Professionalization - What does it mean for your family business?
The values and benefits of professionalization can be hard to define for a principal business leader in a family run company, but when it is understood and implemented correctly, it can be a vital organizational development asset.
“Professionalization” means different things to different people and businesses. It is often misinterpreted by family operated businesses where the term can elicit an emotional response and be seen as a criticism of family management. This is simply false. To the contrary, professionalization is the method of ensuring that core values are instilled and effective management is in place when the needs of the business extend beyond the capability of active family members.
Many family firms pursue strategic professionalization to make their businesses more competitive, profitable, and sustainable. Some of the world's biggest, most successful and innovative companies are family founded. Across their history, as these companies expanded and evolved, they focused on establishing systems that ensured the business was prepared for the challenges coming while also incorporating the needs and values of the family into their governance.
In any privately held business, and especially in family-led businesses, professionalization models are at the intersection of the needs of the owners and the needs of the business. These models emphasize performance, accountability and planning while simultaneously embracing the company’s history, values and identity as a family business.
Understanding what professionalization means is integral to understanding how it can help your business.
What does professionalization mean?
In our perspective, the best way to examine and understand professionalization is to identify the most central person to your business and ask yourself what would happen if they were hit by a bus. When thinking about this scenario, we are going to step past the very real elements of human tragedy implied and look straight at the business and operational impact.
When we explore this question with clients, we see three buckets that form the basis of a continuum of professionalization:
If Jane were hit by a bus, our business would not survive. She held the key client relationships, she drove our operations, and defined our culture.
If Jane were hit by a bus, we would be in trouble. Our team is strong. We have established processes and systems, but Jane was a central figure and her value was hard to codify. We will struggle to replace her.
If Jane were hit by a bus, we may see a temporary dip in business, but our teams are strong enough to step up to the challenge.
Professionalization is the process of establishing systems and controls that guarantee the highest levels of integrity and competence. It offers the highest level of assurance that your business can handle the unexpected and prosper with continuity. In an ideal setting, every business would align with scenario “3”, but the reality is that many family businesses are in scenario “1”. Professionalizing your business can be viewed as taking the steps to move from “1” to “3”.
Professionalizing is a strategy; how it is implemented is up to the business owner. If you are looking at a succession plan, scaling, restructuring or simply reviewing your company processes during transitional periods, professionalization offers an objective and measured focus for leadership continuity and change strategy.
Professionalization is transitional. It is the process of identifying competencies, areas for improvement and then identifying the best people to close the gaps. For the family, this may mean acknowledging and accepting that the most qualified person for the role is not in the family.
At its core, the concern many family businesses face is the view that professionalization threatens to take control of the family’s business out of their hands. While there are circumstances where this is true, this isn’t a reason to avoid a focus on integrity and competency. Instead, successful family enterprises use professionalization to set a standard for family members to meet.
There is an additional fear element attached to professionalization: founders and succeeding family owners have their DNA coded into their firm, and the structures offered by professionalizing work flow or culture can feel like an influence that waters down the value and identity of the family. In fact, studies have shown that adding too much structure and change has an adverse effect in family-run businesses. According to an in-depth study by the Family Firm Institute (FFI):
“Many family business owners and family business advisors understand that formalized structure is not what makes a business family ‘professional’. In fact, family businesses actually thrive with less formalized structure, but more systematic, informal efforts.”
Every family-run company will go through transitional periods with regards to leadership, whether it is succession planning, the introduction of a board of directors or considering a business exit. Professionalization, as we have said before, is an elemental part of this process and more long term in its application. It should be looked at as a more objective, driven form of company evolution.
Sometimes, professionalizing certain sections of a company can result in executive power ceding to chosen non-family members. This is the foundation of change: how your company grows and expands relies on the people you draw to your firm, and the talent you attract. Your family leadership can still provide common purpose, values and culture, but professionalizing your team is a crucial value-added element to ensure continuity.
When should you professionalize?
Professionalism does not mean removal of family influence or guidance - it means reformatting leadership and culture to meet new challenges and strengthen their ability to compete in the near and long term.
Professionalization is typically considered after a company has been established for a number of years and is looking to scale - family management structures take an incredible amount of ownership and responsibility for their name and brand, but as teams expand and businesses grow you simply cannot be everywhere at once.
Evolution begets complexity, and leadership starts to require the ceding of control to other leaders and managers. Idiosyncratic management may not be the most effective way to run your company as you grow. Bringing in external leaders and influence fosters a shift towards standardization. It also fosters an atmosphere that examines the roles and responsibilities of leadership, e.g. Are the right people in the right positions?
Other common incidents of professionalizing are due to retirement and succession planning - if a founder or family leader is looking at stepping away from day-to-day leadership, companies need to build an exit strategy that considers professionalization as handing the reins to someone, or a team, who understands your company, values and history.
The moment the conversation about the future of the business is about entitlements instead of responsibilities, professionalization is needed for the health and longevity of the business.
How do you professionalize?
There is a huge school of thought on what good professionalization means, but in essence there are 3 components:
Family - Understanding the balance of a founder’s/family’s core values and role in the new company ecosystem.
Governance - Establishing an appropriate system of governance that includes roles for executive and non-family members.
Culture of Value - Re-establishing your value proposition and workplace culture in your new normal.
Family - succession planning and generational change are often drivers of workplace turnover. And, as companies professionalize, how the family continues to wield influence and drive a company forward is incredibly important. Family members often define the company identity. Professionalization should never seek to reduce or circumvent family input, but rather to assess and understand where best the family input, leadership and influence can lie to benefit the whole.
Governance - to continue to run an expanding company, or to guarantee smooth leadership continuity, understanding the full governance makeup improves alignment - how the board aligns with the executive branch, and how the corporate center and non-family members make decisions. It means a plurality of voices can be heard and challenges met as a team.
Culture of Value - this is about making sure you don’t over complicate or over-bureaucratize change, and about capturing the essence and identity of the founders and their family to always remember why your company moves forward. Professionalism means family and non-family members building understood control systems and protecting the company’s unique voice and market presence. It’s about valuing the culture, and the culture of your value.
Professionalizing a family business will often take people out of their comfort zone, especially when it means on-boarding a non-family executive. But, when the work is done, the business will have the team it needs, and plan in place to thrive.