Executive Summary
Family businesses have been making vital contributions to the British economy and the forecast indicates even more in the coming years. A typical family business in UK, Associated British Foods plc, has been performing consistently well for over 100 years. The company has built up portfolios in Sugar, Agriculture, Retail, Grocery and Ingredients segments and owns many of the most famous food brands. Starting with bakery products, the company has diversified into the other segments mostly by prudent acquisitions. The models generally used for analysing family businesses, namely the three circle model, the 12S model and the business canvas model have limited application in this particular case, except that the company has given utmost importance to shareholder’s wealth management, which is of prime importance in respect of all models. Business decision making has also been handled mostly by CEO with professional help. The company has also followed a policy of decentralisation with decision making at unit levels being taken by experts in the respective areas in line with the local requirements. The company has operations in 48 countries employing nearly 124000 people from diverse backgrounds. The company strives to provide quality products at affordable prices, whether it is food or fashion clothing. It is time for the company to consolidate its holdings and fine tune its operations. If the company wants to diversify further, a prospective segment would be hotels, restaurants and resorts. This segment will also serve as a captive market for its food products.
Introduction
According to a report from Barclays Bank, there are currently more than two million family-owned businesses in UK, and it forecasts that by 2018, these businesses will contribute more than £218 billion to the British economy which will be higher than that contributed by the entire manufacturing sector or the retail sector. It will be worthwhile analyzing a typical family business in UK, Associated British Foods plc, to understand the factors behind the commendable success achieved by family-run businesses all over the world, and that too consistently over a period of over 100 years. ABF, founded by Garfield Weston in 1935 is currently controlled by the Weston’s, through the family holding company, Wittington Investments (Prosser, 2014). The company has businesses in Sugar, Agriculture, Retail, Grocery and Ingredients segments and owns renowned brands like Kingsmill, Pataks, Ryvita, Twinnings and Primark. Basically, the company offers a range of products from bare necessities to fashion accessories, for which the company can expect steady demand over a long period of time. Starting with bakery products in 1935, the company has diversified into a broad-based food manufacturing organization mainly through acquisitions. The group now has operations in 48 countries and employs around 124000 people. The interim report of the company for 2016 puts the total sales revenue at £ 12.8 bn. (2016 Interim Results).
Criteria for assessing family business
One of the most common models used to analyse family businesses is the three-circle model developed by RenatoTagiuri and John A Davis in 1982. The three-circle model depicts the family business as three overlapping circles representing family, ownership, business / management. The area where all the three circles overlap represents the persons who are part of the family, have high level of ownership and take important business decisions. Those members who are in any one of the circles and those who are in different intersecting areas have varying perspectives about the decisions taken by the management. The family-management-ownership interaction can either promote adaptive capacity and competitive advantage or lead to vulnerabilities due to generational or competitive change (Alderson, 2011, pp.34&35).
The 12S model recognizes 12 important strategic elements necessary to ensure strategic fit of the family business. On the strategy level the elements are the strategy and shared values of the family, strategy of the enterprise and the strategy of the individual. On the structural level, shareholder structure, organizational structure and systems and structure for governance of the family-business relationship have to be considered. On the shareholder level, stewardship and family leadership, shareholder wealth management and information and service and philanthropy are to be considered. The elements to be considered in the area of succession and social capital are succession, skills and social capital and staff (family and non family). In the later stages, the business ownership becomes multigenerational and it is of utmost importance to keep the shareholders patient and committed over the long term. Caring family dynamics, transparency and professionalism help to maintain trust and commitment (Poza & Daugherty, 2013. pp. 117-121). In the case of normal professionally managed companies, the share holders have the option to liquidate their holdings in the stock market. Whereas in the case of family businesses, which are generally closely held, wealth- management of the business is everyone’s concern and there is no shirking of responsibility.
