Moving one step at a time: The strategic renewal of a small family firm

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The strategic renewal of a family SME: a case study

Moving one step (opportunity) beyond?1

Lucie Bégin, Didier Chabaud2, and Mariem Hannachi

Abstract:

The aim of this paper is to bring conceptual and operational clarity to the phenomenon of

strategic renewal and, based on a multigenerational family SME case study, to apply it to family

firms, an area in which it has received very little attention.

Introduction

How do family firms (FF) behave when it comes to strategic renewal (SR)? This

question is of interest in that it links two separate streams of research, and addresses the

underlying question of what a family firm can do to thrive on the long run.

Strategic renewal – which may be defined, on first analysis, as “corporate

entrepreneurial efforts that result in significant changes to an organization's business or corporate

level strategy or structure” (Sharma and Chrisman, 1999: 19) – has recently been the subject of

renewed interest. Although Agarwal and Helfat (2009: 281) emphasized that the topic had

“received relatively little attention", the special issue of Organization Science published in 2009

bears witness to the actuality of this question. Alongside the research done over the past twenty

years in the area of strategic renewal and in parallel of it, a research field focusing on family

firms has emerged, and already has its own associations, specific journals and congresses

tackling the subject (Bird, Astrachan, and Pistrui 2002; Sharma, Hoy, Astrachan, and Kairanen

2007). What is more, FF’s research has now found a legitimate place in major management

journals, and special issues are now regularly dedicated to it. (Craig, Moores, and Howorth

2009).

Until now, the question of the SR of FF’s has barely been touched upon at all,

Sardeshmukh and Corbett (2008), and Salvato, Chirico and Sharma (2010) being the most

notable exceptions, to our knowledge. Nonetheless, the issue is important as it touches to the

survival of one of the most common form of organization in the world, the family-owned

business (herein referred to as FF). So the question invites us to scrutinize the way by which the

FF may transform itself and its activity in order to cope with the changes that occur in the

environment. When it comes to small or medium-sized family firms, the issue of strategic

renewal is even more sensitive because, in most cases, these organizations do not benefit of the

1 We thank the participants of the 2012 International Family Enterprise Research Academy (IFERA) Annual World Conference

held in Bordeaux [26-29 juin 2012] for their comments and welcome. Usual caveats remain. 2 Corresponding author : [email protected]

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large amount of resources often available to large corporations. The aim of this paper is to

explore this question by offering an analysis of the SR of a medium-sized FF. In doing so, we

hope to show that the strategic renewal approach introduces a new angle from which to examine

the longevity of FF’s and makes it easier to grasp the organisational processes underlying this.

To begin with, we offer a conceptual and operational clarification of SR, in general, and

then in the context of family SME’s. Thereafter, we present the case study of a family SME that

was founded in 1826 and is now in the hands of the 6th generation of the family. This family

SME appears to be particularly well suited to deal with the research question given that its

trading business has allowed the firm to gain a footing in a dozen or so different business areas

and markets, over the course of its 186-year existence. Afterward, using the case study as our

point of reference, we discuss the mechanisms of SR in order to shed light on the peculiarities of

the choices opened to a family SME. Finally, we consider the scope and limitations of this

approach.

The SR of FF’s: Reference Points from Literature

In papers written almost 20 years apart, Stopford and Baden Fuller (1990) and Agarwal

and Helfat (2009) underline the lack of consensus when it comes to the definition and meaning

of SR. So, we will try to clarify the concept and definition of SR, and to provide an

operationalization, before seeking to define how the FF context may potentially affect its content

and effects.

Strategic Renewal: Conceptual Overview and Operationalization

In the medical field that spawned the term, “renewal” refers to the repair phenomena

whereby an individual regains integrity, as the organism replaces a part that has been lost or

damaged spontaneously, accidentally or experimentally.

In management science, the concept of SR refers to a deliberate action. Over the past

twenty years, authors have unanimously considered that SR is an answer to the changing and

turbulent business conditions (Huff, Huff and Thomas 1992; Simons 1994; Whitney 1996; Floyd

and Lane 2000; Pappas and Wooldridge 2002; Volberda 2005), echoing the assertion of Huff,

Huff and Thomas (1992) whom consider the term “strategic regeneration” to be a substitute for

the term “strategic change”. From this perspective, SR appears to be a kind of entrepreneurial

activity implemented by established or mature companies in order to combat the dangers arising

from maturity or decline (Baden Fuller and Stopford 1996; Verbeke, Chrisman, and Yuan 2007),

or from internal and external changes (Capron and Mitchell, 2009), or in order to face up to the

threats posed by dynamic and complex business conditions (Pappas and Wooldridge, 2002;

Volberda, 2005). So, the diverse studies acknowledge that SR may be view as an answer to the

challenges issued from external or internal factors, an answer that tries to keep the company

afloat, even if it is not its only aim (Baden Fuller and Stopford, 1996).

