After 79 Years of Family Tradition …

by Rebecca Pole and Justin Craig
Australian Centre for Family Business, Bond University

Business History

Whilst many viewed the early indicative signs of the Great Depression last century as insurmountable obstacles, true entrepreneurs like Harry Lea saw them as an opportunity. From modest beginnings in a street pushcart and barrow, his business, Darrell Lea Chocolates, was a virtual overnight success. A unique chocolate experience, Darrell Lea’s customer driven concept evolved from fulfilling a suppressed customer need in a time of desperation, poverty and grief. Rising in the face of adversity, today Darrell Lea is a 100% Australian owned family business icon with annual revenues of over $80 million, over 400 stores nationwide and a customer base extending over more than 14 million people. An impressive market share when the total Australian population is currently about 20 million.

Business Practices

In today’s business parlance Darrell Lea’s early, and ongoing, success can be attributed to the principles of Total Quality Management (TQM). The dedication to quality and the tradition of “make today – sell tomorrow” has a longstanding influence on the company’s culture. With commitment from the entire Darrell Lea staff at its foundation, TQM is institutionalised throughout every organisational function. Vertically integrated production processes, strategic alliances with value chain members and the employment of Just in Time (JIT) purchasing and inventory ensures products are consistent with the company’s vision of continuous improvement and excellence (Gome, A. 2000 – Succession: Taking the Family out of Family Business. Business Review Weekly).

Customer loyalty is also fundamental to Darrell Lea’s competitive strategy. Utilising agile manufacturing techniques enables the company to exploit its core competencies and greatly enhances the company’s ability to proactively respond to the dynamic marketplace. In addition, community involvement fortifies customer relations and is a strategic marketing tool for developing knowledge based products, reputation, and goodwill within the community.

Family Influences

Since Darrell Lea’s conception, the business has established a strong tradition of family centred management. In many aspects, the family business has always had all the ingredients to achieve success: a defined leader, a sense of commitment and pride, a cohesive group with a sense of cooperation, and a work ethic that should theoretically produce a whole greater than the sum of its parts. However as has often been reported, in practice, family business is often a contradiction of terms. That is, by nature family and business have mutually exclusive interests. As such, it is inherently difficult to reconcile the disparities underlying the family business concept. A business often succeeds through aggressive and confrontational actions and by way of its ability to react swiftly to meet environmental changes. In contrast, family members often avoid confrontation and accomplish success by resisting change, thereby achieving homeostasis (Hatton, L.K. 2001 – Estate Planning: Succession of the Family Business). In the turbulent business world, however, this ‘security in stability’ is a double-edged sword.

Former managing director Jason Lea, grandson of founder Harry Lea, recognised this dilemma in 1982 when he stated “after 79 years of family tradition, I sacked myself for the good of the business (Gome, A. 2000 – Succession: Taking the Family out of Family Business. Business Review Weekly).” Lea’s passion remained with the everyday business operations. He was so consumed with creativity and the daily measurable outcomes that he became blind to his administrative inadequacy. With falling profits signalling the need to address Lea’s managerial myopia, Lea was forced to admit, “I was too involved in the day-to-day operations and could not be an objective big picture thinker… I was a retailer at heart but a bad delegator.”In the absence of a succession plan, Lea reflects “There are new pressures on family businesses, with globalisation and the internet. [Darrell Lea] is too important to be treated as a hobby farm.” As such, Lea began the controversial process of reforming Darrell Lea from a family owned and operated business into one that is now family owned and professionally managed.

Transition

Darrell Lea’s renaissance, like that of so many family businesses, follows the typical process identified in the research of Hofer and Charen (Allen, K. R. 1999 – Growing and Managing an Entrepreneurial Business, Boston: Houghton Mifflin Company). Integral to any business transition, and the foremost element in succession, is the manager’s recognition and willingness to institute change. Additionally, in the special case of family businesses, family dynamics are a critical matter of concern. The sand in the entrepreneur and/or manager’s hourglass begins running out the day they begin the family business. In this light, giving up the family business to an outside director is often considered tantamount to planning the owner’s funeral. Indeed, many family businesspeople look upon retirement as something between euthanasia and castration (Danco, L. A. 2002 – Make Your Family Business Profitable and Enjoyable for 100 Years and More). Largely reducing such difficulties and prudent to Darrell Lea’s success was the creation of a board of middle managers whose leadership ensures the business’s operational survival and which gradually lessened dependence on the family manager.

Succession is a process and an event and therefore requires detailed planning and decision-making. Every step is vital to its success and as such, management and ownership of a family business should not be granted on a silver platter. Succession of the owners’ kin is sometimes regarded as a right and not a privilege. Instead, successors should view their succession into the business as “an opportunity and not an obligation (Gome, A. 2000 – Succession: Taking the Family out of Family Business. Business Review Weekly).”In Lea’s opinion, family businesses “have to take a good, hard look at themselves and work out if they or other family members are the right people for the job.” Too often, heirs who are supposed to be the solution are instead the problem. In many family businesses, naming a family member as heir apparent is mostly an expression of the elder’s dream. However, the successor’s ability to take the mantle of leadership has not yet been tested through the making of tough decisions or the pressure of charting a course while managing the anxieties and desires of employees and shareholders. Often the appointment is not fully grounded in objective examination and the necessary training and mentoring is lacking (Bettis, A. 2002 – Ask Hard Questions in Family Business Succession Planning. City Business: The Business Journal).

Conclusion

It is understandable, even natural, that owners endeavour to ensure continued family control of their business, enjoy the pride of involvement and give the next generation greater opportunities.Keeping the process of selection totally within the family, however, can limit the opportunity for renewal and innovation. Successors must be trained and mentored in the intricacies of the business to ensure their acceptance and credibility. However, trainers must be sure not to mask the successor’s creativity for therein lies the opportunity for organisational rebirth. In any company, resistance to change is challenging to overcome. As such, acculturating the successor with employees, franchisees, value chain members and other stakeholders is essential. Family dynamics will play an integral role in the successor’s success and must be managed with care to ensure that full control is passed together with the title of manager. Savvy, ‘hands on’ former managers too often suffocate successors thus reducing the successor’s credibility and capacity. Indeed, Jason Lea is quoted as saying, “The biggest problem I have now is to lay off and not ‘white-ant’ the CEO.”

Whether the successor is a family member or an outsider, it is ‘letting go’ that is perhaps the greatest challenge facing any entrepreneur/manager, yet one that must be addressed to ensure business growth and survival.