Torrini: A Family Owned Business - Case Study Example

Family Own Business Table of Contents Introduction 2 Torrini: A Family Owned Business 3 History of Torrini 3 Business Transition in Torrini 5 Unique Characteristics of Torrini as an Ancient Family Business 6 Business Environment of Torrini 8 External Environment 8 Internal Environment 9 Factors to Influence the Success of Family Business 10 Transition Plan for Torrini 10 Recommendations 13 Conclusion 14 References 15 Bibliography 17 Introduction Family businesses have always been an integral part of every economy whether developing or developed. But at present the segment is being defined as one of the most significant and unavoidable facets in the industrial sector which can boost the growth of an economy with sustainability. Realising the fact, researchers and analysts have grown to be more concerned with the challenges, opportunities and other traits of family businesses. In their definition, family businesses are termed to be the business firms which have been established by one or more than one people belonging to the same family and holding the majority of votes in the organisation. In a family business, the authority is imparted to the family members of the founder(s), such as the founder’s/founders’ child, spouse and/or others (Institute for Family Business, 2008). Therefore, the management traits for family businesses differ largely with that of commercial or publicly listed business firms. Due to the fact, it becomes quite likely that the challenges and opportunities faced by a family business leader will be different from other business firms to a large extent. Its business transitions and strategic interactions with its stakeholders are also likely to be unparallel. With an illustration of Torrini Opificio Orafo, the paper will aim at developing a comprehensive understanding of the management traits of family businesses. It will also intend to identify the various challenges, opportunities, influencing factors and transition requirements of the company. This will in turn enable the research to develop a transition plan with due consideration to the strategic interaction with the stakeholders of the company and other members of the family. In order to increase the effectivity of the understanding and the research work as well, the paper will also object to compare Torrini with Swarovski which also includes itself in the similar industry. However, the prime objective of the paper is to generate a transition plan for the company with an aim to increase its business’ success rate. Torrini: A Family Owned Business Torrini is remarked to be a dignified name in the family business sector of Europe and is based in Italy. It is one of the ancient family business firms in the county which has flourished for a period of six centuries. The firm produces various kinds of fashionable, high priced jewelleries ranging from rings and precious stones to luxurious watches and even perfumes (Torrini, n.d.). History of Torrini The establishment of Torrini as a jewellery designing, producing and marketing firm can be recognised during the 16th century. However, its roots lay in the 14th century, in 1369, when Jacopus Torrini the founder of the firm settled in Florence as a forger of armour. With the growth of the economy and also due to the transformation in the lifestyle preferences of the county people, Jacopus Torrini initiated to diversify his business in the production of unique and luxurious fine jewelleries (Torrini, n.d.). Since 600 years, the firm has provided a few noteworthy contributions to the creative industry in Italy and other economies of European region. Presently, it is categorised as one of the most prestigious and successful family owned businesses in the region. Subsequently, the management responsibilities have been solely on the family heirs. In other words, the skills, knowledge and creativity were handed down hereditarily to design Torrini products. The firm in the present context is supervised under the leadership traits of Frabrizio Torrini. The other family members having a voting right in the company are Franco Torrini, the father of Frabrizio and Francesca, his sister. It is worth mentioning that Frabrizio Torrini dignifies the 25th generation of the family tree after Jacopus Torrini (Newman, 2002). Business Transition in Torrini Undoubtedly, there has been immense transition in the business environment of Italy from the period when Torrini was first established as a jewellery manufacturer. Subsequently, the operations of Torrini have also changed by a large extent but still it is quite successful in preserving the ancient charm and lineage in its production system. It is worth mentioning that due to effective leadership transitions the company was able to frontier the effect of globalisation. For instance, the company leaders, i.e. Frabrizio Torrini, Franco Torrini and Francesca Torrini still believe in securing their family business secrets by providing it an outlook which is small and exclusive (Newman, 2002). However, the organisational structure has expanded in terms of business operations. The organisational operations include Torrini boutiques to serve the customers in Florence and Sardinia. It also acquires