But, if Germain (2007) sees in these works a “strategic school of thought” around

Baden Fuller, we must nevertheless notice that these studies are not yet integrated in the core of

the strategic literature considering that, for instance, in the special issue of Organization Science

focused on SR, no author referred to Charles Baden Fuller's work. If we try to provide such

integration, relying on the various definitions found in literature (See Table 1), it emerges that all

authors agree that the dimensions of change and temporality are central to RS, in addition to

other factors like inertia, maturity, dynamics, competition, entrepreneurial ability, opportunities,

skills and abilities, etc. In fact, the literature may be separated in two parts, according of the level

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of analysis privileged by the author. At the micro level of analysis, the SR operates throughout

the changes in activities and products, while at the meso level, it functions at company level, in

terms of attempts to regenerate by implementing changes in strategy and business structure.

Insert Table 1

Going further, it will be necessary to identify the process and content of SR (Agarwal

and Helfat 2009), and to look at how companies manage to renew themselves. To do so, we have

to be aware of the fact that SR is not an easy task, that it is only one possible option in front of

changes, and that several mechanisms can be used to renew the firm or activities.

Not all firms are equal in front of changes: the younger the company, the more likely it

is to undergo considerable organisational change (Amburgey, Kelly, and Barnett 1993). More

generally, the company has to face with its routines and the resulting inertia. So, the forceful

willingness of managers and company members to safeguard the longevity and success of the

company is a necessary condition, if not sufficient in itself, to make possible the strategic

renewal of the firm. This leads Baden Fuller and Volberda (1997) to consider that the company

can react in three ways to changing business conditions:

(1) It can avoid change, in other words adopt a strategy of inertia.

(2) It can accept change, processing it externally through an “outsourcing” strategy, for

example by signing contracts, alliances and partnerships allowing it to capture new

technologies or new ideas.

(3) It can implement an internal adaptation, and renew itself. Here lies the SR, and we

have to notice that it will imply an entrepreneurial behaviour, as the manager will

have to redefine some aspects of the structure of the firm, or to grasp new market

opportunities – and/or to innovate.

One can consider that these ways constitute a first level of options for the managers: SR

is only one of the possible behaviours in front of changes (See Germain (2007), for an overview

of the factors of choice between these options).

When the manager decide to engage in SR, he may envisage four mechanisms (See

table 1), by superimposing two methods of managing change (spatial separation and temporal

separation) on two types of change consequences (“revitalisation” and “reordering”) (See table 2

for the definition of these terms).

Insert Table 2 and Table 3

Summing up what precedes, Figure 1 allows us to identify the conceptual framework

that governs the SR approach, and the different paths available in face of changes.

Insert Figure 1

The Particularities of Strategic Renewal in Family SME’s: Some Suggestions

Although the area of FF’s research is undergoing rapid growth, the initial question of

how to define them in theory has long directed the focus of debates (Allouche and Amann 2000).

Here, we will consider that FF are characterised by the more or less extensive involvement of the

family in the ownership and management of the company, as well as by the desire to hand it

down to subsequent generations (Chua, Chrisman, and Sharma 1999). This is the standpoint from

which we will consider the SR of FF’s.

Indeed, the emphasis that most FF place on the aim of continuity (Miller and Le-Breton

Miller) and their commitment to multigenerational transmission lead us to think that they might

prefer the option of SR to inertia or outsourcing. Indeed, at one moment or the other over their

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life, FF's will necessarily come up against changing business conditions. Thus, considering their

desire to keep the company in business and to hand it down to subsequent generations, faced

with changes in the market and/or technology, the heads of FF’s will have to emphasise the role

of SR in the company, rather than accept the inevitability of a closure (choosing inertia) or

consider transferring some of their interests and/or business to external companies (choosing

outsourcing).

While the different levels of generic choice (inertia/transfer/SR) can be viewed as such,

it is also worth looking at the forms SR can take. From each of these points of view, the family

nature of the company can result in influences different to those generally described in literature.

The SR of FF’s: Empirical Study

To better understand the phenomenon of strategic renewal in family SME’s and to

illustrate the mechanisms of renewal, we have opted for a single case study of a family SME that

was founded in 1826 and is now in the hands of the 6th generation of the family: “Edmond Raoul

Duval et Cie” (ERDC). As the case analysis will show, over its life, this company has had to face

up to many events that could have caused it to go out of business.

Performing a case study is often the favoured method of investigation, given its

contribution in terms of detailed analysis of the processes and theoretical models (De la Ville

Indeed, this study has made it possible to reconstruct chronologically the events, assess local

causality and draw up explanations that has been submitted to and validated by the actors

(Wacheux 1996). From a methodological point of view, studying a single case is a relatively

common approach when looking at family firms (Chrisman, Sharma, and Taggar 2007), and

more generally management (Hlady-Rispal 2002). This approach has the advantage of allowing

an in-depth analysis of the company being studied and makes it possible to consider the context

in which the company has developed (Yin 2003). However, case studies are often criticised

because they limit the extent to which the results can be generalised, and are sometimes

considered anecdotal; seen from this angle, the single case study does not meet the criteria of

accuracy, economy and robustness (Giordano 2003). What is more, one of the major ongoing

debates surrounding the use of case studies in social science research is how many cases are

necessary and sufficient (Eisenhardt 1991).

