During our recent webinar, Family Enterprise: Latest Strategies to Build Value Across Generations, MIT Sloan faculty John Davis and Jason Jay shared their latest research on two emerging trends: how an Owner Strategy and Systemic Investing are being put to use by families to grow value, develop family talent, and build family unity across generations.
Their insights from this event are especially relevant for the owners and leaders of family enterprises and family offices who want to stay ahead of the curve and gain new insights about family enterprise success. Davis and Jay provide a general overview of some key hot topics during this webinar; however, they take a much deeper dive into the various complexities of family business during their popular in-person course, Future Family Enterprise: Sustaining Multigenerational Success.
Foundations of family enterprise success:
In order to be successful long-term, families need to be building value. However, value creation needs to include all types of value – financial, intellectual property, social impact, reputational value, and talent. Owner Strategy and Systemic Investing are key at ensuring these are all addressed.
Growing value and “staying alive” requires operational effectiveness and making good owner level decisions on time. To ensure you’re on the right trajectory, evaluate the strength of these key factors within your family enterprise:
- Portfolio: You need the right division of assets and activities. A well-designed and adaptive portfolio is necessary.
- Management and organization: Just like any enterprise, a family business needs management that is capable and aligned in order to be successful.
- Good Ownership: A family enterprise needs loyal and capable owners who can agree on a way forward with what they’re trying to accomplish. It means putting ego aside and not taking jobs they’re not qualified for. The focus is on the greater good of the company.
- Unified Family: A family that generally gets along is key so they can be unified on key values and support any other activities the family may have.
As the world continues to change, a solid foundation is key but not enough. Davis states there are four big factors currently driving change and disruption across business and society:
- Environmental Degradation and Ecological Disruption
- Socio Politcal-Economic Forces
- Geopolitics and (De)globalization
- Technological Advances and Digital Disruption
With so many variables to worry about, how can you not only protect your enterprise but ensure it thrives for future generations? Davis’ extensive research reveals that having an Owner Mindset is imperative for long-term survival.
Owner Strategy
Davis shares that unfortunately, many owner families are thinking with an Operator Mindset – focused solely on operational excellence. That’s just one piece of the puzzle. You need someone (or a group of people) to step up and think like owners focused on developing a comprehensive Owner Strategy.
An Owner Strategy is the owner’s overarching plan for the family’s wealth and value creation — including the performance of their enterprise, and sustaining their success across generations. It identifies:
- types of value
- key risks
- organization, talent, and family needed
- governance needed
- plans to achieve goals
“In the family enterprise world, if you’re not developing assets and activities that engage the family and help motivate people to contribute and get good at various jobs within that enterprise, you won’t succeed — not as a family enterprise,” Davis states.
"In the family enterprise world, if you’re not developing assets and activities that engage the family and help motivate people to contribute and get good at various jobs within that enterprise, you won’t succeed — not as a family enterprise."
Davis also shares the importance of active owners to ensure the right talent is in the right place — and that can be family or non-family. It’s important to understand generation to generation who needs to be developed and what roles they need to occupy (and in some cases not occupy). It’s not just about putting family in a role, rather it’s about putting qualified family in the right roles so you can build a workforce that continues to attract outside talent.
Systemic Investing
Systemic Investing goes beyond philanthropy. Jason Jay, a thought leader on the topic, firmly believes family business should look at ways that they can participate in addressing systemic challenges, which in turn can support their own enterprise activities, create value, and spur innovation. In January 2024 the inaugural Systemic Investing Summit took place at MIT with over 150 global attendees from family offices, foundations, investment firms, and academia — demonstrating it’s a rapidly growing area of research and implementation that businesses need to follow, or risk being left behind.
Principles of Systemic Investing
- New investment logic: With typical investing, people diversify in order to mitigate risk. However, systemic investing requires looking at multiple interventions within the same areas of concern and trying to determine how you can connect them in order to build value.
- Polycapital Approach: This is the combination of assets (including philanthropy) and adding human, social, political, and spiritual capital. (Though Jay advises caution on leaning too heavily on political capital, which can become a barrier to advancement if tied too firmly to a particular incumbent).
- System Understanding: Mapping out the value chain, various stakeholders, and outside forces to identify areas to leverage is key. (System Dynamics – developed here at MIT and also taught by Jay — is an excellent framework for understanding these complex relationships).
- Nesting and Collaboration: In order to build greater value, families should align themselves with other family enterprises and institutions.
To see these principles in action, you can read one of Jay’s recent case studies about the Fink family and their approach to tackling food waste here.
Jay admits that working on systemic change, versus traditional philanthropy is more difficult and complex. “Some degree of concentrated effort is required to make systems change. At the same time, people have very different interest areas. The more people you successfully engage with, the more agendas in the room. But even in complicated 3-4 generation families, there’s a degree of focus that can occur. They can get clear about their capabilities and what they want their legacy to be.”
Learn more
Davis and Jay hope you’ll join them on campus for Future Family Enterprise: Sustaining Multigenerational Success. Designed for teams of four or more, the course leads multigenerational family teams through a week-long conversation to understand the future, assess their readiness for it, strengthen their approaches and capabilities, and plan for their continued success through this turbulent age and beyond.
In addition to interactive classroom work and exchanges among families from around the world, family teams will have daily, private, facilitated discussions with an experienced family enterprise advisor to focus on their interests and agenda. Each family team will leave the program with a tailored action plan built together over the course.
The course is offered each spring and fall. Learn more about the next session here.
Contributed by Elaine Santoyo Goldman