Visibility, Control And Support

INSEAD ACADEMIC AND FAMILY BUSINESS GENERATIONAL TRANSFER EXPERT PAUL KEWENE-HITE ON WHY LOCAL CIRCUMSTANCES DON’T MATTER MUCH

Colombo Paradise Roundtable organised a series of workshops for family businesses by INSEAD academic Paul Kewene-Hite. Colombo Paradise Roundtable uses proceeds from these workshops to fund their charity work.

We also interviewed Paul. Here are excerpts from the interview…

You teach these courses all over the world. What have you learned from teaching across countries?
I’ve conducted trainings around the world, and people always say that you need to adopt to a Sri Lankan context, or a Chinese, Brazilian or Canadian context. But the truth is, the reality of business and the steps to build a successful business are essentially the same anywhere in the world.

Let me give you an example. Say a Sri Lankan startup wanted to build a fintech solution to help the unbanked send money to friends and family around the world. The technology is not going to be special to Sri Lanka, it will be for all the platforms that interact with banks around the world. Where it differs is where they test market the product, as it might be in Sri Lanka. But the product has to work in the Philippines or even Dubai. My point here is that it’s interesting how people around the world want to believe that their circumstances are special. But the reality, in my experience, is that the modifications or adaptations across cultures are very small.

In a family business, how do you engage the next generation? Is corporate entrepreneurship part of the answer?
Absolutely, it’s empowering. I’d go to my daughter or son and say, “We need to revitalize, we need to rethink how we are doing this all over again. I need you to think, how do we preserve and how do we materially evolve it in this business model. So the questions are “do we stay in this business, do we go into an associated business, do we go into a completely different kind of business?”

What does survival look like so that your children and their children will have a company to grow into.

For a family business, is corporate entrepreneurship one of the best ways they can engage the next generation?
Well, there are many things that need to be done. I as a father will take my daughter or my son and show them everything I do exactly as I do it. It worked for me for decades, but I’m not going to be doing it forever. The cautionary note is that, I shouldn’t expect my son or my daughter to become me, or do it exactly the way I did it. They need to take what I do and do it their way, because I didn’t do it the way my father did it.

Then it’s important to empower them when they say, ‘dad have you thought about doing it this way’. Add corporate  entrepreneurship. I can say, ‘I’m going to give you this budget, I am going to give you this many resources and this time. Experiment with it, then let’s fly with it and see what happens.’

THE REALITY OF BUSINESS AND THE STEPS TO BUILD A SUCCESSFUL BUSINESS ARE ESSENTIALLY THE SAME ANYWHERE IN THE WORLD

And if they show me that in fact it is better, even though that’s not how I would have done it, I need to embrace it so that the company and the family can evolve, and my child can be empowered and then they will do more of that. By the time I retire, I might see a company that’s 40% different than the company I ran without my children in it.

The generation that understands everything as I do it and understands the things they modified and adopted, and improved, will succeed. They are intimately involved in the business. They understand what’s going on and when I need to step out the door, and they step into my seat when they are ready. But if I don’t do this as a lifestyle over time, it’s not magically going to happen on my retirement. You know culture, language, religion, skills, business insights everything is transferred by regular exchange.

I can’t be in the room busy and say to my child, ‘I don’t have time right now, we’ll talk about it next week’. But next week never comes. Instead I should say come in, I don’t have time to explain right now but watch, observe and then after the meeting, ask me your top five questions and I’ll answer on my way to the next meeting. That’s mentoring, but there is a shortage of mentoring. Whether it’s a natural structure or deliberate there has to be structure in the system. We can’t say, dear child, go work in the mail room and then when I retire you can go up to the big office.

When you engage in family businesses and first generation transfers, what are typically the top two or three things you are focused on?
The number one thing is the team, people, people, people. In business, whether it’s a family business or a multinational corporation, the human beings operating it are by far the most valuable asset to the company. The right people will change everything, the wrong people will also change everything. The right team can make gold out of rubbish. The wrong team will make rubbish out of gold.

There is a Harvard Business Review article about the Marriott Hotel empire and the CEO who was the second generation. He knew he was ageing and started planning the transfer, but none of his children were showing the signs he needed to see, that they could take it over. He struggled and kept deploying his son in different parts of the company to give him corporate entrepreneurship opportunities to rise to the occasion to become the CEO.

But it became clear to both the father and the son that it was not going to happen. It was heartbreaking because they wanted it to happen, but in order to preserve the company, they had to hire an external person as the first non-Marriott CEO. But it was external to the family, not to the company. Someone who had been developing inside the company became the CEO, but in that transition, they kept the door open for a future Marriott to become the CEO. When you are developing the next generation, sometimes they desperately want it and they are in fact the right person, and sometimes you are not the right person.

The responsibility of the CEO is to protect the company. If you protect the company the right way, you are also protecting the family, even if the new CEO taking over from you isn’t family. It’s all in how you do the deal. It’s all about how you structure it. So there is not just one path that is optimal for the transition of leadership from one generation to another.

You’ve spoken about the roller coaster analogy. Can you explain that?
Have you ridden a roller coaster? What makes it a great roller coaster ride?

In my opinion, there are things that make a great roller coaster: Visibility, control and support. Visibility is if I can’t see where I am going and don’t know where I am going, and I am going there fast, I start to panic, because I can’t see where I am going. So a great roller coaster will show you where you are going and take it away, and then show you and then take it away, and show you again and take it away.

Next thing is control. I can’t control this, can you control this? No. We are just harnessed into this thing and it’s going. From time to time, a great roller coaster will give you a sense of control, it will slowdown, it will blow steam, it will break, and start from the hill again. So you feel like you have control even though you are not controlling it.

The third thing is support, a meaningful percentage of all the beams and bars of the roller coaster is not necessary for its support. They are strategically placed so that you feel like it’s been held up by something. It’s just there to calm you down and then it’s taken away to scare you. So, a great roller coaster plays with these three things.

IN MY OPINION, THERE ARE THINGS THAT MAKE A GREAT ROLLER COASTER: VISIBILITY, CONTROL AND SUPPORT

So this happens for a couple of minutes when you are on the roller coaster, then it stops and you tremble as you get off. Roller coasters are great for a couple of minutes. But not if it’s your marriage or your child, right? You know you need visibility, control and support. We need to know things, so in business we crave these three things: visibility, control and support. In a family business, it’s just as important as in every other business. The compounding factor is that mum and dad, or son or daughter need visibility on what you are doing, why you are doing it, and some understanding about controls. So if you wanna make it a great transition of, especially a family business, you need to become an expert at the art of visibility, control and support.

Anything you want to add?
Everywhere in the world people are trying to understand what is special about their context. You need to understand that the special things are maybe the laws, taxes and intellectual property protections – those things must be special where you are. But when it comes to commerce, the transactional part of it, you have to think bigger.

Then you have to elevate your perspective, your context, understand that it is not just business to business (BtoB), Business to consumer (BtoC) or Business to Government (BtoG), it’s the human to human (HtoH) that matters.

When you as a Sri Lankan business is selling to Sri Lankans, you understand the context. But when you are a Sri Lankan selling to a Hungarian or a Japanese, the context isn’t so precious. You need to think, not how do I sell to another business, but about the fact that I am talking to the person. So, it’s the HtoH that matters all the time.