To carry out this case study in depth, we conducted around twenty interviews between

2007 and 2009 with members of ERDC management, including the current company head, a

previous head who joined the company in 1946 and, finally, a long-term employee of the

company. In addition to this first-hand data, we used research from the company archives, which

consisted mainly of minutes from general meetings and meetings of the board of directors of

ERDC and its colonial subsidiaries from 1932 to the present day, registers of transactions made

by the Foerster business between 1878 and 1932, books of accounts, the stock transfer register,

confidential notes and internal reports. The study was supplemented by obtaining the complete

text from a conference held at the university of Le Havre by a former director, and by reading the

work of historians including Claude Malon on colonial Le Havre (a work published in 2006 and

a thesis including an interview with a former director), Hubert Bonin (2008) on the history of

overseas trade from 1887 to 2007, a note on the history of the ERDC family group, written by

Mathieu Goguel in 2005 (an unpublished internal document), and Nathalie Aubourg’s thesis

(2000) on the coffee trade in Le Havre.

The SR of FF’s: Points of Reference of History

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We will now take up the story of the family SME in episodic format, and will try to

identify the points marking renewal in the company when it had to face up to certain events.

The Foerster business was founded by Frédéric Guillaume (FG) Foerster in 1826, in Le

Havre (France). The company's line of business was tropical products from the West Indies and

French colonies. It became a family business when his son, Frédéric, wearing the same name as

his father as it was usual at this time, joined in 1835, and later, in 1863, he entered the family

business early and took over it. In the footprints of its predecessors, few years later, Edmond

Raoul Duval (RD), grand-son of the founder and nephew of Frédéric, the second, joined the

business in continuity of the family tradition. Later, when he inherited the reins of the family

business and became director in 1890, the company changed its business name to “Maison

Raoul-Duval”. Finally, when at their turn Edmond’s sons joined the FF, the business became a

joint-stock company, ERDC. For more than 180 years, the company has managed to continue

operating in its main line of activity, trade, despite the hazards and changes that have affected the

business. In this respect, the desire of successive directors to preserve the family heritage has

allowed this company to survive while many other companies operating in the same business

have folded over time (Aubourg 2000). Figure 2 illustrates the succession of family and non-

family directors of ERDC from the year it was founded up to now.

Insert Figure 2

Trading activities in tropical products and shipping

FG Foerster based his business on the tropical products trade, which was supplemented

by sail shipping. As this period of history was characterised by geographical expansion and the

growth in maritime trade with the United States, the West Indies and the French colonies, FG

Foerster, the founder, and his son Fréderic, focused their business activities on trading with these

destinations, importing products little known in France at the time and exporting national

specialities like salted butter (Goguel, 2005). Thus, by 1868, the Foerster's business possessed no

fewer than nine sailing boats plying the waters between its foreign trading posts, which allowed

the company not only to transport its own goods but also to earn additional profits by offering

freight services to other trading companies. At that time, they traded on many tropical

commodities (coffee, cocoa, rubber, spices, tropical woods, snakeskin, ostrich feathers, etc.).

When he took the reins in 1890, Edmond RD kept up the existing activities of the Foerster’s

business while also trying to diversify the range of traded products, by taking an interest “to the

origin of traded products”3. In 1907 this enabled him to buy a participation into one of the largest

sugar/rum companies in Guadeloupe (the Société Industrielle Agricole de Pointe à Pitre, or

“SIAPP”), which was in a state of bankruptcy at the time. The company thus gained the

monopoly of representation of SIAPP in France, a lucrative business even if it was a minor one.

The arrival of steam boats at the start of the 20th Century sounded the knell of sail

shipping. As the company’s main line of business was trade/import, faced with this major

technological innovation that greatly reduced transport times, the directors decided not to renew

the merchant fleet and to gradually abandon the shipping business in order to focus on trade and

to develop the company in this area by creating a subsidiary in Indochina. This company, which

was named the Société Havraise Indochinoise (SHIC), was created in 1926 in Saigon (an old

French colony), thanks to the involvement of Jean, and consolidated the policy of expansion and

diversification in order to secure the access to the traded products4.

3 E. Raoul-Duval, 1826-1976, p. 7; 4 E. Raoul-Duval, 1826-1976, p. 7; AGO, 1965 ; CA, 265.

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Indochina and the transition towards coffee/cocoa

The purpose of the SHIC was to supply the parent company, thus taking local

intermediaries out of the equation. It was a natural move for the company “… insofar as it

specialises in tropical and exotic products, to establish itself in this new territory, in order for

the world to gain from its new products: skins, peppers, coffee, rubber and its derivatives, kapok,

peanuts..." (Goguel, 2005: 9). After the growth of its business in Indochina, the parent company,

which changed its name to ERDC in 1933, soon opened an office in Marseille and subsidiaries in

Saigon (Vietnam) and Phnom Penh (Cambodia). However, the political and economic instability

in Indochina and the outbreak of the Second World War slowed down trade and affected profits:

“basically, this year all our efforts will be concentrated in settling up the numbers from the past

year and organising for the future, while continuing, as far as possible, to keep the business

running as usual… The office we opened in Marseille in February 1941 is fulfilling our

expectations" (minutes from the Shareholders’ General Meeting (SGM) on 12th May 1942).

Imports were brought to a halt in 1942 as a result of the war, in order to prevent major risks such

activities now involved: “the imports business, which was ticking over until the start of

November 1942, has been brought to a complete halt, for reasons you already know, and we

have not lost all hope that, until further notice, we will be able to regain our market share in

imports as a result of goods we have imported to France previously” (SGM, 19th April 1943).

