Preparing a family business for succession can be compared to walking through a minefield.

Only about 30% of family businesses successfully transition from the first to the second generation; only about 12% make it to the third generation; and only about 3% make it to the fourth generation.

Our internationally recognized succession management process provides a map for the succession minefield!

There are three major systems in a family business – the family system, the ownership system and the management system. Our work as family business advisors includes all three areas of influence.

"All too often family business owners frame their thinking about succession in terms of tax planning, insurance, etc. Successful family businesses use succession time to re-think how their business operates – what opportunities exist for innovation, for making a good business better," according to leading family business expert Don Schwerzler.

"ERP software systems can influence how a family business constructs the management infra-structure that contributes to a successful transition of the business from one generation to the next."

Schwerzler has been studying and advising family business entrepreneurs for more than 40 years and is the founder of the Family Business Institute.

When it comes to business operations, APICS created the recognized body of knowledge in operations management, including production, inventory, supply chain, materials management, purchasing and logistics. Their training programs include certifications for accomplished industry professionals.

Our family business ERP expert is Mike Roman, an operations management advisor for more than 30 years and APICS certified in Production and Inventory Management.

Mike, a member of APICS since 1982, is an APICS Instructor, and leads Operations and Supply Chain Management seminars locally and nationally. APICS appointed Mike to the Basics of Supply Chain Committee in September of 2007. He is past President of the Atlanta APICS Chapter and until 2010 was a member of the Atlanta APICS Chapter’s Board of Directors.

Mike has been teaching APICS certification classes since 1988. He has performed more than 60 ERP implementations on three continents. His very first ERP implementation (1987) was a family business.

Current economic conditions are causing many family businesses to reduce costs by systematizing their business – to better organize their organization. With that in mind, Family Business Experts (FBE) conducted an interview with Mike.

FBE: Do you find many differences working with a family business versus a non-family business?

MIKE: Absolutely. Probably the biggest difference is that public companies tend to make decisions based on short term performance metrics. Every time a top manager leaves, the next person wants to create their own personal legacy. Family businesses tend to take a long term view and the family’s business is the legacy.

FBE: What about differences in organizational structure?

MIKE: Family businesses that are evolving from an entrepreneurial type organization (informal) to a more formal or professionally managed organization should re-think the basics of their business – from top to bottom. It is a smart strategy to incorporate into the succession process.

FBE: Does an ERP system make that transition from informal management style to a formal style of management?

MIKE: The short answer is an emphatic NO! The real key to change management is the commitment that the family makes to building a better business.

FBE: We often talk about this in terms of a family business owner working “on” the business, not just working “in” the business.

MIKE: Yes. There is an old cliché about the journey being more important than the destination. This is also the case in change management processes. ERP software systems are a tool to facilitate change management, not an end in its self.

FBE: Will ERP software be a good management tool for every family business?

MIKE: Unfortunately, that is not the case. ERP is not for every family business – and that should be the first part of the decision making process when considering ERP software applications – does the business really need an ERP system – will it help the business grow and remain competitive in the market place.

FBE: Can you elaborate on that point – software as a management “tool”?

MIKE: ERP software is a tool and it has limitations. A5-Axis CNC machine is not the best tool to use to drill a single hole in a piece of 1/8” thick 1”x 1” piece of aluminum. Tools are instruments to achieve an end. A 5-axis CNC Machine is an expensive tool and so is an ERP system. To properly use a CNC Machine requires both education and training. Education teaches you WHEN to use the tool and training teaches you HOW to use the tool.

FBE: That’s interesting – talk a bit more about the training associated with ERP systems.

MIKE: A family business considering an ERP application needs to understand the importance of training and education. Taking an ERP system out of the box and plugging it is naïve – it will lead to a huge breakdown in functionality – the business will not achieve the full potential of the ERP system. The family business needs to understand what an ERP system can do FOR you as well as what it can do TO you!

FBE: It is obvious you feel very strongly about the training and education component?

MIKE: Let me state it another way. When family businesses are having problems with ERP implementations or are disappointment in the results they are getting from their ERP system – that’s when I am called in to fix the problem. In almost every case, the problems are rooted in two areas – lack of training/education and/or the company did a poor job preparing their organization. That reminds me of a comment one family business owner made – and that was he did not want to invest a lot of training in an employee that was likely to leave the company – that education was too expensive. Hearing that comment I had a hard time not making the obvious observation. What happens if you don’t educate them… and they don’t leave, they stay on the payroll! How much does that cost?

FBE: Could you talk about the other root problem – businesses that do a poor job of preparing their organization for ERP?

MIKE: Let me contrast two recent clients that did job shop work in steel fabrication. Both companies chose different ERP software. Company “A” chose a low cost solution that did not have all the bells and whistles. Company “B” had opted to a more robust ERP system – the top of the line. Both clients had similar businesses with standard product lines and custom product lines. Both businesses had similar split between standard and custom orders. Client “A” implemented 3 plants in less than 14 months. Company “B” took 26 months to install ERP in 2 plants.

FBE: What was the difference in how company “A” prepared their organization for ERP?

MIKE: First, they held joint meetings with the management of all three plants where the family patriarch laid out his vision and expectation for the ERP system. He also had an implementation schedule that all the managers agreed was reasonable. The second. difference was that the core team that implemented the ERP system had a representative from every department in the business. Third difference was how they went about the implementation. The management team agreed to do the largest plant first – and on a regular basis, they shared issues and resolutions with the other two plants. This enabled all three plants to buy-in to the ERP system. There was a shared responsibility for the success of the ERP system by all three plants. Fourth, the three plants held regular meetings to discuss company-wide issues and agreed to solutions that benefited everyone. There were no “dictums” coming from one department or another. Again this created an environment for the shared responsibility for success. Fifth, the CEO drove the process – he was involved and available to resolve issues… quickly.

FBE: Any other secrets to successful implementation of an ERP system?

MIKE: Control. You plan, you execute and then you control. Control is the feedback necessary to know if they are on track, meeting deadlines and achieving objectives. The feedback should include that information from the core team and feedback should be invited from people outside of the core team – how they perceive the progress of the implementation. Obviously, this is a good time to consider having an ERP expert in to assess the progress – an objective third party.

FBE: Interesting and helpful commentary. Care to sum up the interview?

MIKE: Successful ERP implementations reflects a management team that works well together in reaching objectives that will enable the company to grow and prosper. The management team makes the ERP system successful, not the other way around!

FBE: Great conclusion! Thanks, Mike!

LEARN MORE ABOUT THE 10 TOP ERP MISTAKES

If you have a question about ERP implementation strategies, just click on the ASK THE EXPERT and Mike will respond to your question.