According to the June 2022 announcement of OPTEN Ltd., the number of family businesses with annual sales of HUF 1 billion is increasing year by year, where the majority of the influence is still in the hands of family members.

This poses new challenges for family businesses, where, in addition to the key problems of growth and expansion, another key issue is succession, a problem faced by almost half of Hungarian family businesses.

In our latest blog article, we look at how an external operational manager can address these challenges in family businesses and the innovative approach taken by interim managers.

The unique characteristics of family businesses

Regardless of the type and size of the company, family businesses are those where the majority of ownership and decision-making rights are in the hands of one family and at least two family members play an active role in running the company. Hence the specific characteristics of family businesses:

• Family members are involved in the ownership, management, and operation of the business. According to the EY Global Family Business Index 2023, nearly half of the world's TOP500 family businesses have a family member as CEO, while relatives hold 23% of board seats.
• Family businesses often have long-term goals as they focus on building a legacy and passing the business on through the generations.
• Emotional ties between family members are typical, which can create unique challenges and opportunities in running a business.
• Family businesses may have informal governance structures. Decision-making processes are often driven by family members and, in extreme cases, there may be informational asymmetry between the family and other members of the management team.
• They have a strong corporate culture that reflects family values and beliefs.

The majority of today's large family businesses emerged in Hungary in the ‘90s when many formerly state-owned enterprises were privatised and entrepreneurship increased.

The majority of family businesses in Hungary are still micro-enterprises, but there are also an increasing number of really successful and large family businesses. The OPTEN survey also shows that between 2020 and 2021, the number of family businesses in Hungary with an annual turnover of over HUF 1 billion will increase by almost 20%.

In the course of this growth, the characteristics of family businesses will be both an advantage and a disadvantage compared to other firms.

Family businesses must be aware of their specific characteristics and learn how to turn them to their advantage. They should also recognise their limitations and be able to call in outside expertise, such as an operational manager, or even as an interim manager, when necessary.

A manager of operations in a family business - when is an external perspective needed?

Operational managers are middle or senior managers who are responsible for the efficient use of resources. Even in smaller, growing family businesses, it may be worth considering bringing in an external operational manager to allow the CEO to focus on strategic tasks and business development.

Operational management roles can be in all areas, whether business development, operations, finance, or administration. 

Here are some of the situations where you may need to bring in an external operational manager.

Lack of expertise

Family businesses typically start as small firms, with family members managing all aspects of the business. 

However, as they grow and expand, it may become necessary to bring in external expertise to manage them effectively. This is particularly true in industries that are highly complex or require specialist knowledge. 

In addition, an external operational manager with the right experience can bring new ideas and strategies to the table. This could be a finance, HR, or even logistics manager, for example when setting up and ramping up a new production line. 

The perspective of an external operational manager can also be valuable in strategic planning. Although strategic decisions are made by the management, preparing these decisions requires an operational, resource-driven approach.

Family businesses often have long-term goals and want to pass the business down through generations. An operational manager skilled in strategic planning can help companies develop a realistic roadmap for doing so, taking into account the unique challenges and opportunities of running a family business.

Succession

Family businesses often have deep-rooted beliefs and personal motivations that can make it difficult to plan for the future. 

Almost half of Hungarian family businesses face succession problems. As a significant proportion of these businesses were set up after the change of regime, the issue of generational change is now urgent.

Succession planning involves identifying potential successors, assessing their skills and qualifications, and developing a plan for their development and growth within the business. In succession planning, an operational manager can provide an objective perspective.

There may be a situation where the family business manager is a signatory in the company, while the operational tasks are carried out by the operational manager. This takes the burden off the shoulders of the company's employees until a suitable successor is selected.

If management is being handed over to the next generation, an external operational manager can help to facilitate the process and ensure a smooth transition.

Selling the company

Due to a change in market conditions or a lack of replacement, it may be necessary to sell part or all of the family business. However, a successful transaction can take years to prepare for

An investor may find several weaknesses in the organisation that could reduce its value. According to a Harvard Business Review study, 70-90% of acquisitions and mergers fail because they do not first make the necessary operational, financial, and technological innovations.

An operational manager can design and implement the right action plan in this strategic area. This can significantly increase the sales price.