The group’s responsiveness in terms of anticipating change after facing the setbacks of the

changing business conditions allowed it to create new offices in Phnom Penh, Paris and

Bordeaux in order to carry on trading and also to look for new opportunities, for example starting

to trade with Côte d'Ivoire (one of the leading coffee and cocoa producers) at the start of the

1940’s.

Nevertheless, as soon as 1949, Jean « rend compte de l’attaque dont ont été l’objet, de la

part des rebelles, les magasins loués par la Société à Cholou, attaque qui a entraîné la destruction

presque totale desdits magasins et des marchandises qui s’y trouvaient ». « une partie couverte

par l’assurance risque de guerre + constituer un dossier « dommages de guerre » pour la partie

non couverte ». « Le Pdt rend compte qu’il pense que M Charles Chauvin, fondé de pouvoirs de

notre société, et administrateur délégué auprès de la société havraise indochinoise se rendra en

mission d’inspection à Saïgon, vers fin octobre. ». « Les résultats connus de la SHI, pour le 1er

semestre 1949, permettent d’espérer que le contrecoup résultant de ce « sinistre » pour la société

n’aura pas de conséquences sérieuses mais justifie, cependant, une politique d’extrême prudence

dans la répartition des bénéfices d’une affaire de ce genre. » (104ème séance – 8 octobre 1949)

The dangers of the war in Indochina ultimately caused the group to close its subsidiary there,

although it did not altogether cease to trade with this part of the world5. With the fall of Dien

Bien Phu in 1954 forcing the subsidiary to be moved to Le Havre, the closure of the Saigon

agency in 1960, the closure of the Marseille office in 1962 after the independence of Madagascar

and the ending of trade with this territory and subsequent reduction in trade with Indochina, the

parent company was forced to close the Phnom Penh office in 1965.

While this series of closures was taking place, culminating in the loss of the SHIC

subsidiary, the company was simultaneously developing its business in the coffee and cocoa

trade with Côte d’Ivoire, which provided the group’s business with a new burst of momentum.

5 Notice that GRD went to Indochine in 1950-1951, and that Lucien Gruchy managed the SHIC subsidiary. (GRD, 29-01-08)

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Specialising in coffee

Although the group had been trading coffee from its beginnings, with coffee from the

West Indies, Indochina and America, it was not until the middle of the 1940’s that it decided to

pay this commodity more attention, largely as a result of the political problems dogging

Indochina at the time. Even if there were some relations with Africa, the decision to develop in

Africa was taken after the Indochina “events”. An African subsidiary was opened in Abidjan in

Côte d’Ivoire in 1952: the “Société Havraise Africaine de Commerce (SHAC)”. The main reason

SHAC was opened was to sell Robusta coffee and cocoa, as well as to provide Africa with a

platform from which to send international exports. The Côte d’Ivoire subsidiary did not enjoy an

easy start to life, and registered losses during its first year in business, as illustrated with this

business report: “the cocoa and coffee campaign has experienced difficult conditions… the

quality of the cocoa fell far short of the level required… there was less coffee than after the

previous harvest, and active competition… we have made a loss of 5,647,846 CFA Francs as a

result of one of the contractors failing” (SHAC’s SGM on 28th January 1954). However, in spite

of these losses, the directors recognised it as an opportunity for the group to make its name

known on the local market and to prepare for the future, and as such they decided to pursue it.

The President Jean decided to reinforce the presence of ERDC, and delegated his son Gilbert to

the management of the subsidiary between 1954 and 1958, whereas the cousin Hubert stayed in

France near its Uncle Jean. From the 1960’s onwards, the subsidiary began to make a profit and

extend its structure: “We are happy to be able to report to you that we have, over the past

financial year, been able to expand our operations appreciably and obtain results that finally

correspond to the level of investment we have made up to now and the unflagging work of our

staff over course of the past campaign” (SGM on 4th March 1961). The positive development of

the coffee/cocoa business continued until the start of the 1970’s, when the group decided to open

other SHAC subsidiaries in Côte d’Ivoire to sustain the thriving coffee/cocoa industry. It thus

opened a second factory in the town of San Pedro in 1970. Starting in 1973, it founded

companies in partnership with other firms operating in the same sector 6 and also created a

subsidiary of its own to process the coffee/cocoa beans in 1978: the “Société Havraise Africaine

de Décorticage” (SHAD) (Goguel, 2005: 10).

However, with the upheavals brought about by decolonisation in Africa, this success

was not to last indefinitely. As soon as 1960s, a growing concern is put on Côte d’Ivoire. When

Côte d’Ivoire gained independence, an “Ivorisation” policy tends to appear leading to questions

over the future of this subsidiary, and ERDC maintained its local (re)investment (due to their

profitability), but in the same way became aware of the necessity to find another source of

revenue. The company's assets in the country were gradually confiscated, and SHAC finally shut

up shop there in 1987. With this sad ending in sight, but continuing to believe in the future of

coffee, the group successively bought Inter-Océanique, a coffee-trading business belonging to

Rufenacht, in 1980, followed in 1988 by Jobin & Cie, which specialised in trading and

distributing coffee to wholesalers. At the same time, it set up the Société Commerciale Raoul-

Duval (SCRD) to look after all of the group’s coffee business.

