Skip to main content
About HEC About HEC
Summer School Summer School
Faculty & Research Faculty & Research
Master’s programs Master’s programs
Bachelor Programs Bachelor Programs
MBA Programs MBA Programs
PhD Program PhD Program
Executive Education Executive Education
HEC Online HEC Online
About HEC
Overview Overview
Who
We Are
Who
We Are
Egalité des chances Egalité des chances
HEC Talents HEC Talents
International International
Campus
Life
Campus
Life
Sustainability Sustainability
Diversity
& Inclusion
Diversity
& Inclusion
Stories Stories
The HEC
Foundation
The HEC
Foundation
Summer School
Youth Programs Youth Programs
Summer programs Summer programs
Online Programs Online Programs
Faculty & Research
Overview Overview
Faculty Directory Faculty Directory
Departments Departments
Centers Centers
Chairs Chairs
Grants Grants
Knowledge@HEC Knowledge@HEC
Master’s programs
Master in
Management
Master in
Management
Master's
Programs
Master's
Programs
Double Degree
Programs
Double Degree
Programs
Bachelor
Programs
Bachelor
Programs
Summer
Programs
Summer
Programs
Exchange
students
Exchange
students
Student
Life
Student
Life
Our
Difference
Our
Difference
Bachelor Programs
Overview Overview
Course content Course content
Admissions Admissions
Fees and Financing Fees and Financing
MBA Programs
MBA MBA
Executive MBA Executive MBA
TRIUM EMBA TRIUM EMBA
PhD Program
Overview Overview
HEC Difference HEC Difference
Program details Program details
Research areas Research areas
HEC Community HEC Community
Placement Placement
Job Market Job Market
Admissions Admissions
Financing Financing
Executive Education
Home Home
About us About us
Management topics Management topics
Open Programs Open Programs
Custom Programs Custom Programs
Events/News Events/News
Contacts Contacts
HEC Online
Overview Overview
Degree Program Degree Program
Executive certificates Executive certificates
MOOCs MOOCs
Summer Programs Summer Programs
Youth programs Youth programs
Article

To Make Your Organization Resilient, Think Like a Family Business

Entrepreneurship and Startups
Published on:

The ups and downs of economic cycles take most companies for dangerous roller-coaster rides, but family firms weather crises much better than their competitors. That's because they focus on resilience rather than on immediate performance. At a time when the global economy seems to experience crisis after crisis, lessons can be drawn from family firms, or non-family ones that behave (and survive) like them. Alain Bloch, Emeritus Professor in entrepreneurship and co-founder of the former Family Business Centre at HEC Paris, explains.

family business - cover

Photo Credit: Kzenon on Adobe Stock

The average life expectancy of a company does not exceed 40 years, according to several international studies. Yet some manage to clock 100 years or more, like Brink's, Michelin and General Electric, which all survived the wars, economic turmoils and crises of the 20th century, and have entered the 21st century full steam ahead. What is the secret to their exceptional longevity, or to use a word that has become particularly popular in management circles, their resilience?

Surviving increasingly frequent crises

Finding out how companies weather storms is all the more relevant nowadays as periods of fair weather seem shorter and shorter, with one crisis following the other nearly back-to-back. Furthermore, beyond the question of mere corporate survival lies an important issue: When an organization aims for resilience, by definition, it is more respectful of the stakeholders overall, for instance more respectful of its employees - who after all are the crew that will take the organization through the storm-, more respectful of its suppliers and this respectful behavior is oriented toward the long term. So how do companies successfully gear their strategy for the long term?

Learning from family businesses

The answer lies in a set of characteristics that we identified by examining family businesses. Although the term “family business” conjures images of mom-and-pop shops, family-controlled groups may be huge, like Walmart. We compared 149 publicly traded, family-controlled businesses with revenues of more than 1 billion dollars based in Western Europe and North America and a similar group of non-family-controlled companies. While family-controlled groups earn less than their peers during economic booms, they outperform them during economic slumps. Also, when looking across business cycles from 1997 to 2009, we found that their average long-term financial performance was higher.

