The right balance between entrepreneurship and professionalization from a solid foundation

31 December 2015

31 December 2015

Introduction

“How can we professionalize our business while remaining entrepreneurial?” This question is frequently asked, with the subsequent second question often being, “What will be my role as a family director during and after professionalization?” There is a major concern among family businesses that in the process of professionalization, the business becomes bureaucratic and formal, its flexibility and alertness to the marketplace diminishes, and the family’s grip on the business diminishes. In this second article, I discuss the challenges of professionalization and provide practical guidance for the organization and the family in this often difficult but essential process to ensure the continuity of the business.

Summary of previous article: the core of professionalizing

Professionalization is a catch-all term for which there is no single definition. The term “professional management” is also frequently used without an unambiguous definition. Many entrepreneurs often associate professionalization with: bringing more structure, keeping an overview and grip, creating clarity for (the new) employees, making better internal agreements, becoming more efficient, not (having to) keep reinventing the wheel or arranging administrative matters more efficiently. In the previous article, I mentioned the four main elements of professionalization (see Figure 1).

Rationalizing and formalizing the business seem to be the most difficult for family businesses, as these elements can lead to bureaucracy and rigidity. And that is the last thing the family business wants. My experience, however, is that family businesses – from an emotional standpoint – especially struggle with delegation. Indeed, delegation is the ability to let go and, within clear and agreed frameworks, hand over authority to managers and employees, often external. Delegation means that they may and even must make decisions that may be different from those the family would make. Crucial in this is that it is agreed upon in advance:

  • What the responsibility of the supervisor or employee is;
  • What the concrete goals are for the employee and his or her department;
  • That within this responsibility he or she has the freedom to make his or her own interpretation and choices and
  • the family also stays within the agreed-upon framework.

In practice, this is difficult for several reasons, not only for family business owners and managements, but also for employees:

  • Family businesses are often run from intuition. The vision and strategy is “between the ears” of the family and is often not developed. The owner has his feelers in the business and makes decisions based on all the information that comes to him formally or informally. The big question is whether the family director can and will share his “fingerspitzengefühl” with the managers and employees in the company so that they are able to take responsibility and make decisions.
  • To what extent do employees of family businesses have entrepreneurship in them? They have in recent decades become especially good at putting out fires, plugging holes and reacting quickly to the (changing) ideas of the owners and are valued for their commitment and loyalty. Family owners often mistake loyalty and flexibility of their employees for entrepreneurship. However, entrepreneurship is about seeing opportunities, being bold, believing in yourself and persevering. Not all families value these traits in their employees, as they primarily want to take charge and set the lines themselves.

The major difference between family businesses and (over)structured formal businesses is that entrepreneurship in family businesses is primarily at the top and thus with the family (and not with the employees) and that formal businesses, on the contrary, attract ambitious entrepreneurial employees who may be inhibited by the bureaucracy and politics within a corporate environment. This is shown in Figure 2. The challenge is to achieve “Best of Both Worlds.

Practical steps in realizing ‘Best of Both Worlds’

From my experience in “professionalizing” family businesses, I have noticed how important it is to lay a good foundation to professionalize and promote entrepreneurship among employees. This foundation can be excellently laid from the lean philosophy. Lean was (re)developed in the Toyota family business by Toyota founder Sakichi Toyoda, his son Kiichiro Toyoda, his nephew Elji Toyoda and production manager Taiichi Ohno in the 1960s and 1970s. The Toyota family business had to professionalize in order to sell cars in America that met the higher quality of the American brands. The basis of lean was and is eliminating “non-value-added activities” and delivering consistently high quality: changing the culture from firefighting to continuous improvement. In doing so, it is essential that employees at all levels of the company develop ownership and entrepreneurship. The basic principles of lean and professionalization are:

Principle 1: Standards as the basis for improvement

‘If there is no standard, how can you improve?’

In many family businesses, there are often unwritten laws, and limited standards about operational or administrative processes or the budget cycle, for example. Think of it as the development of a soccer team: once agreements are made and followed about positional play, for example, the team starts playing much more effectively. The standard is the best course of action at the time. Working to the standard means that individual opinions are not accepted and that employees from high to low work to this standard. With this, the frameworks are known, employees are accountable for using the standard and steps can be taken to further improve from the standard. The first practical steps in realizing the standard are:

  • Identify which standards are needed first;
  • Bringing employees together to get their personal methods and crafts clear (how do you do something and why do you do it that way);
  • with each other based on this, determine the standard and set it;
  • train employees in the new standard;
  • Maintain standards, show exemplary behavior (by management);
  • Improve standards based on employee initiatives.

The advantages of working with standards is that the wheel does not have to be reinvented every time,clarity is created, employees can and may call each other to account for working according to the standard and the organization will learn. From the standard, ownership is created and employees are challenged to further improve the standard. It is precisely by standardizing processes that space is created for creativity and entrepreneurship.

Principle 2: Know where you stand

‘If you don’t know where you stand, you only act from reactivity’

Every employee, from management to the shop floor, should be expected to continuously know if they are ahead or behind the plan. It should also be expected that everyone proactively identifies backlogs and considers what (corrective) actions are needed to catch up. So don’t wait (for the family) or point at each other, but take ownership. Implementing this principle, however, means quite a bit. Specifically, this includes:

  • management must be able to translate the long-term vision and objectives into concrete goals at all levels of the organization from year to day;
  • employees are given the goals and can independently and easily see if they are ahead or behind;
  • executives regularly “walk around” their employees to facilitate and coach them on attitude, behavior and the new way of working and
  • employees develop the attitude to become proactive, hold each other accountable and take initiatives.

Based on the standards and making goals concrete at daily, weekly, monthly and yearly levels, the business becomes predictable, employees are accountable and the foundation for continuous improvement and ownership is laid. However, both principles can only be realized from the third principle:

Principle 3: Tight interplay

‘Sowing, watering and then harvesting arises from rhythm and discipline’

Many family businesses have grown from entrepreneurship, recognizing and seizing opportunities, flexibility and passion. These elements seem at odds with structure and discipline. However, without discipline and structured follow-up from management, an organization will have limited development and professionalization. Again, the comparison with a soccer team applies: a creative striker can only come into his own if the rest of the team is disciplined in the construction of the game. In family businesses, the big challenge is to lead by example from the board of directors. If they are not disciplined and carry and repeat the principles, who is going to do it? At least not employees who are used to the culture of putting out fires and actually like it.

Finally

This article is about the challenge of making professionalism and entrepreneurship go hand in hand. The main conclusion is that, precisely by standardizing and creating clarity, companies are enabled to embed entrepreneurship lower down in the organization. And giving frameworks to employees creates ownership. And realizing ownership is a prerequisite for entrepreneurship.