Torrini museum to showcase the ancient art propound by Jacopus Torrini and his descendents over the past 600 years. The logistics of the company is depended on 30 jewellery stores located in different parts of the world which are quite efficient to serve the global customers. The production system of the company is also based on the ancient system, to manufacture every piece entirely with hands and with the assistance of middle-aged technologies. In this case, the family owners provide intense care to the secrecy of their production system, though, providing the designs with a fashionable and on-going appearance. It is in this context that innovation plays a crucial role in the business. As stated by Frabrizio Torrini, “We want Torrini to last several more generations, and we need to keep creating new designs to survive” (Newman, 2002). Unique Characteristics of Torrini as an Ancient Family Business Certainly, the most significant and inevitable strength of Torrini as a family business are its uniqueness and exclusivity. For instance, the production system of the products provide it with limited supply, while, on the contrary it also provides distinctiveness to the design which increases its demand in the modern era. To be mentioned, innovation, creation and uniqueness are termed as few of the highly beneficial strategies of being successful in the modern era. Furthermore, as stated by Poza (2009), there are various reasons to be unique for a family owned business entity which can be identified as its concern to the values of the ancestors, tradition, strategic influences of the family members and competitive advantage which is gained by family ownership mostly handed down genetically (Poza, 2009). Family businesses are also termed quite different from other business firms due to the fact that its strategic behaviour is largely influenced by the values of the family. Evidences have revealed that most of the family business leaders prefer to preserve the distinctiveness of their business with the purpose to signify their family values and ethos (Ceja & Et. Al., 2010). These features can also be identified in the case of Torrini. To be precise, the firm’s current owner, Mr. Frabrizio Torrini pays a considerable attention in securing their production secrets from its rivals in order to maintain its ancient value to serve with uniqueness and exclusivity. The production technique applied by the firm is known as Torrini’s Oro Nativo which is distinctive by itself. As noted by many analysts, the designs produced in the firm’s small workshop accumulate family sentiment and affections (World Gold Council, 2006). However, providing extra amount of attention on the values of the ancestors can make the firm reluctant to change and thus affect its competency in today’s highly competitive era. It can raise constraints in terms of weak customer base which in turn can affect the financial health of the firm causing its decline. To be illustrated, Swarovski is also a family owned brand which operates in the same industry and the same region, i.e. Europe. The firm has also witnessed great transitions since its establishment by Daniel Swarovski. Unlike Torrini, the current leader of the family business, Mr. Helmut Swarovski, opted for the involvement of modern techniques and worldwide coverage in order to gain greater brand recognition in the global platform. It has also expanded its business operations in other fields from media publishing to online selling of products. However, it has also maintained its distinctiveness by restricting its operations in the crystal made products. Presently, the company serves its customers from 18 partner stores located in different regions around the world (Swarovski, n.d.). This rewarded the firm with stronger financial health and wider exposure. Subsequently, the firm is able to enjoy higher competency and sustainable growth. It is worth mentioning that in today’s highly competitive business environment it has become quite essential for smaller firms to build up a sustainable outlook and effective competency to survive. In comparison of both the family owned firms, i.e. Torrini and Swarovski which deals in the similar industry and market, it is apparent that Swarovski is better than Torrini in gaining a sustainable growth and competency. Therefore, the survival is much stronger in case of Swarovski than in the case of Torrini. It is due to this reason that the firm, Torrini should develop a business transition plan in order to enhance its level of competency and growth. Conversely, the company should also focus on the current situation of the economy and other growth prospects in the external environment in order to develop the transition plan. Being a family owned business the internal environment becomes more influencing for the firm’s transition which should also be considered with significance. Business Environment of Torrini External Environment Torrini is solely based in Italy where it produces and markets its products to its ultimate customers directly through its boutique services. It also markets its products in other parts of the world with the assistance of 30 jewellery stores. Thereby, the operations of the firm are likely to be affected by the trends of the