Another model which can be successfully employed to analyse a family business is the business canvas model. In this the business processes and internal activities of a business are grouped into nine building blocks and visually depicted on a sheet of paper. The nine categories are customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. With this model, it becomes easy to visualise the inter-relationships between the various factors that affect the performance of the business. Also alternative scenarios can be visualized and shared easily among the top executives (Martin, 2015). Family businesses can employ this model to effectively communicate ideas within the family and business interactions, which will serve to promote better understanding and commitment.
Caspar, Dias and Elstrodt (2010) contend that there are five major factors which lead to long-term sustenance of family businesses. These are: the family, ownership, foundations, wealth management and business and portfolio governance. These five dimensions of activity should work well and in harmony, so that the dual challenges of achieving excellent business performance and keeping the family committed to and capable of carrying on as the owner can be met.
Organizational strategy
The company follows a business strategy is to operate in a broad range of products, technology and markets. Apart from large sized, mature cash-generative operations, the company regularly adds small businesses where there is high growth potential. This continuous addition of new ventures to the business portfolios helps the company to be in the fore front of growth sectors. The company aims at long-term financial stability and allocates capital funds to sectors based on the criteria of returns in excess of defined limits. Specialist expert services like investor relations, pensions, insurance, and tax and treasury management are provided centrally. Comparing with the 12S model, it appears that the company has unified the strategy of the family and strategy of the individual into the strategy of the enterprise.
In the sugar sector, the company works in close coordination with cane growers to enhance quality and quantity of product. Maximum operational efficiency in conversion and full exploitation of co-product opportunities ensures cost-effectiveness to ensure cost leadership in the market. In the grocery segment, each business follows an independent strategy appropriate to its market position and stage of development and capital investment is intended for long term development. In the retail segment, Primark sells itself by providing great value for money. Purchasing in bulk, transferring the cost advantage to the customers, improved logistics to ensure that stocks are quickly replenished and strict quality standards ensures that the brand remains most popular. Primark is also committed to ensuring that its merchandise comes from ethical manufacturers all over the world. In the Agricultural segment, the company strives to add value all along the supply chain by improved food production and optimal use of resources. The company also constantly tries to increase its geographic reach and to harness new technologies to maximise food production with minimum impact on the environment. The ingredients segment works in close co-ordination with the customers and is backed by high level of technology, innovation, research and development (“Value Together: Annual Report and Accounts”, 2014.).
Though ABF is a family business, it is evident that all the key business decisions are taken by a core group within the family assisted by experts in various fields. As such, the business is run by professionals. The company has followed a policy of diversification into various types of food products which have helped it to have stable overall earnings over a long period. The company has vertically integrated to production of sugarcane and food grains which has helped it to ensure the quality of the inputs to its sugar and bakery business segments. The company has also integrated horizontally by acquiring popular food brands. Its entry into retail segment may seem a little out of the way, but the results justify the decision.
With reference to the models discussed for analysing family business, it may be seen that the Weston family has concentrated on shareholder’s wealth management and achieved tremendous success by adding diverse portfolios. In the matter of decision making, the CEOs hitherto have trusted their own trained instincts and forged ahead with professional support.
Organisational structure
Associated British Foods operates through five strategic business segments: Grocery, Sugar, Agriculture, Ingredients and Retail. In each of these segments, there are various registered companies which represent specific brands or group of brands. AB World Foods, Allied Bakeries, George Weston Foods, Speedibake, Twinings, Westmill Foods, ACH, Allied Mills are examples of such companies in the grocery segment. The companies have their own full-fledged board of directors which operate independently from ABF to a large extent. The corporate leadership allows sufficient autonomy to the individual businesses to run with entrepreneurial flair. According to George Weston, the Chief Executive, “Associated British Foods is both diversified and decentralized. We are successful because we trust the people who run our businesses. Close to their markets, they use their knowledge, skills and judgment to serve their customers and so our businesses thrive (Chief Executive’s Introduction).” Though the companies have their own organisational strategies and business outlook, they share the ethical values of the corporate entity.