 

Our conclusion was that family businesses focus on resilience more than performance.

 

Our conclusion was that family businesses focus on resilience more than performance. What they do is that they forgo the excess returns available during good times in order to increase their chances of survival during bad times. At a later stage, we carried out additional research with interviews with executives from 19 European firms or European subsidiaries of US firms that were more than a century old and found that they made similar strategic choices. This confirms that well-run family businesses can serve as models, even for companies with different ownership structures.

Here are the strategic choices that we identified as fostering resilience.
 
1/ Frugality
A quick definition of frugality would be “to spend well”. When managers have a sense that the company's money is the family's money (whether this is strictly true or not), they quite simply do a better job of keeping their expenses under control. They splash less on swanky headquarter offices than their peers, for instance, and keep the bar high for capital expenditures, only investing in very strong projects. One owner-CEO told us: “We do not spend more than we earn”. Prudent rules may mean missing out on opportunities during periods of expansion, but this also limits their exposure in times of crisis.

The same caution applies regarding debt and acquisitions. Family-controlled firms are less leveraged (debt accounted for 37% of their capital on average versus 47% for non-family firms) and make fewer, smaller acquisitions (worth 2% of their revenues vs 3.7% for non-family). Instead, family businesses prefer organic growth and will often pursue partnerships or joint ventures instead of acquisitions.

2/ Reliability
Long-lasting firms are very similar to what has been called “high-reliability organizations” in the academic and scientific literature, usually in contexts of high risks (such as a nuclear power plant). They ensure that their processes are reliable and will resist shocks. For instance, at Spie, a construction group, there is a strong focus on training in work safety, which has helped keep the accident rate at half the usual level in the sector. Incidentally, reliability helps reduce costs, in turn supporting frugality.

3/ Ambidexterity
Resilient companies combine operation and exploration, the need to attend to the present by exploiting the existing capabilities and to prepare the future by exploring new opportunities. One example of an ambidextrous company is Saint-Gobain, which operates in the sector of construction materials. Its research branch has full latitude to set its own goals, but is firmly anchored in the company's strategic markets to help make innovations commercially viable.   

4/ Value placed on human resources
Family businesses (and those that emulate them) are better at retaining talent than their competitors. How? Not necessarily through financial incentives, but by avoiding layoffs during downturns, which contributes to stronger employee engagement and helps them keep skills and expertise. They also invest significantly more in training, spending on average €885 per year per employee on average versus €336 at non-family firms. 

Leadership also is more stable, with executives at century-old firms displaying 20 years' seniority (pretty classic longevity in family firms), while most CEOs at Fortune 500 companies tend to only have been around the company 8 years before taking the helm.  

What is most interesting about the main principles that resilient companies follow is that they are coherent and synergistic, each principle reinforcing the other. For example, frugality and low debt reduce the need for layoffs, which improves retention; fewer acquisitions mean less debt; money saved through frugality is available to be invested wisely and so on. This virtuous circle is likely one that other companies will want to adopt these principles to become more resilient and weather the frequent crises of our global economy.

 

Listen to Alain Bloch's interview in French on Xerfi Canal:

 

Related content on Entrepreneurship and Startups

researcher in a tech startup_vignette
Entrepreneurship and Startups

Startups Founded by Ph.D.s Decline: Why One Should Worry

By Thomas Åstebro

station F HEC - vignette

HEC Paris Incubator at the Station F, Paris

Entrepreneurship and Startups

Lean Startup: Why Do So Many New Startups Follow the Same Development Philosophy?

By Sebastian Becker

diverse team working in a meeting room - thumbnail

Photo Credits: Jacob Lund on Adobe Stock

Entrepreneurship and Startups

Why Venture Capitalists Should Invest in Start-Ups Led by Diverse Teams

By Carlos Serrano, Thomas Åstebro

people brainstorming in an office-knowledge-thumbnail
Entrepreneurship and Startups

How to Ensure Entrepreneur Training Really Delivers Business Growth

By Anne-Valérie Corboz