Continuity Model Generation. Justin B. Craig

bundle of idiosyncratic resources and capabilities that family firms hold (Habbershon and Williams, 1999). As such, familiness is one of the intangible factors in the RBV (Illustration 4).

      Identifying the resource categories that are idiosyncratic is only part of the process. As, if not more important, is understanding what the firm does with resource-related processes or actions. Effectively managing the resources is crucial to creating a competitive advantage and this requires an understanding of how resources are accumulated, bundled, and leveraged. More specifically, Sirmon and colleagues consider resource management to include structuring (i.e. acquiring, accumulating, and divesting) the portfolio of resources, bundling (i.e. stabilizing, enriching, and pioneering) resources to build capabilities, and leveraging (i.e. mobilizing, coordinating, and deploying) capabilities in the marketplace. The synchronization of these processes is important to create value and, in the context of this conversation, contribute optimally to continuity.

Illustration 4 RESOURCE-BASED VIEW

      Principal Cost Theory

An additional, very useful component in the theoretical understanding of family enterprises, and how they improve the chances of continuity, is principal cost theory (Goshen and Squire 2010).

The two major cost dimensions or components of principal cost theory are conflict and competence (Illustration 5). The argument here is something that has long been overlooked: that there are costs in the appointment of principals. Where these costs manifest in the continuity model generation perspective is when owners are ill-prepared for the responsibility of ownership. This is also the case for directors, but that is covered largely by the agency cost argument. Regardless, understanding or appreciating that owners are potentially compromising their potential by falling victim to one or both of these principal costs characteristics is important.

      Like many of the dimensions included in the 21 frameworks, the dimensions of conflict and competence are easy to interpret, remember, and explain. These two dimensions and how they apply in family enterprise are fundamental for those committed to continuity. Indeed, the primary objective as a continuity model generation member is to do whatever it takes to put the family enterprise in position for seamless continuation. That is not to say this is a simple task and there won't be plenty of opportunity to engage in conflict. For example, not everyone will be convinced that the conversation should move from traditional succession planning to a new mindset evolving toward Continuity Model Generation; there will be pushback. Expecting this pushback and framing it in terms of the principal cost is a simple solution.

Similarly, confusion around the concept of competence is likely and should be anticipated. The solution lies in explaining that costs will be incurred in the ownership group if people are not prepared for the responsibilities of ownership. This does not point the finger at any one person but alerts the collective of the issue, which can be addressed through education and communication. In reality, this is not a hard sell. As will become more evident throughout this book, Continuity Model Generation proponents seek a fresh, unifying approach to reduce conflict and tension within, between, and among stakeholders in the family enterprise system. This conflict and tension, in principal–cost theoretical terms, is explainable through the dimensions of (i) conflict of interest, and (ii) individual competency, both of which can be addressed through systematic education and communication.

Illustration 5 PRINCIPAL COST

Two Complementary Logics

One simple way to understand what's different about family enterprises is to consider that they are driven by two complementary logics. Specifically, they pursue economic and social agendas concurrently. They balance doing well and doing good. They are committed to a healthy business with a long-term perspective characterized by patient capital and at the same time dedicated to contributing to the social wellbeing of their family, employees, and the communities in which they operate. Understanding this keystone characteristic is important for the development of a continuity model mindset.

Again, this is not hard to understand, and for some it may even sound overly simplistic. But in order to set a solid foundation and to educate now- and next-generation members, simple messages are the best. By framing the distinction as two complementary logics—those associated with economic and social agendas—you can share a simple, easily understood “story.” Simple stories are best. It is also possible to draw this distinction to explain something vital. The way I like to do this is by drawing two connected circles, one with a heart and the other with a dollar sign. That picture paints more than a thousand words, leaving nothing more to be said. I encourage you to test this approach. Actually, throughout the book you'll find simple-to-replicate images that bring the ideas here to life effectively and efficiently. None are simpler than this one (Illustration 6).

      But to understand the logics concepts even further, consider two exemplars of them: S.C. Johnson and Corning.

Samuel C. Johnson, then-fourth-generation leader of S.C. Johnson, captures his firm's economic and social motivations in his collection of essays to celebrate the company's one-hundred-year anniversary in 1986. He writes, “when family ownership places a family member in control of a company, and everyone in the firm knows clearly who the boss is, and who will still be the boss in five or ten years hence, then there's a palpable air of stability” (Johnson 1988, p. 7). The Johnsons expect brave decision-making by their generational leaders and have a proud history of each generation bringing something new to the enterprise: “that is, something that hadn't been thought of by—and beyond the visions of—the previous generations” (Johnson 1988, p. 8). At the same time, S.C. Johnson's leaders are acutely aware that they serve under the watchful eye of the founders. As Sam Johnson pointed out, family companies have the capacity to “do things of social or cultural value that a public company might be reluctant even to entertain,” as they have the discretion to “do those things to contribute to enhance the communities in which we live and work without having to explain it to thousands and thousands of people over and over” (Johnson 1988, p. 13).

      The social and economic interplay manifests in the US city of Racine, Wisconsin, home of the S.C. Johnson organization. A recent visit confirmed the prominence of the Johnson family in the town; beyond core business activities, other commercial operations include the Johnson Financial Group, the Johnson Bank, and Johnson Outdoors. There is also Sam Johnson Parkway, which leads to a Johnson-funded public square. The Johnson family has also endowed the Racine Museum of Art.

      Another example is in the city of Corning, New York, home of the fifth-generation Houghton family's Corning Glass Works, where family connections and values account for much of the business's character and culture, with a focus on the social and economic wellbeing of the firm and its environment. When floodwaters destroyed the glassworks in 1972 and threatened the continuity of the business, then-Chairman Amory Houghton went on local radio to rally the company and community, “We are not only going to rebuild what we have lost, but we are going to add significantly to our manufacturing facilities in one of our plants…I want those of you who are employees of our company to know that as long as we respond well to our customer's needs your jobs are secure. Not a flood, nor a hurricane, not any other act of nature is going to jeopardize this. You are the Corning Glass Works, particularly in this city which is our home and our headquarters” (Dyer and Gross, 2001, p. 313).

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