6 This included a stake in a transit company (Prodexport), a company that maintained, repaired, purchased and sold all kinds of

weighing equipment (SBCI), a storage company (SCSP), a property company (SCI), a factory processing agricultural products

(UTPA) and STLCI (line of business unspecified).

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Searching for diversity

Alongside the coffee business, which constituted the group’s major source of income,

and in view of the fact that a significant proportion of the trading activities relating to other

exotic products had been abandoned, the group began to make a series of takeovers from 1965

onwards (external growth). Managed in tandem by Gilbert et Hubert RD (two 5th-generation first

cousins), the purpose of these takeovers was to diversity group activities and to reduce the

group's dependence on a single source of provisions: “the President wishes to inform the Council

that the income from our two subsidiaries (SHAC and SHIC) represents more than 75% of our

total income, and that from our overseas activities (SHAC, SHIC, Sté Pointe à Pitre and Optorg)

more than 82% of the total. Looking to the future, this is a dangerous situation and must be

modified. Although the 1965 financial year produced favourable results, it is essential we

introduce new sources of business in 1966. Of course, we must continue to develop our

traditional areas of business (coffee trading, insurance) but it is also necessary for our company

to start acting in one or more completely different economic sectors. As part of this search for

new business, the president welcomes any suggestions the Administrators can draw up” (218th

meeting of the Board of Directors, 15/03/1965).

As Goguel noted, “just like any good family group, the directors were always looking to

diversify the business in order to minimise the risks” (2005:4), and the process was nurtured by

the social networks formed inside the Board of Directors and the Shareholder meeting. After

assessing several businesses, this diversification drive began with the takeover of a business put

forward by the legal auditor in 1970: a company specialising in the import and export of

industrial equipment, based in Strasburg, called “Société Nouvelle de Réorganisation et de

Modernisation de l’Industrie Alimentaire”, (SNRMIA). The social networks of members of the

Board of Directors also provided the opportunity to invest in other companies. The opportunity

to invest in a shipping company specialising in maritime and river transport presented itself in

1971, and was followed by the takeover of a company manufacturing snail shelling equipment in

1975. Next came the takeover of a company specialising in fibres, honey and broomsticks in

1982 (later to become Société Havraidex), and the purchase in 1983 of shares in the “Compagnie

Française des Extraits” (CFE), a company specialising in vegetable extracts for use in the

tanning, cosmetics and animal food industries, that have been approached thanks to the

Westphalen family (whose members have been present in the Board of Directors since 1949).

Although these takeovers contributed to the group’s growth, most of them have since been resold

or closed.

Restructuring the group around extracts and wood

The last step arise due to the globalisation and increasing transparency in the coffee

trade, along with the growing risks in the middle of the 1990’s, that forced margins down

considerably. The group decided to focus on greatly developing the extracts business (CFE) -

which has been managed since 1999 by a member of the 6th generation, François RD - and the

wood business, with the company Havraidex. Although the continued decline in prospects for the

coffee business ultimately convinced the directors to dispose of this business in 2006, the past

decade has been characterised by the desire to develop other activities to safeguard the group’s

long-term future.

The work of CFE, which is based on the ability to develop and formulate products using

vegetable extracts, requires the company to expand into new territories that are currently little

developed or difficult to access. Therefore, a site was purchased in Nicaragua in 2004 to allow a

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change in dimension, both because it opened up the possibility of cultivating the plants required

to provision the group, and because this made it possible to set up an on-site processing plant.

As far as the wood trade was concerned, the company had always adopted the approach

of exporting French wood and importing exotic wood. When the decision was taken to bring to a

halt its activity in the coffee trade, the director had to consider how this until then marginal part

of the business could be developed. While the operations of many actors whose businesses make

use of timber are still based on the large-scale exploitation of resources, the directors of the

family group are keen to favour an environmentally friendly - or sustainable - exploitation of

such resources. When the leaders of Gabon realised how important it was that the country's

forests be protected through legislation that prevented both deforestation and the indiscriminate

exploitation of the area, conditions were put in place at ERDC to subsequently invest there. The

company embarked on this project in 2006, buying a concession and setting up a sawmill that

made it possible to make better use of the resource on the site, and to ensure exploitation was

kept to an acceptable scale. Today, this local operation has some thirty employees and is in its

first year of production.

Therefore, the past 186 years have seen the family group transform from an

international trading concern involved in transport and shipping to a group specialised in

vegetable extracts and wood. This transition has been made possible by several episodes in the

group’s history that characterised its growth first in Indochina, then in Africa (SHAC). Even

though the group appeared to have coffee and cocoa as its central activities, it was always

looking to maintain a certain degree of diversity in its business. At the same time, it can be seen

how, over the course of the various episodes the group has been through, the directors have tried

to revitalise the business.

Results and Discussion

In spite of the changing business conditions, which were not always conducive to the

growth and prosperity of ERDC, the company has always tried to safeguard the long-term

survival of the family heritage for future generations. This desire to protect the company over the

long term has been backed up by the firm’s entrepreneurial ability and its ability to seize

opportunities that came its way.