Conflict resolution

In a family business, conflicts are often difficult to manage because of the complex relationships between family members. An external operational manager can be invaluable in resolving conflicts and keeping the business on track.

It can help identify the root causes of conflicts and develop effective ways to resolve them. The operational manager can also guide how to prevent conflicts from arising by jointly developing clear communication, decision-making policies, and procedures.

Growth and expansion

If a family business is looking to expand into new markets or grow its business, an external operational manager with experience in these areas can help navigate the complexities of scaling up.

In many cases, the strategy and implementation of expansion are left to the existing sales manager, who, even if he or she has the necessary expertise and contacts, is typically stretched to the limit by the existing sales force.

An outsourced operational manager can bring new resources, specific expertise, relevant market knowledge, and a unique network of contacts to the business.

In addition, an outside manager can bring a fresh perspective to the business and help identify new opportunities for growth and expansion that the family may not have considered.

Financial management

Family businesses can also face unique challenges in financial management, for example, due to potential conflicts of interest and lack of objectivity. In such a business, it is often difficult to separate personal relationships and emotions from financial decision-making.

Moreover, they may not have the resources or expertise to deal with complex financial issues such as tax planning, cash flow management, or risk analysis. An external operational manager with a strong financial background can provide the necessary expertise and help the business make informed financial decisions. 

Family businesses can have a strong sense of tradition and loyalty, which can make it difficult to make difficult financial decisions such as restructuring or downsizing. An outside observer can offer many solutions.

The succession issue mentioned earlier cannot be decoupled from finance either, as the transfer of the business within the family also requires sophisticated financial solutions, where often the financial compensation for the retiring CEO has to be determined.

An operational manager with experience in company law and corporate finance, and experience in management succession, can help you work out a solution that works for both the company and the retiring CEO. Interim managers are the answer to just such specific situations requiring a short-term solution. But more on that later.

Involving an external operational manager: the traditional approach

Restructuring

Succession in family businesses often involves reorganising the existing workforce and processes, dividing up the successor's previous responsibilities among colleagues while he or she learns the ropes of management and/or company management.

As a result, employees may become overworked, to the detriment of job quality and employee satisfaction.

Hiring a new manager

If a company wishes to hire a new operational manager while the succession issue is being resolved, it is typically a lengthy (at least 3-6 months) and often costly selection and recruitment process. 

Some companies see fixed-term contracts as a solution for temporary replacements, but this can have disadvantages. After all, if for some reason the company decides to make the manager redundant after the end of the probationary period, it will have to pay the manager's salary until the end of the original contract period.

Why choose an interim manager?

An interim manager can be hired not only as an employee but also temporarily. An interim manager is a highly qualified freelance manager with managerial and specialised experience who provides support to the client company for a temporary period. The interim manager picks up the pace and adds value to the company in as little as a week. Thanks to his/her deep and wide-ranging professional experience, he/she will be able to see through the processes and the problems to be solved in a short time.

Our highly qualified interim managers offer a lasting solution for temporary situations, whether it is crisis management, interim management, project management, or operational management of family businesses.

Thanks to their broad and deep professional experience, interim managers can provide effective and long-term solutions, including succession or growth planning for family businesses. In times of crisis, they can help you find opportunities and effective solutions that may even put the survival of your business at stake. 

At Interim Ltd, we provide periodic management replacement for family businesses with maximum discretion. Interim managers sign a confidentiality agreement from step zero (initially without a company name).

If you have a question on this topic or need interim operational management assistance that will provide a long-term solution for your business, please request a free consultation.

Summary

Today, a family business faces many challenges: in addition to succession, growth, and anomalies arising from specific financial management, it also has to face challenges that affect all companies, such as digitalisation, inflation, or runaway energy prices.

In the long term, only sufficiently flexible family businesses, able to adapt to a rapidly changing economic environment, and able to find new solutions to emerging obstacles through innovative thinking will be able to thrive. This requires a high level of planning and care for the future of the business and its succession. Among other things, this is where a successful operational manager in a family business can help. 

While hiring a permanent operational manager can take months to find the ideal candidate, freelance interim managers offer an almost immediate solution with their specialised expertise and years of experience.