STRATEGIZING by Emanuele Sacerdote.
The Economist in the article “Italy SpA offers an object lesson in corporate decline” (October 22, 2020) offers an interesting insight into the Italian family business and, honestly, the overall assessment is difficult to argue against and suggests critical reasoning to indicate possible changes. I have had the privilege of getting to know some family businesses up close and I believe that, all in all, they have three great virtues (strengths) and three great limitations (weaknesses) and that, overall, these factors are intrinsically linked to each other and should be on the one hand enhanced and on the other solved. The main virtues are that they have demonstrated great creative and innovative skills, Made-in-Italy, that they have accumulated great expertise and specialization in production, know-how and, lastly, that they have inaugurated a new relevant macro-segment and recognized worldwide, pocket multinationals. The combination of these three forces historically represents a significant uniqueness and peculiarity of Italian entrepreneurship.
However, I think it is important to talk about the limits which are in fact strongly correlated to the virtues mentioned above: in fact, in a very synthetic way, unfortunately the virtues are present in a few companies and the limits are instead present in many more companies. The first limit is linked to the size of the company which is normally medium-small compared to international competitors and, therefore, strongly limits the possibilities for growth and development. Sometimes there is a clear inability to expand by entering new markets or to transform by seizing new opportunities; the most common result consists in reaching and maintaining a good stability which, however, precludes dimensional growth. The second limit is the limited managerialization due to the low capacity of the organization to hire trained managers and the low possibility of remunerating qualified managers. This limit is directly connected to the governance which favors the presence of family members, relatives and of course heirs in the workforce, and a top-down monastic decision-making process of the owner or founder. The third limit is the low propensity to invest and to introduce new finance to strengthen the company and its competitive advantage over time. In many situations we are faced with the binomial company-poor versus family-rich, the result of many dividends and few reinvestments, or in a situation of inability to find new financing formulas to use.
Now, more than ever, only by acting simultaneously on the weaknesses will it be possible to generate the short circuit to trigger the fuse of change to reverse the direction of travel. It might not be enough: the real challenge for these companies is above all cultural. Perhaps, only the young next generations of family businesses and future entrepreneurs will be able to face it having much more time ahead and having new energies available to use for the transformation of this fundamental sector for our productive Italy.
All the Best!
Cover image: Balthasar Moretus, ITALIAE VETE/RIS SPECIMEN, 1624.
