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Embracing Strategic Thinking on the Family Farm

04/12/2019


The family farm, like most family businesses, is a complex cauldron of human relationships, business needs and ownership expectations — often with little or no formal communication policies, governance or legal agreements in place. Even when family farms are in a partnership or company structure there is, in many cases, little or no adoption of formal business procedures and practices.

This Family Day, you may want to start working on that.

Because, while these informal structures and processes have traditionally been accepted as the norm and the business of farming has managed to progress despite these limitations, the face of modern agriculture is changing.

Many family farms are now complex, highly capitalized businesses which have outgrown their former practice and face complicated intergenerational transfers. As a result, there is a need to revise the traditional business approach and introduce new methodologies.

Start thinking ahead

In traditional family units, business discussions tend to focus solely on operations and management — with strategy and direction rarely documented or analyzed beyond discussion at the family dinner table. This can lead to an atmosphere of uncertainty fuelled by poor communication, lack of direction and the avoidance or accommodation of unpleasant family behaviour.

As long as the founding generation remains in charge, this approach can work. But as soon as the farm is passed down to the next generation, which may include multiple siblings or cousins, this type of set up will rapidly become unsustainable.

So how do you avoid the potential derailment of the family farm? The key is to introduce formality into the business process early — and teach the family to change the way it thinks and acts. This can’t happen overnight and requires time, effort and a commitment to see things through.

By taking this approach, your business will gradually become less managerially and operationally focused, and more open to strategic investments and entrepreneurial thinking. It can also help alleviate some of the common tensions that arise out of the family farm succession process.

The three-circle model

So how do we take a more formal business approach to the family farm? Many clients find it helpful to implement the “three circle model”.

This basic concept emerged out of work done at Harvard in the 1980s and is better described in the book Generation to Generation – Life cycles of the family business, by Davis Gersick. It can be summarized through a diagram of three independent but overlapping circles that represent the different subsystems of a family business: family, ownership and business.

By pulling apart the three areas of family, ownership and business, it’s possible to introduce new processes that can help clarify how the family business can work in the future (but it’s important to note that these three areas overlap and are part of a system that can never be completely separated).

The process is broken down into five steps:

  • Step 1: Acknowledge the need for change. This is often the biggest hurdle, because you typically realize existing processes aren’t working right after a specific event, such as the introduction of the next generation or a rapid expansion.
  • Step 2: Make sure key family members know what’s out there and what needs to be done. This education comes in many forms including books, the internet and professional expertise and support. Through this research, your family members will begin to understand the importance of terms like “governance”, “shareholder agreements” and “family constitutions”.
  • Step 3: Discover key business barriers. In most cases, this stage will start with the family — which is why it may be helpful to work with a professional advisor who can help reframe these issues in a neutral form.
  • Step 4: Create an action plan. Now that we understand which issues need to be addressed, we need to assign responsibilities and accountability.
  • Step 5: Failure to implement is often the main reason why strategic planning doesn’t work. That’s why it’s important to adopt new processes and procedures and ensure everyone is committed to the plan’s success.

Think bigger

By embracing a new way of thinking, your family can learn to master the art of communication, implement better governance structures and understand the family’s core values, vision, mission and goals – and redefine its strategic plan.

If you’re wondering whether this approach works, just consider some of the large family-owned companies we have today. Cargill, Richardson, Kal Tire or the Jim Pattison group — none of these companies are sitting around the kitchen table anymore but they’re nevertheless still guided by family values.

If you’re still on the fence, consider this quote from an unknown source: “If you change what you talk about and how you talk about it, you will change who you are and where you are heading.”

To learn more about how MNP can support your family business, contact an MNP Business Advisor near you.