Managing people

How to make sure your growing firm perpetuates the family's values.

By Jeffrey S. Davis

When you own a business, you'll do anything to keep the customers satisfied, and you try to convey the family business values to every employee. You have a simple and trustworthy feedback system: your eyes and ears, which can keep focused in a small operation.

But your eyes and ears cannot see and hear everything in a growing business. There are too many decisions to be made and too many employees who do not intuitively understand the family's values. The family needs to create a system to insure not just that its values are espoused, but to see that they are practiced.

I don't buy the theory that family businesses must surrender control to "professional" managers — those with degrees and formal training. You may need to hire new managers to help run the business. But MBAs are trained to apply, not design, models to business problems. There is an alternative strategy, called the performance management system (PMS), which allows you to perpetuate the very characteristics that made the family business grow successfully.

The first step in any PMS is to observe what everyone is doing on their jobs, to identify the critical success factors for their position. At the same time, family members must figure out formally how their values are reflected successfully in their day-to-day actions: how they interact with customers, how they treat employees, the percentage of time they spend with customers compared with the time they spend on administrative tasks. Then you must identify gaps between the family's values and everyone's actions. To bridge any gaps, you should determine and set numerical standards for each worker's and manager's (in and out of the family) critical success factors — the amount of repeat business, employee turnover, or customer satisfaction you expect. Last, you must create an ongoing feedback system that will provide reliable information about how each store, department, division, and person is performing against the new criteria.

There are several ways to make sure that people are living up to your values. For instance, you can set up an ongoing customer survey index based on the standards the business enjoyed during some past ideal period before growth began to crimp your style. You can conduct interviews of customers as they enter the store, as they leave, or use phone numbers on charge receipts to call customers. Employees and managers in each unit should keep a weekly list of customer complaints and comments, and compare their record to the overall store or department's standing. They should monitor returned mechandise, repeat business, and other variables — their critical success factors — to measure their own performance objectively.

Everyone fills out a one-page report that lists actual, versus expected, results for critical success factors. This is a great substitute for the dreaded, run-of-the-mill performance evaluation. In the traditional performance review system, a manager sits down once a year, maybe twice, and tells subordinates whether they are producing enough widgets, meeting quality standards, and displaying a positive enough attitude. This retrospective process is passive and rigid, allowing no ongoing improvement.

The PMS is responsive to problems that may underlie eroding performance. Every week when employees report how well they are meeting goals, their manager has an opportunity to emphasize how closely their performance is aligned with the family's values. For instance, a worker may proudly submit a report that shows she is producing 10 percent more widgets than last week. If the family business is more concerned about quality than quantity, her manager can point out that she should slow down, or perhaps take a course on the new software system, that will enable her to meet the goals the company truly cares about.

Also, workers who track their performance weekly are more likely to think of creative ways of removing obstacles. A worker who has to report a slip in quality one week, may suggest that a new wrench would let him adjust a machine himself instead of waiting for maintenance, or maybe better lighting would help him spot flaws more carefully.

The PMS reinforces the company's values and helps workers solve ongoing problems. It also lowers training costs (because you know exactly where to focus training dollars), and enhances job and personal satisfaction.

A retail chain with $6 million in sales recently put together a PMS after its three family owners realized their six stores had outgrown their management capabilities. The symptoms included high turnover among the 50 nonfamily managers and employees, a drop in repeat customers, and the erosion of profits. The owners were way out of touch with their expanding empire. They thought they were doing everything right. They hired a cadre of managers to computerize accounting and inventory systems, and to design a formal structure for the stores. The computers were doing their job, so the owners figured the managers must not be doing theirs.

The family members were convinced they were the only ones who could run the business; there simply were not enough of them to go around. Indeed, the family's style had worked well when there were only three stores: one member ran each site. But they expected their high-priced hired guns to duplicate the family's style and strategies and to help them manage the company precisely the way they would.

The owners were unknowingly not communicating what they wanted from their managers. How did they clear up the confusion? They set precise goals for everyone at every level.

A sample of critical success factors for the owner included:

Store clerks began to monitor:

As this family learned, a company doesn't have to compromise its unique and personal culture for growth. But at some point, the family culture will not run on automatic pilot. That doesn't mean it's time to turn over the keys to armies of MBAs, it means it's time to dissect, define, and communicate the family's strong and successful values. Everything from job descriptions to financial accounting must concentrate on preserving the unique ingredients that made the family business successful.

Jeffrey S. Davis is managing partner of Mage Centers for Management Development in Wellesley, Massachusetts.