Networks - helping drive the UK’s Future Champions

The Government wants to see the power of the UK’s medium-sized businesses (MSB) further unleashed to grow. Policy change can play a key role as John Cridland, the CBI leader, highlighted in the Times. He offers some recommendations that Government should consider to pep up this vital sector of our economy and support our nation’s Future Champions.

The key answer however arguably lies with the MSBs themselves. What can owners do to drive stronger performance? FT journalist Chris Bryant offered a list of success factors that are commonly found in German Mittelstand organisations, acknowledging that the hardest challenge may be to imitate these values.

Being able to act swiftly and decisively is a value that MSBs commonly harness to advantage. Maintaining independence and a long-term focus in another core value plus avoiding debt. Of course, innovation is critical and MSBs are often specialists with strong intellectual property and brands focused on premium markets. The best of these companies generally avoid reliance on a single market and many concentrate on exporting and internationalisation.

Another less recognised but powerful advantage point for Germany’s MSBs is harnessing networks- leveraging their social capital. This can be anything from interacting through groups such as trade associations as well as meeting via informal networks sharing intelligence. FBN International, and its UK chapter the IFB, offer popular meeting points for successful family MSBs. In October over 750 owners and members of the FBN network will gather in London for the 23rd FBN Global Summit to debate the key drivers for “extraordinary performance” sharing knowledge and best practice.

Patient capital - the elephant in the room

http://www.ifb.org.uk/ I was part of a delegation of family business owners that met with Mark Prisk MP, the Business Minister, on Monday, together with other mid-sized business (MSB) leaders for a roundtable discussion on growing the MSB sector. In the recent Government report on MSB firms (turnover £25 - £500M) family businesses accounted for nearly half, (5,000 firms) making them critical to the success of the sector. The report also highlighted the strength of many of these companies as engines for growth, but also the challenges competing with countries such as Germany with its Mittelstand of mid-sized companies.

One of the lesser known values of MSBs is their belief in the benefits of “patient capital”. At the meeting John Cridland, Director-General of the CBI, which has published Future Champions - its own report on MSBs - described the issue of ‘patient capital’ as the elephant in the room. By mobilising this capital the CBI estimates that there is the potential for MSBs to contribute an additional £20bn to the economy by 2020 creating new ‘national champions’.

Critics could argue that a speed-dating culture has emerged in business where short-termism predominates - entrepreneurs start up ventures, grow them and exit at the earliest opportunity. Quoted Plcs have also been accused of taking short-term decisions driven by the stock market’s focus on quarterly results. Short-termism has become embedded in our DNA.

On the other hand the values associated with stewardship and long-termism have been less fashionable. Successful MSB family businesses often embody ‘patient capital’ values supported by stable ownership that prioritises long-term investment, progressive employee relations and a culture of continuous improvement within their businesses. The MSB Growth review is focusing Government’s attention on this vital part of the economy – and family buisnesses will be at the forefront of this drive for growth.

Family business champions look to export markets

http://www.ifb.org.uk/ It was good to see family businesses taking centre-stage at the CBI national conference this week. Fiat, CEO Sergio Marchionne, and IFB members JCB represented by Corporate Development Officer David Bell and Kilfrost CEO Gary Lydiate took turns to share their success stories of business internationalisation.

They were addressing the conference theme as set out in the CBI report Winning Overseas which examines how the UK can boost its declining export performance. It was a subject also discussed by Jim O’Neill, Chairman of Goldman Sachs Asset Management who told delegates that the opportunities for growth were huge for firms focused on BRIC – a term O’Neill himself coined - and other emerging economic powerhouses including the Next Eleven.

Each of the family businesses dwelt on common themes; having a clear strategic vision underpinning the company’s export goals; training and developing the talent to deliver the plan; making investment commitments that can stretch out to long-term horizons; using wide ranging marketing tools - as simple as hosting client events in British Embassies; developing know-how and intellectual property; taking a strong ethical stance on bribery; and reaching decisions based on values – perhaps sacrificing short-term profit.

Gary Lydiate, CEO of Kilfrost, (pictured right) said he had gone “cold calling” for business in China five years ago. His advice was that “you must go and visit these places; understand the culture.”

Each of these family businesses have larger competitors, but through carefully developing and deploying their resources they all enjoy strong competitive positions and are all definitely family business champions.

Family Business Stewardship - a model for business success

http://www.ifb.org.uk/ The debate on the principles of good ownership very much came to life at the height of the recent financial crisis. Corporate failures, such as Lehman Brothers, raised questions about the health of capitalism and whether it was always working for the benefit of society as a whole. Politicians and the media called on owners to be more accountable and to ensure that their companies treated stakeholders fairly and acted as responsible corporate citizens.

