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Change management: a strategic asset for family SMEs

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WHILE FAMILY SMES ARE OFTEN MORE AGILE AND EFFICIENT THAN THEIR LARGER COUNTERPARTS, THEY STILL STRUGGLE TO ADAPT TO THEIR EVER-CHANGING ENVIRONMENT AND TO EFFICIENTLY AND PRACTICALLY LEAD INTERNAL CHANGE MANAGEMENT.

Family businesses performed above average: 83% of them saw their turnover increase (compared to 64% globally) while only 10% underwent a decline in performance. Paradoxically, the PwC France Global Family Business study shows that they have less confidence in the future: 70% of them anticipate growth in the next 5 years, against 85% globally[1]. If this lack of optimism is a well-known evil of French companies, these figures in family SMEs are explained by a difficulty to carry out change in the company.

Among the most quoted issues for family SMEs, we find a slow adaptation to globalization, to digitalization or innovation, in the medium term. Indeed, over time, the most obvious failure factor is the succession management in the company.

Despite the extraordinary durability of some families, the average lifespan is three generations. More precisely, only 12% survive that length without disappearing and without opening up to external capital and managers outside the founding family. The number of companies exceeding four generations drops to 3%. In some cases, letting go of the business and selling it is a conscious choice and a mark of success. But for many, not surviving the transition to the next generation is a sign that the family has not achieved its long-term goals.[2]

PREPARING SUCCESSION IN A FAMILY BUSINESS: AT THE CORE OF THE STRATEGY

In fact, each family business must be able to accommodate personal professional aspects, knowing that succession management can directly conflict these two dimensions and present risks for both the family and the company. On the other hand, a well-managed transmission is an asset for the company. It allows it to reinvent itself in response to changing economic conditions and to find new energies for its growth, diversification and professionalization. To be effective, family businesses need to develop, implement and communicate a robust transmission plan as early as possible before responsibilities transfer. And yet, just over half of family businesses in the world and only 13% in France have a succession plan.[3]

Although family-owned businesses are more resilient to crises than traditional businesses because of their experience, flexibility and long-term vision, “past inputs no longer work in a world undergoing accelerated transformations under the double effect of digitization and globalization, explains Fanny Letier, executive director of Bpifrance’s own funds. To last, family businesses must agree to open their capital to their employees or investment funds.”[4]

The message is clear: whether it is growth, diversification or internationalization, the ambitions of family businesses remain strong, but something holds them back. This missing piece is a solid strategic plan, which allows to prepare the financing of the growth, to recruit talents and to retain the collaborators, to transmit and to perpetuate the company.

This strategic definition of the direction that the company will follow allows a better management of resistance to change experienced by family SMEs.

MANAGING RESISTANCE TO CHANGE

It first appears that the attachment to the company values’ is at the core of the success of the latter but is also a major cause of inertia within the SME. In fact, norms and specific practices that have been adopted over time create a more or less strong culture within the company. This culture developed through generations can be an obstacle to change, especially if the various stakeholders do not understand the need for evolution, to allow the company to develop.

Therefore, change management is more than ever a human adventure in family SMEs. It is about integrating both the executive who defines the vision of the organization and the employees at the lower levels who will bring this vision into the future. The “need for change” communication is a key success factor for this project, as any change can be perceived as a loss of control and insecurity at all levels of the organization. By explaining the reasons for change in a transparent manner, employees will feel involved and may then strengthen their commitment and willingness to help the organization in its reorientation.

INNOVATION AT THE HEART OF THE PROCESS

Why is innovation a challenge for a family business? One of the explanations holds in one word: skills[5]. This notion refers to a major problem and many leaders have acknowledged their difficulties in attracting and retaining the right profiles. However, it is easier to identify the right talent with a clear strategic plan that sets the direction of the company. Taking stock of the company needs to continue to grow in human capital must fit into an audit of the skills required to implement the company’s strategy.

By taking into account the structural changes taking place in our economies, family SMEs must anticipate and adopt a proactive attitude, to avoid becoming victims of the diffusion of new technologies and the evolution of business models. By maintaining their ability to project beyond the demands of day-to-day management, family businesses need to clearly establish a vision of their market in two, five or ten years. Identifying the different forces of change in their area of ​​operation and understanding the impact of technologies on more traditional business models must be at the center of the strategic diagnosis for these companies. In addition to better understanding the distribution of resources of the company, this assessment will also better prepare the future by defining what skills the company will develop or integrate to build its future. Without all these elements, companies will have trouble identifying how, where and in what areas to innovate.

The strategic focus on innovation therefore tends, on the one hand, to increase the organization’s anticipatory capacities by clearly identifying the skills required for its sustainability, but also to attract and retain the best talents that are today more inclined to join a tech startup or a large group.

Finally, the strategic definition for family SMEs is essential in order to access the right levers of financing.

FINANCING GROWTH

78% of family businesses anticipating a growth of more than 10% say they want to count on external financing, even though a third of them consider as more difficult to access this type of financing. By default, 76% of them are thus resolved to finance themselves on own funds.[6] Once again, establishing a robust strategy that integrates the interests of different shareholders is a cornerstone of business development. This is especially important in this type of organization where interests can diverge greatly, as the company seeks to invest in new projects or to engage in deep changes. These growing SMEs with good prospects for development should not be afraid to seek support when they do not have in-house expertise. Setting up a financing file can be very time-consuming and speaking to experts helps to avoid many unpleasant surprises. The latter have an acute knowledge of the various organizations and available aids to SMEs looking for funding.

In light of the recent economic and technological upheavals, the resilience of family SMEs in times of crisis is an undeniable asset. However, although French family businesses perform relatively well compared to their equivalents in the world, they must continue to think long-term without forgetting planning at 2, 3 5 years. Faced with the attractiveness of startups and large groups, family SMEs have the major challenge of continuing to innovate to attract and retain new talents. To acquire these additional competencies, a skills audit and strategic planning are needed to anticipate market developments. Strategic and financial support can help family SMEs and ETIs to identify their development potential, both internally and externally. Finally, this support will also support them in their search for funding, by identifying the appropriate external partners, that understand and respect the values ​​of the company.

[1] https://www.pwc.fr/fr/assets/files/pdf/2017/03/etude_family_business_national_mars-2017.pdf
[2] https://letsgofrance.fr/talents/infographies/les-entreprises-familiales-francaises
[3] https://www.pwc.fr/fr/assets/files/pdf/2017/03/etude_family_business_national_mars-2017.pdf
[4] http://www.lefigaro.fr/entrepreneur/2016/12/14/09007-20161214ARTFIG00062-les-entreprises-familiales-toujours-au-coeur-de-l-economie.php
[5] https://assets.kpmg.com/content/dam/kpmg/fr/pdf/2016/12/fr-etude-kpmg-entreprises-familiales.pdf
[6] https://www.pwc.fr/fr/assets/files/pdf/2017/03/etude_family_business_national_mars-2017.pdf

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