European economies with minimum effect of the fluctuations in the global environment. Notably, not only in the European region but also in the global platform a major proportion of the total population of family businesses are found in Italy which is higher than any other economy, such as UK, Germany, Australia and others. Certainly, the family owned businesses in Italy contributes to the economy which in turn depicts that a positive and stable environment exists in the economy to support small family owned business firms (Institute for Family Business, 2008). The above mentioned feature of the business environment of the firm can prove to be highly beneficial in providing stability during the transition. After the recent economic downturn, the economy was recorded to become quite vulnerable with many foreign takeovers and there were quite a few lacunas in credit availability. These caused various challenges for the business owners. However, currently the economy is witnessed to encourage the family businesses by providing them opportunities to build up their technological and financial strengths. Despite of the opportunities rewarded by the economic regimes, it is quite essential for the Italian firms, such as Torrini to develop their competency in order to sustain in the modern era (Campden Media Limited, 2011). Internal Environment The internal environment of Torrini comprises of the Torrini family, its employees, its customers, the community and the environment at large. The challenges which can be arising from the end of the Torrini family are the differing values of the members and their strong influence on the firm’s operations. In this context, the firm enjoys a benefit to restrict its business in the sole proprietorship of the Torrini family members only, which reduces the risk of conflicts and differing values. The firm is also recorded to be a small business unit with low-profile brand image and limited numbers of employees. However, its responsibilities towards the community and its stakeholders are worth considering while planning for business transition. To be precise, the family owned business firms have to face many challenges during transitions. Evidences reveal that most of the family business owners demand for family harmony, personal well-being and business prosperity. At the same time, they also want to preserve their ancestors’ values and ethos in the organisational operations. This raises the challenge to balance both business and family for the leader(s). It becomes even more challenging due to the fact that most of the family owned business firm leaders prefer restricting the power of decision-making to them and their descendents and other family members. There are also few opportunities that a family owned business firm enjoys, such as complete control on the quality aspect and other facets of the organisational operations and financial independence (Doud Hausner & Associates, 2010). Factors to Influence the Success of Family Business According to various analysts, family business firms are based on three aspects, i.e. business, ownership and family. Undoubtedly, none of the aspects are avoidable in providing competitive advantage to the firm. It is also quite apparent that similar to most of the family business owners, the firm’s leaders were also reluctant to change their business models or bring transitions to their business in order to avoid risk. This kind of situation mostly arises when the business is largely based on the resources belonging to the family and has a strong influence of the sole proprietor(s) (PwC, 2011). Few of the key factors which can ensure the success rate of the business largely depend on the leadership traits of the business executor(s) or the descendent(s) of the founder liable to run the business. It is due to the fact that family business firms are largely depended on the decisions of an individual or two leaders (in the case of Torrini there are three leaders, but one can be identified as the most powerful leaders, Mr. Frabrizio Torrini). Thus, the knowledge of the leader, his experiences and vision plays a crucial role in determining the success rate of the firm (Doud, 2010). Transition Plan for Torrini With reference to the above mentioned factors indicating the scope for growth and challenges as well, it is quite apparent that Torrini should focus on its business’ success rate providing significant consideration to its ancient values. In this case, it would be highly beneficial for the firm to expand its target market in other nations across the world through jewellery outlets. These outlets or shops can be owned by its retail clients and thus would be cost effective and the philosophy of maintaining the Italian ethos shall also be secured. However, with an expansion to its market size it is most likely that the demand will also increase for which the firm shall require extra human resources in its production panel. Moreover, as the firm depends upon a unique and a secret process of manufacturing its products, there should be proper training sessions provided to the new incumbents. With an increasing manpower the firm will also require an extensive inclusion of leadership and governance with the purpose to preserve its secret of