Tomorrow’s Company, a think-tank that aims to reduce the gap between business and society, stepped in to the debate with the publication of a report “Tomorrow’s Owners - Defining, Differentiating and Rewarding Stewardship”. The report, to which the IFB contributed, defined stewardship as the active and responsible management of entrusted resources now and in the longer term, so as to hand them on in better condition. The report set out four principles for corporate stewardship, and related behaviours:

• Principle 1. Setting the course: attention to clarity of purpose

• Principle 2. Driving performance: attention to performance and improvement

• Principle 3. Part of the landscape: attention to the wider world

• Principle 4. Planting for the future: coherence over time

Throughout this recession the family business sector has been held up by observers, such as the CBI, as a source of stability. Although the trading environment has been very difficult family firms have generally held a steady course. Arguably one of the reasons for the success of family firms during tough times is their adherence to the four stewardship principles.

A leading example of family business stewardship in action is Wates Group who place respect for communities and people at the heart of their business. This approach has earned them the prize of Major Contractor of the Year for a second consecutive year at Building Magazine’s awards.

The IFB Research Foundation has partnered with Tomorrow’s Company to examine empirically how family businesses function in terms of the stewardship and to find out if this is a model for business success. If you would like to participate in the debate about family business stewardship please leave a comment here or email your views to info@ifb.org.uk .You can also request a copy of the IFB Family Business Stewardship Report that will be published in June 2011.

Family values and shareholder value

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There is an even greater sense of anticipation now for the speech of CBI director-general Richard Lambert at the Institute for Family Business National Conference, in June, following the publicity surrounding his recent speech at the Royal Society of Arts. In comments that made the lead story in the Financial Times he explained how the relentless pursuit of shareholder value has helped to undermine the reputation of business. Richard will be tackling this question head on at our conference and will explore how family firms can develop trust as a source of competitive advantage.

His thesis, put forward at the RSA, is that the irresistible drive to reduce costs at any price has fractured the relationship between companies and their employees and local communities. An open capital market for control generating pressure in the form of hostile takeovers has further fuelled the trend. Another driver is excessive levels of high octane debt piled onto balance sheets. Crowning it all in the public’s eye is the widening pay disparity between top earners and the shop floor which has created a gulf between the haves and the have-nots in society.

Are family businesses any different? Does long-term stewardship which characterises the approach of much of the family business sector make for more moderate outcomes where employees have greater satisfaction at work and communities are not left abandoned? The answer is that at their best family firms can achieve this, but it’s not automatically the case. Every firm faces the relentless pressure of globalisation; family-owned factories have been shut and production has been moved offshore. But family business owners often have strong values which they wear on their sleeves and these set the tone for corporate behaviour.

To be the employer of choice in a town, or region, the best family firms create high trust organisations where individuals come to work feeling valued. They invest above and beyond the strict minimum that shareholder value principles would dictate because they want to be best in the business. Profit maximisation is not their sole mantra. Owners balance the requirements of the company for reinvestment with their expectations for liquidity. While the sector does face many challenges family firms can be role models by valuing stewardship above shareholder value.

Ingenious Britain

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Sir James Dyson’s Ingenious Britain report has given a boost to the debate about the importance of entrepreneurship in rebuilding our nation’s economic strength. It focuses the spotlight away from UK plc and onto the vital role that new business activity and spin-offs have in boosting technological innovation, design and employment.

There is also a broader national debate taking place about what can be done to encourage entrepreneurship in our society, in the widest sense of the word. A new group, Enterprise UK, has been formed, founded by IoD, CBI, FSB and BCC, to collect practical suggestions that any Government could use to promote and support entrepreneurship - the ideas could also be used by businesses, universities, schools and individuals. The Institute for Family Business (IFB) will be sharing its views on this important subject with Enterprise UK.

Entrepreneurship is one of the key driving forces of the family business sector. Indeed business families are prime breeding ground for tomorrow’s entrepreneurs. The Global Entrepreneurship Monitor (GEM) examined a few years ago the background of entrepreneurs starting new business activities, and concluded that family firms are an important source of young entrepreneurs. With 3 million family firms in the UK we have in the heart of our economy a latent talent pool of family business entrepreneurs.

What can we do to unleash the entrepreneurial spirit of our nation’s business families? Sir James Dyson cites education, skills and deregulation as critical success factors. The IFB agrees with this list, but also believes that values are at the heart of the creating foundations for successful entrepreneurship. Determination, courage and hard work are values that parents can instil into the next generation. By fostering these values the nation’s business families are playing a vital role in creating tomorrow’s enterprising Britain.
http://realbusiness.co.uk/leadership/dyson_no_magic_bullets