Family business - competitive advantages by Coutts & Co on 12-Jul-2011

F amily businesses have specific assets that give them a competitive advantage in the market place. New research by Coutts & Co, in conjunction with Rupert Merson from London Business School and INSEAD, examines the strengths and qualities that characterise a family business, drawing upon the experiences and insights of over 300 of Britain’s most successful family businesses.

The report, Family Businesses: Competitive Strengths and Qualities, was launched at a Forum for Family Business held at Coutts, which explored the challenges currently facing family firms. Grant Gordon, Director General at the Institute for Family Business spoke about the ingredients for successful stewardship in family businesses and how all companies should think like family businesses. The top five strengths cited by family businesses are:

1. Exceptional human resources practice: Nuances that differentiate them from other businesses include good staff retention based on a strategy of working hard to find the right level for everyone. Middle ranking positions might be held by individuals moving at a steady pace through the organisation, or not moving at all. This contrasts with an ‘up-or-out’ approach used in other organisations involving key staff progressing along defined career paths within pre-defined timescales. Loyalty amongst family members extends into the relationship with non-family staff members, in addition to customers and suppliers.
2. Agility and Flexibility in Decision Making: The structure of family businesses tends to enable flexibility, speed of decision-making and pragmatism. Flexibility is critical in these changing times which result in changing attitudes from customers, supply chains, staff and regulators. Those that can react quickly stand the best chance of survival. Agility is balanced with their ability to take the long-term view and not be thrown off course by the immediate economic environment.
3. Personal approach to doing business: Family businesses have a particularly ‘personal’ approach to doing business and have strong relationships with clients, customers and key suppliers, enabling deep, embedded knowledge about them. This enables businesses to respond to their needs and foster long-term relationships. Family businesses are also more likely to have a well established position in the local community than a corporate whose connections are less personal and more remote. The personal approach to doing business is also linked to low staff turnover, particularly at senior level.
4. Honesty and integrity in business affairs: Family businesses are more likely to have values such as honesty, integrity and straightforwardness more deeply embedded within both the family and the business. Family businesses tend to be held together as much by soft issues as hard, economic ones. They are higher on the business agenda than in non-family businesses and are often deeply embedded in the culture of the business over generations.
5. The family is a source of commercial strength: Many family businesses see the fact that they are a family business as a source of competitive advantage and a major contributor to brand image. The family reinforces the sense of passion and commitment, with key family stakeholders being committed to the business, to each other, to customers and clients. Many family businesses also like to do business with other family businesses, which creates other exciting opportunities.

"These findings reinforce our experience of what makes family business so special and what gives some the ability to survive over many generations, qualities which many non-family businesses could emulate," said Juliette Johnson, Head of Family Business at Coutts. "Family Businesses do not tend to celebrate and promote their successes often enough. We hope that by making these findings available for the benefit of other family businesses, it will encourage others, to consider what gives them a competitive edge."

"Many organisations actively promote the fact that they are a family business and others see it as something that underpins the whole way they do business. Having values such as honesty and integrity helps family businesses maintain long term, stable relationships, both internally and externally, which is a core strength."

However, these strengths are also viewed by others as weaknesses. Examples include hanging on to staff out of loyalty rather than because they are right for the business or the role at that time. As a result they may find it more difficult than other businesses to introduce and assimilate new talent. With personal relationships being key to many family businesses, many acknowledge they are too dependent on too few key members of staff. Others are too dependent on too few key client and customer relationships or key supplier relationships, putting constraints on their potential growth.

The Coutts Family Business Forum highlighted that family firms are often best equipped for long-term success and to withstand the problems caused by too much focus on short-term results. Grant Gordon said, "We believe that applying the principles of family business stewardship will enable businesses to respond more effectively to events such as the recent financial crisis, promote better workplaces and regain society’s trust in business."

The report was produced in conjunction with Rupert Merson, Adjunct Associate Professor of Strategic and International Management and Entrepreneurship at the London Business School where he teaches MBA electives on the Management of the Growing Business and New Venture Development and a Visiting Adjunct Professor at INSEAD. A copy can be downloaded here:
www.coutts.com/familybusiness

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