Change in the family business

Pulling Corks

Change in the family business

A family business is an organisation full of traditions whose strength often lies in the fact that the strategic considerations of the business go beyond mere financial analysis and maximisation of shareholder value. Therefore, change in the family business has different effects, sometimes difficult to understand for an external observer trying to apply the rules apt for companies exclusively managed by quantitative parameters.

In family business, whatever its size, it is important to take into account, both during the decision-making process and the change management process that follows, the socioemotional wealth factor(1): an intangible value that is as important as intellectual property or best practices.

Organisational change does not only mean adapting to the new, but most of the time it also implies a substitution process with different degrees of speed and impact. In the case of substitution, as business history shows, there is not always an obvious solution, even more so if we take into account considerations of the socioemotional type. As an analogy for this type of considerations I will use the case of cork as a sealing method in wine bottles.

Wine companies have been confronted in recent times with the increasingly urgent replacement of cork for its plastic equivalent, or for the much-maligned screw cap. Purely financial and product considerations make it seem that the cork should already be completely eliminated, but the truth is that most companies still use it in spite of everything (2). How can this be explained?

First of all, it is worth noting that wine companies are generally family businesses, they are companies with a long social, community and human tradition. Secondly, although the substitution of cork seems to be an easy decision from an economic point of view, it is not from an emotional and social point of view. The owners of the wine companies owe as much to their family as to the well-being and enjoyment of their customers.

In many cases, the cork has been replaced by the screw cap for different, and all solid, reasons. On the one hand, care for the environment has been used as reason for change, but also the growing pollution of cork trees, or the need for wine to be a more versatile, modern and accessible product for a wider and younger target.

The screw cap, which is already widely in use in the Americas, South Africa and Australia, has clear advantages: its cost is lower, the sealing is completely hermetic, and it offers the possibility for the bottle to be closed again and thus conserve the product longer than with the cork. Even more so, this sealing method is beneficial to preserve the flavor of fresh and young wines. But wines with screw caps in general have suffered from the derision of wine lovers who consider it only suitable for inferior products.

The rejection of the screw cap is a typical case of resistance to change or to modify perceptions. It is a social and sentimental rejection. Traditional companies consider that cork is the only viable option for a quality wine, and they also understand very well that the emotional and historical experience that is established with their product when a wine is uncorked is irreplaceable. In addition, the cork assumes another important function for the connoisseur; it gives valuable sensory information, for those who know how to "read" it, about the product itself: it offers indications about its condition and quality, in a way an aluminum lid never could.

Change in the family business is similar to what happens in wine companies with the old-fashioned cork. This small piece that apparently only serves as a quasi-hermetic sealing, is part of the company's socioemotional capital. In order to change it, one must take into account the value it has for the company, its owners and customers. One has to estimate the cost of opportunity associated with the substitution.

Similarly, when deciding on succession, sale, communication or the growth and expansion of markets, family businesses take into account aspects as varied and intangible as the founder's reputation, social relationships between family members, employee welfare, the permanence of cultural elements or the conservation of power for the owners. As consultants at Genetikomm, we take into account these factors when leading a process of change or substitution in companies of this type. Cork remains to be a hallmark for a company dedicated to wine, apart from the other considerations (3). It is "tradition in the strictest sense" as one Argentine blogger calls it, and therefore it is resistant to change for commercial convenience.

Would you like to know more about change in family business

or about the socioemotional wealth factor?

1 “Socioemotional wealth (SEW)” according to the definition by Berrone, Cruz and Gomez-Mejia, in Family Business Review, 2012.
2 Concha and Toro goes as far as calling it a “sentimental relationship” with the cork.
3 Family owned (small and medium) businesses make up for around 80% of business in any market.

Further readingGersick, K. E., Lansberg, I., Desjardins, M., & Dunn, B. (1999). Stages and transitions: Managing change in the family business. Family Business Review, 12(4), 287-297.

Editor’s Note: Oscar Howell is the author of the book “La historia de Estafeta. Un recorrido excepcional” [ES] [Planeta México] that narrares the story of a Mexican family business that has managed to face the competition of large international emporiums.

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