The five episodes set out above illustrate the group's strategic choices and the actions

implemented to combat the uncertainties and changes in the business conditions. Faced with

pressures from the business conditions, political events, competition and new technologies, the

group found itself in a position where it ended up either disposing of or selling parts of its

business, a strategy Baden Fuller and Volberda (1997) refer to as “outsourcing”. However, as

this is a family firm, one of the group’s major priorities was to keep the business up and running

(Miller and Le Breton-miller 2005) in order to pass it on to the next generation. ERDC has

always tried to establish itself in new business areas and set up new sources of provisions before

disposing of or selling a business, with the aim of keeping the continuity of the business and

ensuring the group’s survival. Therefore, the desire to safeguard the long-term survival of the

group, backed up by the entrepreneurial spirit of successive directors at the company, which

enabled them to seize opportunities, has also played a decisive role in the choice of strategy

adopted in the face of changing business conditions. The choice of renewal mechanism has

therefore not been a systematic one and, depending on the situation the company has found itself

in, such a mechanism has either been put in place by bringing skills and abilities already existing

within the company into play, or by exploring new avenues of growth.

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In the case of sail shipping, which was by no means an insignificant aspect of the

group's business, the arrival of steamboats, seen as a major technological innovation, triggered

the SR process. The director decided not to renew the fleet7, even though it continued to hold the

shipping business for some time. This decision had imposed to redefine what the mission of the

firm was and in which kind of activities they were. The diversification began with the

opportunity to acquire a participation in the SIAPP distillery, which ensured to the company an

exclusive trade in the goods in question, at the same time creating a subsidiary in Indochina that

boosted its business in the tropical products trade. It only abandoned the shipping industry when

it had set up its business in Indochina and consolidated its trading activities. In this area, the

company looked into other possibilities, buying the SIAPP and selling Guadeloupian rum

(regeneration), and making the most of its maritime trade and business skills by creating the

SHIC subsidiary in Indochina (Venturing).

Next, as business slowed in Indochina as a result of the war and the political and

economic upheavals in Saigon and Cambodia, the group began to look into new destinations

where it could continue to do business trading tropical products. This led to the start of its

business in Côte d’Ivoire, which was one of the leading coffee producers, and gradually the

group set up its subsidiary SHAC there in 1952 (Venturing). At the beginning, as the business in

Côte d’Ivoire was not profitable, ERD also kept up its operations in Indochina, albeit while also

gradually reducing these operations before finally bringing them to a complete halt in the 1970's,

when SHAC's business was flourishing at its height. The group also developed within the SHAC

subsidiary a specialisation in the coffee industry by implementing a vertical integration of

activities, as well as creating new subsidiaries and getting involved in activities outside trade, for

example processing coffee/cocoa beans, maintenance, construction, etc. (Regeneration). Finally,

foreseeing that it was going to lose its Côte d’Ivoire subsidiary, the group grasped all the

opportunities that became available, diversifying its sources of coffee provisions by taking over

Maison Jobin and Interocéanique (rejuvenation), entering new areas of business with SNRMIA

and Havraidex company, etc. (Reordering).

The Figure 3 summarized the different episodes of strategic renewal that have dotted the

life of ERDC and led to its transformation through time. This figure highlights the overlapping

nature of the various SR initiatives, showing how the group has always tried to establish itself in

a new area of business when an existing area is under threat. The case study of this family

company illustrates the strategic renewal approach taken when faced with pressures from the

business conditions. As a first step, we have tried to clarify the concept of strategic renewal that

is often tackled in literature dealing with companies in decline or those operating in a mature

sector (Baden Fuller and Stopford 1996) but have managed or attempted to survive by renewing

themselves and opting for strategic choices that have allowed them to face up to inertia and

change (Agarwal and Helfat 2009). These choices find expression in “intrapreneurship”,

“corporate entrepreneurship” and “renewal actions” (Sharma and Chrisman 1999), which are still

largely unexplored in the context of family firms.

The study makes several contributions.

It reveals the critical role of exiting a business to pursue novel entrepreneurial

opportunities that enable longevity and success of family firms (Mason and Harrison 2006). As

theorized by previous research, the contextual factors, such as clear and unavoidable industry

7 One of the reasons why they abandoned the shipping business is the importance of the investment that would have been

necessary to renew the fleet, largely exceeding the resources of the small-sized family business.

11

decline, chronological distance from the founder and the presence of a limited number of active

family members were helpful in this case (Sharma and Manikutty 2005; Hayward and Shimizu

2006). However, the most significant finding is the powerful role of highly regarded family

anchors who champion the change process enabling the successful exit and entrepreneurial

regeneration of the family firm, while preserving institutional identity (Burgelman 1994; Gioia,

Schultz, and Corley 2000). With the help of carefully chosen and able non-family executives,

finding pathways of support among various families, industry, community and governmental

stakeholders, the family champion of continuity (FCC) was able to nudge the family from its

strong emotional anchoring in the founder’s business, towards future focused entrepreneurial

opportunities. It is interesting to note that along this process the definition of ‘continuity of a

family firm’ undergoes significant modifications.” (Salvato et al., 2010, 323).