Shareholding and Leadership
Around 54.5 % of ABF are held by Wittington Investments Ltd. In turn 79.2 % of the share capital of Wittington Investments is owned by Garfield Weston Foundation and the rest by the members of the Weston family, the founders of ABF. Garfield Weston Foundation being a charitable trust, the bulk of the profits that the company earns will go to charity. In spite of the large holding of shares by the members of the Weston family, there seems to be no pressure on the CEO to follow any particular course of action. The board of directors of the company has eminent persons on it who have proven track records in managing large corporations. The company has complied with the corporate governance requirements as per statute by constituting audit committee, remuneration committee and nomination committee. The annual reports generally give the impression of a professionally managed company. By going through the annual reports, we also note that the board of directors actively involve in the affairs of the company and also visit many of the factory sites. This is a fine example of corporate leadership.
Succession planning
The succession plan of a business should take care of the succession of the owners, the managers and the employees. In family businesses, the next generation automatically takes up ownership from the old generation. According to Evans (2013), it is necessary to identify the goals and objectives for the business collectively and for the individuals, personally for the current as well as the future generation. The successors have to be identified and active and non-active roles have to be identified for all family members. In any case a strong professional team should be hired for supporting the business owners. In the case of ABF, it is clear that each unit in each business segment is run by professionals who are experts in the respective fields. The three generations of the Weston family have taken the business to great heights and it remains to be seen whether the coming generations can live up to the image. The successes of the businesses up to now may be attributed mainly to the business acumen of the Westons who have been at the helm of affairs. So it is necessary that the Westons should equip the next generation with education and training to continue the tradition of business excellence.
There is evidence that ABF has clear plans to ensure future staffing. AB Sugar has developed apprentice schemes with government funding, to ensure continuous supply of trained personnel with the core technical skills required for the sugar industry. The company has graduate programmes to support students during their study term with a view to recruit them as management trainees. (“Being Responsible for Our People”).
Conclusion
It is seen that family businesses tend to survive for longer years when compared to public limited companies with distributed share-holding. The members of the family who have very high stakes in the business cannot afford to fail, because a failure could ruin the family forever. The family generally has a flair for running the particular business and generations seem to inherit it. The Weston family started business by baking the best quality biscuits and bread and providing other food products was but a logical extension. The family has been carefully adding portfolios in different segments to spread the risk and get stable revenues over long-term. They have also followed a strategy of vertical backward integration to produce sugarcane and grains which are inputs for their food industries. Their entry into retail clothing seems to be motivated by their desire to provide the customers with all necessities of life under one umbrella. They have also enlisted the services of professionals at all levels including the board of directors and this has helped them achieve all round efficiency in operations.
Recommendations
The company’s policy of diversification has helped it to increase its wealth considerably. So the company can think of acquiring more profitable businesses in future. Hotel and restaurant chains seem to be a good choice. These will also be consumption centres for their food products. With full control over the quality and flavour of all ingredients that go into their cuisines, these businesses can definitely provide a unique experience to their customers, which the competitors will find hard to match. Another business segment that can be added is logistics. Already, the company has to move a sizeable quantity of raw materials and finished products around the globe. So it is logical that it promotes its own logistics company, so that it can save on transportation costs.
Currently, not all the members of the family are actively involved in the businesses. So the main decision makers are heavily stressed. There should be more equitable sharing of responsibilities, so that the quality of decisions will be improved. The family consultation and consensus decision making that are typical of family businesses are not seen in this company. The company procures merchandise from developing countries like Bangladesh. Though the company is committed to ensuring that these are manufactured using ethical methods, there seems to be no visible mechanism by which this is done. This is especially important as more and more customers are inclined to promote ethically produced goods.
References
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Caspar, C., Dias, A.K & Elstrodt, H.P.(2010) “ The five attributes of enduring family businesses.” [Online] Available at: http://www.mckinsey.com/business-functions/organization/our-insights/the-five-attributes-of-enduring-family-businesses [Accessed 20 April 2016].
“Chief Executive’s Introduction.” [Online] Available at: http://www.abf.co.uk/responsibility/our-approach-to-cr/chief-
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Poza, E.J. & Daugherty, M.S.(2013). Family Business. Mason: Cengage Learning.
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