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The Mystery of Family Firms Review of Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses, Danny Miller and Isabelle Le Breton-Miller, (Harvard, 2005) David Creelman
Family firms have a reputation of being old-fashioned and badly in need of professional management. Yet, the data shows that family firms outperform public firms. Professors Danny Miller and Isabelle Le Breton-Miller were intrigued by this mystery and have spent the last several years studying the very best family firms organizations like Michelin, S.C. Johnson and Timken which have thrived for generations.
The Millers found that the great family firms don't follow some aspects of what is considered good management practice. They tend to be loyal to employees in an era where most companies argue that loyalty is dead. They tend to make large investments in people, brand, or research even when the payoff may be many, many years away. They don't treat their top talent - their senior management team - as special, with even the owners often having plain offices and stingy expense accounts. Finally, they don't worry too much about profits - they fail to keep their eye firmly on quarterly earnings.
Rather than aim for short-term profits successful family firms strive to fulfill some important mission. Michelin's mission is to make travel safe and enjoyable. Bearing manufacturer Timken's mission is to make industry more efficient by eliminating friction. S.C. Johnson's mission is to make consumer products that are demonstrably superior. These firms put their heart into achieving their mission, making the investments in people, research, equipment and relationships to make it happen. They believe that if they succeed in their mission the profits will follow - and history has proven this belief to be correct.
The Millers make two interesting theoretical observations that are useful to how we think about any firm, not just family firms. One is that they are sceptical of the idea of best practices. They argue that the important thing is that the configuration of practices works together. Organizations that strive to be innovators like W.L Gore (makers of Gore-Tex™) are quite different from firms that strive to be craftsmen like Timken and hence have different management practices. The starting point in an analysis of practices is not "what are the best firms doing" but "what are the practices that will support our mission."
The Millers' second insight is that what keeps great firms great is a balance of dynamic tension. For example, a mission to be innovative could lead to doing research simply for the joy of it, so great firms with a mission to innovate also stress connections to customers which ensures that innovations remain relevant. We tend to think of organizations as being machines and in machines you rarely think of designing in forces that work against each other; but in social or political systems the idea of balancing forces is second nature. We can learn from this. It's not enough to just choose a goal such as "being great at customer service", organizations also need to determine how they can introduce countervailing forces to ensure that the focus on customer service doesn't run away out of control.
There is a danger of idealizing family firms. They can be demanding places to work and new hires who don't fit the culture are quickly pushed out. Yet, on the whole these firms provide better products, a better work environment and better returns than public firms. Managers should recognize that the lean-mean, bottom-lined focused firm is generally not the best design. Miller's ideas about the importance of commitment to a meaningful purpose, configuration of practices (instead of best practices) and building in dynamic tension are all valuable contributions to organization theory. Most of all good family firms should not be led astray by the chorus of criticism telling them that they need to be more like public firms.
You can read more in: Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses. Danny Miller and Isabelle Le Breton-Miller. Harvard, 2005
Two other contributions of our correspondent in Canada, David Creelman Revisiting the Balanced Scorecard The BSC does it good! There are also other indicators: too complicated and enormous problems at the implementation! Alternatives to Psychopatic Organizations A review of: the book and film, The Corporation by Joel Bakan. Popular organizational structures of governance meet some serious critisism. It may even be compared to a psychopath. How come?
is CEO of Creelman Research providing writing, research and commentary on human capital management. He works with a variety of academics, think tanks, consultancies and HR vendors in the US, Japan, Canada and China. He occasionally gives speeches.