production as it seems to be the first priority for the leaders of Torrini. Torrini, as a brand is considered to be quite strong and competitive because of its ancient heritage and the Italian culture preserved by the Torrini dynasty. The brand is by itself a unique and exclusive one and possesses the power to create strong impulse on its targeted customers. The Torrini leaders should consider the fact with great significance and concentrate on fostering the brand image which will not only provide it with enhanced financial strength but also reward the opportunity to promote the Italian culture and dignity. Notably, to execute its growth strategies it is probable that the firm will require investment which can be collected from the shareholders. It can be said in this context that the firm is solely based on the financial support of the Torrini family. The leaders also seem to avoid adopting financial support from the non-family participants in order to secure their decision-making power. With due regard to the values of Torrini dynasty and the firm as well, shareholders can be attracted through brand promotion strategies and also by getting the entity listed in the national stock exchange. With an aim to secure the decision-making only to the founder’s descendents, a ‘memorandum of understanding’ can be reported to the prospective shareholders. The ‘memorandum of understanding shall state the restriction of voting rights to the family members only. It shall also sate that as the non-family shareholders will have no voting right, their obligation for any kind of risk taken by the leaders will be the minimum. This in turn will secure the shareholders’ profit and their interest to avoid risk. Thus, the investor belonging to the group of risk averters will be attracted in investing in the firm. Inclusively, as the production process of the firm will be limited in its home town Florence and under the supervision of its owners directly, only the Italian shareholders can be targeted. This shall provide the opportunity to secure the Italian ethos preserved by the family in their long 600 years of journey. Being a family owned business, the Torrini leaders should also consider reporting the transition plan to other embers of the family, irrespective of their degree of inclusion in the business operations. Thereby, all the three leaders should initiate to organise a family meeting with the purpose to convey the plan of business transition with the sole intention to accelerate its success rate. The plan not only comprises of various advantages but also possesses few limitations which should also be conveyed to the family members. For instance, the participation of shareholders can give rise to the obligations of the leaders to secure the shareholders’ interests providing them a percentage of the net profit. This might not be allowed by every family member and thus give rise to conflicts. However, they should be notified about the advantages of shareholders’ inclusion and the measures adopted to secure the decision making power only to the family members. Moreover, with an increased pressure of supervising a greater number of workers in the production team the business shall also require more supervisors from the Torrini family and thus lead to leadership transition. To avoid conflicts among family members based on this matter, the leaders can set few qualitative measures signify the need of the company and the eligibility of the potential leader. Collecting votes can also be highly beneficial in this process. Noteworthy, the communication of transition strategies shall provide the firm with an extra advantage of sustainable outlook which in turn can benefit the brand in its expansion and growth. In a nutshell, the firm requires restructuring its organisational framework in a strategic manner with prime focus on its cultural values and ancient heritage. The vision of the firm should also be stated explicitly to the stakeholders of the company, i.e. the family members and the employees, and also to its shareholders. The aim of the transition should be conveyed unambiguously to all the participants of the firm which is solely focused on the enhancement of the business’ success rate. The vision, mission and the values of the firm possess considerable significance in this case due to which the leaders should take the initiative to convey these parameters of Torrini to every member of the business and the family as well. Recommendations Torrini, as a brand holds remarkable potential to create strong impulse on the targeted customers. The most significant strengths of the brand are its uniqueness and ancient heritage. It has also been successful to preserve its values in a remarkable manner with its exclusivity being undisturbed. To be specific, the brand can be identified as one of a kind with a huge potential to create demand and foster the market share of the business. Despite of the fact, till date the brand is recognized weak and small with limited scale in the market. The business leaders should realize the fact and intend to enhance the brand position in the Italian and the international market as well. As the leaders seem to be highly concerned about the heritage and the values of the brand, especially