We converge with the role of change agents, and the fact that “the definition of

‘continuity of a family firm’ undergoes significant modifications”

We discuss or reverse this position, showing that sometimes the firm wants to exploit

the declining opportunity in order to profit from its competitive advantage till the ending of the

activity.

We emphasize the role of external events in the pursuit of opportunity. Some would say

that it is a reactive behaviour, or a behavioural perspective (following Cyert & March, 1963), but

it is interesting to emphasize as it coincides with some observations from other fields

(neoinstitutional sociology with the role of crisis, and Christensen on the innovative behaviour).

Conclusion

The company’s entrepreneurial spirit and its ability to seize opportunities have allowed

it to overcome the paradox of change and stability and to confront the changing business

conditions to achieve its aim of long-term organisational survival, in spite of all the setbacks and

challenges it has come up against along the way.

This work has made it possible, to start with, to offer a conceptual and operational

clarification of strategic renewal. What is more, we have put forward an analysis of a family

SME in an attempt to contribute to the understanding of what characterises SR in a specific

context. Of course, this study is only a first attempt at looking at SR in a family firm context. As

we have focused on a single case, we cannot hope to provide a general observation applicable to

all family firms, neither to delineate the behaviour of FF from non family ones. However, we

have been able to demonstrate how the family dimension - and the desire to pass the company on

to the next generation – helps explain the spirit of SR at work.

This study puts some light on an interesting process of overlapping between, on one

side, the mature or declining activities and, on the other side, the start and growth of new

ventures. From this, we can derive the following lecture for the practice: to guarantee its strategic

renewal over the long run, a firm must continually be on the look-out for opportunities; therefore

one must nurture its entrepreneurial orientations. Moreover, the manager must be committed to

keep its firm on business. But, in the case of a FF, this dedication to the future maybe is

facilitated by the presence of new generations that want to pursuit the family tradition and

business. Finally, it means also that the FF must not fear to fail. Sometimes the efforts might not

bring the success desired but, to be sure to have a heritage to pass to the next generation, the

12

family firm's managers must go on by innovating and investing in the future, no matter whether

it takes the form of new products, new lines, new ventures or new partnerships.

It would be helpful to further the study of SR in the field of FF, which is growing

exponentially. To this end, it would be sensible to study other cases of family and non-family

firms that have come up against similar challenges, in order to define as accurately as possible

the specificities of SR in the FF context. Finally, future work can make it possible to establish

this strategic current as a means of growth and a factor of long-term organisational survival in

family firms.

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15

Table 1: Definitions of Strategic Renewal

Level of

analysis Author (s) Definition

Act

ivit

ies

and

Pro

duct

s

(mic

ro)

Guth and Ginsberg

(1990 : 6)

« Strategic renewal involves the creation of new wealth through new combinations

of resources. This includes actions such as refocusing a business competitively,

making major changes in marketing or distribution, redirecting product development,

and reshaping operations. »

Shamsie, Martin

and Miller

(2009: 1443)

« In project-based industries, however, firms pursue differentiated renewal strategies

based on the timing and extent of their push for stronger capabilities in existing

products and markets where they may gain a new competitive edge over their rivals »

Kim and Pennings

(2009: 370)

« Strategic renewal refers then to firms initiating a new stage in their established

market through both new product development and attentive commitment to

customers »

Str

ateg

y a

nd

Str

uct

ure

(m

eso)

Burgelman (1991 :

254)

Strategic renewal: major change in organizational strategy proceeded by internal

experimentation and selection offers organization possibilities for participatory

adaptation to new environmental demands and/or to enter new niches.

Zahra

(1995 : 227)

« Renewal means revitalizing a company’s business through innovation and

changing its competitive profile. »

Zahra

(1996 : 1715)

« Strategic renewal refers to revitalizing the company's operations by changing the

scope of its business, its competitive approach…Strategic renewal also means

building or acquiring new capabilities and then creatively leveraging them to add

value for shareholders »

Covin and Miles

(1999: 52)

« The label strategic renewal is used here to refer to the corporate entrepreneurship

phenomenon whereby the organization seeks to redefine its relationship with its

markets or industry competitors by fundamentally altering how it competes. »

Sharma and

Chrisman

(1999 : 19)

« Strategic renewal refers to the corporate entrepreneurial efforts that result in

significant changes to an organization's business or corporate level strategy or

structure. These changes alter pre-existing relationships within the organization or

between the organization and its external environment and in most cases will involve

.some sort of innovation. Renewal activities reside within an existing organization

and are not treated as new businesses by the organization. »

Floyd and Lane

(2000: 155)

« Strategic renewal is an evolutionary process associated with promoting,

accommodating, and utilizing new knowledge and innovative behavior in order to

bring about change in an organization's core competencies and/or a change in its

product market domain »

Volberda, Baden

Fuller, and Van

Den Bosch

(2001: 160)

« Strategic renewal can be broadly defined as the activities a firm undertakes to alter

its path dependence. Important parameters of a journey of renewal include: the

behaviour of managers at each level of the organisation in response to each other

(topdown or bottom-up); the way they view investing for tomorrow versus milking

profits today (exploration versus exploitation); and the way in which they share

knowledge with each other across organisation boundaries (intra-organisation

learning) »

