Building resilience for your family business

Over the past decade, a complex web of economic, social, political and environmental crises has challenged traditional laws of organizational physics and questioned our relentless pursuit of operational efficiency. As a result, many leaders who have spent their careers operating and investing in relative stability have been caught off guard, and many businesses may not have survived the Great Recession or the Covid-19 pandemic without strong government support.

However, in my work on campus and in the field, I have discovered a class of family businesses that are inherently more resilient—those that understand the survival need to make continuous investments in organizational agility, even at the expense of efficiency and profitability. Their unique approach to risk management provides leaders around the world with a playbook for innovation as we enter what I call a new era of uncertainty.

Many of these families have operated for decades or even centuries in emerging and frontier markets where uncertainty is the rule rather than the exception. In these more volatile environments, threats to property and safety are more prevalent, access to capital is more limited, corruption is more rampant, supply chains are more fragile, planning deadlines are shorter, and talent is harder to find.This is in addition to the familiar organizational challenges all Businesses must manage operations, finance, marketing and leadership.

For the past eight years, my colleagues and I have been documenting how enterprising families can survive and even thrive at these chronically elevated risks. Here are three simple lessons we’ve seen successfully deployed by families that can help all leaders navigate the ongoing uncertainty of the future.

Resilience requires intention.

Family businesses operating in more volatile conditions understand and expect that tomorrow may be very different from today. In these environments, public markets and institutions are often weaker, less efficient, and less transparent. Capital, resources, and talent are naturally scarce, as all three prefer the predictability that comes with the rule of law, freedom of information, and reliable infrastructure. Family leaders may wake up one morning to find their company has been nationalized, or their profits regulated, or their employees face snipers on their daily commute.

Foresightedly anticipating and planning for this volatility requires a fundamental shift in organizational design — treating operational inefficiencies as a feature, not a bug. I have observed that family businesses that thrive under such circumstances follow the wise advice of the Stoic philosopher Epictetus: “A ship should not depend on a small anchor, and life should not depend on a hope. ” Their management slogan is “just in case” rather than “just in time.” As such, they aggressively invest in organizational redundancies—often observed in resilient biological systems—to ensure they can bounce back quickly from adverse shocks and maintain operations in the event of the loss of critical capital and infrastructure.

Consider the example of a Middle Eastern family that built back-up manufacturing facilities and entire residential complexes in a nearby country in response to a devastating civil war. Or the Haitian hotel operator who invested in backup generators for their backup generators and multiple internet connections to deal with ongoing power outages and network failures. Or the Japanese soy sauce makers, who have saved local communities from famine countless times over the centuries by sharing the company’s strategic food reserves – gaining valuable access to the Imperial Palace. Or the Hong Kong family has built up an expensive offshore reserve in Canada to hedge against the rising regulatory risk of its China business.

While each of these redundant investments requires a significant amount of time and resources—a precious commodity for any organization—the conscious use of upcoming profits to build resilience can help these households provide for serious Prepare for, withstand and recover from devastation and chronic stress. Like putting a spare tire and a jack in the trunk of a car, these modifications become a kind of continuity insurance and are especially valuable in uncertain environments, although they add cost. The old saying goes: “Two is one, one is nothing”. In other words, always have a backup plan.

By contrast, many leaders who have spent their careers in relatively stable markets often viewed these investments as wasteful or inefficient—until they were caught off-guard by black swan events such as the recent Ukraine conflict and forced to reimagine their global supply chain, foreign exchange exposure and interest rate risk. After all, when conditions are relatively predictable—as in the world’s most advanced industrialized economies for much of the past half-century—optimizing efficiency can be one of the most reliable drivers of profitability and prosperity, so no Not surprisingly, this tactic has become ubiquitous, even if it is short-sighted.

Therefore, effective leaders in uncertain times need to invest more consciously in resiliency—paying a “tax” for organizational inefficiencies to help prepare for a wide range of future risks.

Resilience is a system-level challenge.

For many leaders operating in more stable developed markets, the past few years have been a painful reminder that despite our best efforts, our external environment cannot be fully controlled and many outcomes cannot be reliably predicted. These investments must transcend internal structures and processes and project outward beyond the enterprise—aligned with broader efforts to support social and environmental resilience.

In uncertain times, enterprising families need to understand that their long-term health and continuity are more dependent on the ecosystems in which they operate—a form of symbiosis often observed in resilient biological systems. As in the natural world, neglecting or failing to adequately support the health and development of all key stakeholders will only weaken their own resilience. In other words, retreating behind walls and hoping the world returns to normal is not a lasting strategy for surviving political revolutions or environmental disasters.

Again, all family leaders should take inspiration from their peers in developing markets who have seen it all before. These resilient family businesses are more inclined than their peers to invest in and care for their communities, and in many cases fund critical infrastructure when public agencies fail to do so. Some of our client families have built roads, bridges, hospitals, schools, community centers, housing, news organizations, and even telecommunications networks without government investment in these critical public goods. Not only does this foster a loyal and trustworthy source of local labor, but it also increases the likelihood of long-term success as norms of reciprocity emerge to maintain and expand a healthy ecosystem. By contrast, when companies and citizens do not have reliable access to these resources, or they are deliberately undermined by populist and misinformation campaigns, trust in third parties decreases, transaction costs increase, and the economic machine inevitably slows down.

In addition, any effort to invest in system resilience must also extend inward—by fostering family and individual resilience among internal stakeholders. Long-term uncertainty creates a special type of psychological distress that can significantly affect individual and team well-being and performance. Family business leaders addressing this issue for the first time should draw wisdom from the extensive literature on managing chronic stress in individuals, within families, and in organizations. They must also acknowledge that not all family members and business leaders face the same risks, or deal with stress in the same way. Finally, they should take comfort in the natural resilience of their peers in emerging and frontier markets, where strong family ties are often a powerful source of individual and collective well-being.

family affairs.

Extended kinship networks have been the dominant socioeconomic unit since the earliest human civilizations first emerged. Our primate DNA enables us to even encourage us to form deep relationships with genetic strangers beyond our own relatives to better manage resource scarcity and existential threats—maintaining the first enduring microclimate of trust. In such a situation, bad actors are quickly expelled from the extended family, navigating the seas of uncertainty alone, while those who remain have an increased chance of survival and growth, helping to strengthen norms around trust and reciprocity.

Many echoes of this ancient tribal orientation still exist in emerging markets today – from relation in China and Blatter in Russia, to waste in the Middle East and Compadrazigo in Latin America. In these countries, networks of family connections help reduce the frictional cost of doing business and provide an essential lubricant to the economy – conditions we have traditionally taken for granted in developed countries, where institutions such as judicial systems and freedom of the press (large partially) reliable and ensuring that others (mostly) will follow the rules. As public institutions around the world continue to be undermined by populism, misinformation campaigns and budget constraints, family leaders will need to increase their strategic use of family networks to ensure continued access to funds and opportunities.

In short, uncertain times will require a new approach to continuity planning—one that goes beyond the traditional strategic, operational, and leadership frameworks taught in every business school and deployed in every boardroom. To be successful, families also need to make thoughtful investments to better prepare for, withstand and recover from frequent shocks and chronic stress, develop a system-level view of risk, consider both external and internal resilience, and work with Local communities with deep family connections help maintain an oasis of stability amid the chaos. Despite the inherent inefficiencies and material costs of these investments, in uncertain environments, such as those of the future, it is wiser to have them without needing them, and then need them without owning them.

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