The German Mittelstand is regarded as a growth guarantee even in difficult times. An important factor of the Mittelstand seems to be the abundance of family firms. But why are family firms different and what does the whole thing have to do with Project Portfolio Management (PPM)? In this short article we will get to the bottom of these two questions.
Specialist outlets such as The Economist praise the German entrepreneurial families. For example, The Economist recommends in German lessons:
Increasingly, though, Germany’s hidden champions are enjoying a measure of international celebrity.
But what makes family businesses so different? And what are family businesses anyway?
The tiresome subject of definitions...
Interestingly, the question of definition is subject to proper academic research. The definitions used are manifold.
- Majority ownership.
- Family member in management.
- At least in second generation - and many more are applied.
The Institut für Mittelstandsforschung Bonn, for example, defines family businesses as those companies in which the ownership and management rights are united in the person. In research, the latter is hardly accepted by peer reviewed journals in the field. This definition equates owner-managed companies with family businesses - although these types of companies differ greatly.
One thing becomes clear, pure majority ownership does not seem to determine an exact classification alone. However, the definition chosen is extremely important and determines what research finds. We ourselves have written a small (award-winning) article dealing with the matter (to be found here).
Why are family businesses different?
At the very least, in family businesses we assume that the long-term idea will be passed on to the next generation. We usually derive several things implicitly from this multi-generational idea:
- Frugality,
- Reliability
- A certain risk aversion
- But at the same time also a drive for innovation and long-term investment horizons.
- Above all the endeavour to keep the family in wage, bread and honour.
Decisions are made - which, in addition to purely economic motivations, also include the impact on the family. The research scene calls the mix of economic and non-economic decision factors socioemotional Wealth. This has some massive and, at first glance, paradoxical effects. Need an example?
- Families are risk-averse. For example, they invest less in innovation (measured by research and development expenditure (read the study).
Innovative with less investment? How does it work?
Research explains this effect with an increased awareness of thrift, implicit knowledge and experience developed over generations. This knowledge is available for innovation and can be retrieved without great effort and research.
This effect is more likely, by the way, if the family business is also managed by a family member in a later generation. It is argued that management and family then have a coherent set of values, which extends in particular to decision-making horizons. A manager with a performance-related bonus is perhaps more likely to decide in favor of maximizing short-term success - i.e. success that has a direct impact on the bonus. However, this decision does not have to be the right one for the long-term development of the company. On the contrary.
Studies on this topic can be found here.
And what does this have to do with project management?
At first glance, it may have little to do with project management. But we think it is possible to derive some best practices that are directly related to your projects - and they are:
- Securing project know-how: It's not easy - even with a family in the background - to keep know-how in the company over time. Neither from family member to family member, nor from employee to employee. Cross your heart: how often have you thought in your company: we've done something like this before... who was it? Isn't he already retired? But good project management takes experience from one project to the next. The Project Management Office (PMO), which maintains standards and expertise across the entire project portfolio, should carry out this task.
- Striving for long-term investment horizons: Long-term corporate performance is very difficult to incentivize - especially in industries where managers only stay for 5-10 years. Good project management makes it possible to check who did what when and how and what the result was, even after a long period of time.
- Always keeping an eye on the goal: Good project management also makes it possible to pursue long-term projects without much effort - their milestones can then be incorporated into short-term compensation plans without losing sight of the long-term goal.
- Making long breath measurable: In particular, good project management is structured in such a way that measurement criteria for long-term performance (e.g. share of sales with new products) are included in planning.
- Keep administrative effort to a minimum: Due to their close family ties, family businesses seem to have low costs for the processing of learnt products over time. The knowledge seems to be connected in the family. Good project management shines here by purposeful Debriefings and by the fact that cause-effect relations become clearly evident in projects.
The role of the PMO
A PMO is needed for good PPM. You can find out what tasks a PMO is responsible for and how to establish a PMO here and here.
Hamburg Startups
Interestingly enough, it is family businesses that are particularly interested in start-ups and innovative topics! We were also able to experience this at a joint dinner with various family businesses. Are you also interested in getting to know start-ups and family businesses? Then Hamburg Startups is the right place for you!
Analyze your project portfolio management
In project portfolios, problems occur from time to time. In order to solve them as quickly as possible, the experience and skills of the PMO are required. In our free resource, you will find 20 common problems in the project portfolio that you can use to make improvements. You can use the checklist to analyze how your project portfolio management is set up to deal with potential problems.
