

MANILA, Philippines - Strategic planning – for both business and family – can help to strengthen the family enterprise and extend its lifespan.

Strategic planning for family-owned businesses differs from planning for other types of companies largely because the family firm must incorporate family issues into its thinking.

Family concerns and preferences can influence the choice of business strategy and often make the family reluctant to embrace more formal goal-oriented discussions and decisions. Further, family considerations can limit the strategic aggressiveness of the family firm.

What is strategic planning?

According to a research paper by John Ward, co-founder and principal of “The Family Business Consulting Group Inc., the term ‘strategic planning’ typically refers to 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 to 20 years from now. A strategic plan describes how you can get there. It’s about making decisions in the present 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.

An interesting study published in Family Business Review, author Malone wrote that good succession planning was positively related to strategic planning. An interpretation may be that the family that plans together stays together and vice versa.

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.

(Prof. Enrique Soriano is an Agora Awardee for Marketing Education. He is the marketing cluster chairman of the Ateneo Graduate School of Business. He is also a family business coach and recently finished a book on Family Business Governance and Succession. For comments, you may email writer at [email protected])

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AGORA AWARDEE

ATENEO GRADUATE SCHOOL OF BUSINESS

BUSINESS

COMPANY

ENRIQUE SORIANO

FAMILY

FAMILY BUSINESS CONSULTING GROUP INC

FAMILY BUSINESS GOVERNANCE AND SUCCESSION

PLANNING

STRATEGIC

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