Family businesses are a vital part of the Kenyan economy, and the continuity and success of these businesses often depend on the transition from one generation to the next. In the Kenyan economy, it has been found that less than one-third of family businesses survive the transition from the first to the second generation, and half of those that survive, do not survive to the third generation.
In my opinion, one of the critical factors that has contributed to the high rate of family business succession failure emanates from the business owners’ inability to cope with the complicated procedure of passing over ownership as well as professionalizing the daily running of the business as it grows.
The values, the foundation of the business, does fade away in the dynamics of the business environment. The priorities change with the leadership which sometimes become the missing link in the texture. Typically, there comes a time when the desires and demands of the family members clash with the company objective and goals which they wish to achieve, and this is where having professional managers becomes necessary.
While professionally trained family members can – and certainly do – make good managers of their family business, sustaining the business’ growth beyond a certain size requires the involvement of professional managers outside the family and the mix and match option does succeed.
These professional managers bring a wealth of knowledge and experience to a family business that complements the positive aspects of the culture established by its family owners. Each aspect, the entrepreneurial side of the family owners and governance of the professional managers can be key assets to the family business, provided they work cohesively. More specifically, professional managers from outside the family can bring into the family business, better systems and processes, greater flexibility, transparency, accountability, faster decision making and more effectively align stakeholders with the business’ objectives.
Heightened competition is also another factor in recruiting professional managers. Not every family can produce a chief executive officer or chief financial officer, capable of running a family business in an ultra-competitive marketplace, thus forcing the family to look outside its circle for unique talent that will propel the business forward. These professional managers can better handle the competition, and build on an already successful venture, by looking at other avenues of growth, for instance, expansion into new markets/avenues/products that will shore up revenue and profitability.
They can do so by executing several customer growth strategies such as growing the core business, by ensuring operational excellence, and winning the loyalty and dedication of key employees at all levels and ensuring they perform optimally. Additionally, they can identify other profitable growth opportunities within the core business, such as products, customers, channels and geographic areas that generate the largest proportion of revenue and profits.
Further, the professional managers can create new value propositions for new customer sub-segments to counteract competition. This can simply be done by segmenting existing customers based on their evolving needs, and buying patterns and creating innovative value propositions that are most attractive to them. These and many other strategies that professional managers bring are one of the reasons spurring the professional-management hiring trend. Fortunately, more and more Kenyan family-owned businesses are waking up to the need of integrating professional management in managing their operations.
It is imperative to be conscious of empowerment and acceptance of the change management approach and to create a well-defined reporting structure to avoid overlapping of roles and creating confusion in the working environment. With robust succession plans in place, Kenyan family business will be more likely to professionalize their management faster. Only then can we hope to see more family-run businesses outgrow the second and third generations and grow into truly large businesses.
Mr. Ramamurthy (TRM) – Group CEO – Bidco Africa, @RamamurthyTrm