Flier, Van Den

Bosch and

Volberda

(2003: 2168)

« We defined strategic renewal as strategic actions to align organizational

competencies with the environment to increase competitive advantage »

Volberda

(2005: 30)

« le renouveau stratégique repose sur une tension constructive entre routines et

capacités dynamiques, apprentissage et désapprentissage, administration et

entrepreneuriat. »

16

Table 1 (foll.): Definitions of Strategic Renewal

Level of

analysis Author (s) Definition

Jones and

Macpherson

(2006 : 156)

« Strategic renewal, on the other hand, means that firms must break out of these

path dependencies and shift from knowledge exploitation to knowledge

exploration »

Verbeke, Chrisman

and Yuan

(2007: 587)

« What we are calling strategic renewal typically involves entrepreneurial action by

an entire firm, or in this case, an entire subsidiary. »

Huy

(2009: 1)

« Strategic renewal refers to an evolutionary process that interrupts organizational

inertia in an attempt to bring about a change in an organization’s competencies and

strategic direction in response to an evolving competitive business environment or

create new product-market domains to extend competitive advantage. »

Agarwal and Helfat

(2009 : 282)

« Strategic renewal includes the process, content, and outcome of refreshment or

replacement of attributes of an organization that have the potential to substantially

affect its long-term prospects. »

Table 2: The Four Mechanisms of SR (according to Baden Fuller and Volberda, 1997, p. 105)

Methods of managing change

Change consequences

Spatial separation:

risk control is vital Temporal separation:

speed is vital

Revitalisation of existing skills Regeneration Rejuvenation

Reordering central skills and

peripheral routines Venturing Restructuring

Table 3: Definition of the Mechanisms of SR (according to Baden Fuller and Volberda, 1997, p. 105-110)

Mechanism Definition

Regeneration Involves revitalising the existing skills of a dynamic unit separate from the organisation

in order to test a new product or new technologies that do not require any particular

rapidity.

Rejuvenation This mechanism involves revitalising the organisation's central structures, and requires a

radical change in the structure, strategy, technology and behaviour of the individual

(Baden Fuller and Stopford, 1990).

Venturing This involves creating small entrepreneurial entities by isolating a flexible unit from the

rigid organisation as a whole, which is then accelerated into a space of opportunities.

This is one of the slowest and least risky mechanisms.

Restructuring This involves restructuring new divisions within the organisation, new products and new

priorities. This mechanism is characterised by a certain level of rapidity and is a fairly

risky change process.

Figure 1: SR Conceptual Framework

17

Venturing

Regeneration

Rejuvenation

Reordering

SR

External factors Internal factors

Change/stability

paradox

Inertia Outsourcing

18

Figure 2: Successive Directors of ERDC since 1826

Genealogy of Family Involvement in ERDC

Executive (family linkage, year of

executive position)

Family members of

the same generation

(arrival date)

Family Members of another

generation (arrival date)

Frédéric Guillaume Foerster (founder,

1826)

Frédéric Foerster (son of FGF,

unknown date)

Frédéric Foerster (son of FG, 1863) Edmond R-D (nephew of

Frédéric Foerster, unknown

date)

Edmond R-D (nephew of Frédéric

Foerster, 1890)

Edgar R-D (son of Edmond R-

D, 1911)

Jean R-D (brother of Edgar R-

D, 1913)

Edgar R-D (son of Edmond R-D,

1930)

Jean R-D (brother of

Edgar R-D)

Jean R-D (brother of Edgar, 1948) Hubert R-D (nephew of Jean

R-D, 1951)

Gilbert R-D (son of Jean R-D,

1946)

Hubert R-D (nephew of Jean R-D,

1964)

Gilbert R-D (son of

Jean R-D, 1950)

Maurice Westphalen (employee,

1995)

Gilbert R-D (son of

Jean R-D, 1950)

Patrick Masson (employee, 1996) Gilbert R-D (son of

Jean R-D, 1950)

François R-D (son of Hubert

R-D, 1999 ???)

François R-D (son of Hubert R-D,

2006)

19

20

Figure 3: Strategic Renewal of ERDC

Fin

Op

po

rtu

nit

y

Activity 2

Ex

tern

al

fact

or

2

End

Reg

ener

atio

n

Activity 1

Activity 3

Ex

tern

al

fact

or

3

Op

po

rtu

nit

y

Ven

turi

ng

Ex

tern

al

fact

or

4 E

nd

Activity 4

Op

po

rtu

nit

y

Ven

turi

ng

Ex

tern

al

fact

or

1

End

End

Op

po

rtu

nit

y

Activity 6

Reo

rder

ing

Internal factors

External factors

Cre

atio

n

Op

po

rtu

nit

y

Activity 5

Ex

tern

al

fact

or

5

Rej

uv

inat

io

n

Activity 1: Sail shipping;

Activity 2: Takeover of SIAPP

Activity 3: Creation of SHIC;

Activity 4: Creation of SHAC;

Activity 5: Takeover Maison Jobin and Interocéanique;

Activity 6: Havraidex and CFE

External factor 1: Steam boats

External factor 2: War in Indochina

External factor 3: Decolonisation and Independence

External factor 4: Failure of diversification businesses

External factor 5: Collapse of the coffee trade