Tools for Strategy Development in Family Firms

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Family businesses provide a unique model for companies reconsidering their basic strategies. In all types of businesses, leaders experience the emotional and cognitive demands of strategic decision making that are most prevalent in family firms. The authors see three issues that are relevant to family businesses: (1) stages in the family life cycle do not coincide with strategic imperatives; (2) the founder's ideas and intentions may dominate future decision making and make change difficult; (3) later generations may want to diversify their holdings and may not trust other family members in the same way they trusted their parents. After studying and working with family firms, Drozdow and Carroll found four criteria for family firms' strategic planning approaches:

1. Link feelings to choices. Family members must consider their feelings of fear and guilt in making strategic choices.

2. Link business strategy to ownership structure. Members must consider all ownership issues along with capital structures and financial plans in planning strategy.

3. Embed strategy development into the key relationships in the business. Family relationships cannot be allowed to dominate how people think about the company and its prospects.

4. Help family members and leaders accelerate the pace of strategy review. Rather than linking planning to life cycle changes, family firms must see development as ongoing, not generational.

The authors used simulation tools to help family members change their way of thinking about their firms. In two examples, they helped members assess the future through memos, articles, role playing, and scenarios. In the first, the Trout family needed to make strategy and succession decisions. In the second, the Dewey family had to decide whether to sell the firm, make a partial public offering, or remain the same. After the simulations, family members and managers were better able to envision their company's business and their relationships to it and each other.

Nancy Drozdow is a principal and Vincent P. Carroll is president of the Center for Applied Research.

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