regarding its production process, only the marketing or distribution channel can be expanded with limited effect on its ethos. Gaining the benefits from shareholders can also be highly supportive for the firm to ensure its future growth prospects. However, while executing the transition plan the leaders should provide extensive consideration to the conflicts likely to arise among the family members including the potential heirs of the business. In this regard, the leaders need to depend entirely on their conscience and knowledge due to the fact that there are no specific theories prescribed to manage a family business and the conflicts arising during transitions. It is in this context that the leaders require to maintain a balance among the two most crucial aspects of family business, i.e. the family issues and the business operations. It is only then that the leaders will be able to gain higher return from the business with limited effect of family matters on business and/or vice-versa. Conclusion Family business groups have gained considerable significance in the modern era due to their remarkable inclusion in the economic growth. After the recent economic downturn, the western economies including the European economies have started considering family business units as a crucial element to stimulate their growth providing wider scope to the family business entities. However, the leaders of family business entities are often recognised as reluctant to adopt change due to the fear of losing control and/or disturbing the values preserved in the business’ operations. This can also be identified in the case of Torrini. On the contrary, in the case of Swarovski the business has adopted a modern and strategic technique to ensure the growth of the brand without disturbing the interests of the family leaders and the heritage of the brand providing its wider scope to prosper. Conclusively, it can be stated that the success rate of a family owned business largely depends on the leaders and their traits. This should be considered by the three leaders of Torrini, i.e. Mr. Frabrizio Torrini, his father and sister in order to stimulate the sustainable business growth with efficacy. References Campden Media Limited, 2011. Italian Family Businesses Breathe a Sigh of Relief. Web Exclusives. [Online] Available at: http://www.campdenfb.com/default.asp?title=Italian_family_businesses_breathe_a_sigh_of_relief&page=article.display&article.id=24767 [Accessed April 5, 2011]. Ceja, L. & Et. Al., 2010. Importance of Values in Family-Owned Firms. IESE Business School. [Online] Available at: http://www.iese.edu/research/pdfs/DI-0875-E.pdf [Accessed April 5, 2011]. Doud, E. A., 2010. Keys to a Successful Management Transition. Doud Hausner & Associates. [Online] Available at: http://www.doudhausner.net/libraryKeysToSuccess.shtml [Accessed April 5, 2011]. Doud Hausner & Associates, 2010. Challenges and Opportunities in Family Business Succession. Library Document. [Online] Available at: http://www.doudhausner.net/libraryChallenges.shtml [Accessed April 5, 2011]. Institute for Family Business, 2008. The UK Family Business Sector. Capital Economics. [Online] Available at: http://www.fbn-i.org/fbn/web.nsf/b1cc337f283c9b4887256e350065237d/da86a96a5f9d4de2872575f200570bf1/$FILE/UKFBdata31108.pdf [Accessed April 5, 2011]. Newman, J., 2002. History Lessons. Feature: Family Practices. [Online] Available at: http://www.robbreport.com/Feature-Family-Practices.aspx?mpid=1 [Accessed April 5, 2011]. Poza, E. J., 2009. Family Business. South Western Cengage Learning. PwC, 2011. Kin in the Game. PwC Family Business Survey. [Online] Available at: http://www.pwc.com/gx/en/pwc-family-business-survey/assets/family-business-survey-2010-2011.pdf [Accessed April 5, 2011]. Torrini, No Date. Collection. Home. [Online] Available at: http://www.torrini.com/index.asp [Accessed April 5, 2011]. Torrini, No Date. History. Company. [Online] Available at: http://www.torrini.com/company_eng.htm [Accessed April 5, 2011]. Swarovski, No Date. Swarovski. About Us. [Online] Available at: http://www.brand.swarovski.com/Content.Node/home.en.html#/en/aboutus/factsfigures [Accessed April 5, 2011]. World Gold Council, 2006. World Gold Council Launches Gold Jewellery Advertising Campaign. London. [Online] Available at: www.gold.org/download/get/pr_archive/pdf/comunicato_stampa_EN.pdf [Accessed April 5, 2011]. Bibliography Björnberg, A. & Nicholson, N., No Date. Highlights from the Family Business Leadership Inquiry. London Business School. [Online] Available at: http://www.london.edu/assets/documents/facultyandresearch/Highlights_LInq.pdf [Accessed April 6, 2011]. Chrisman, J. J. & Et. Al., 2003. Current Trends and Future Directions in Family Business Management Studies: Toward A Theory of the Family Firm. Coleman White Paper. Deans, T. W., 2008. Every Family's Business: A Blueprint for Protecting Family Business Wealth. Détente Financial Corp. Du Plessis, J. J. & Et. Al., 2005. Principles of Contemporary Corporate Governance. Cambridge University Press. Nicholson, N. & Björnberg, A., 2006. The Story of Leadership in Family Firms. Families in Business. [Online] Available at: http://www.london.edu/assets/documents/facultyandresearch/The_story_of_leadership_in_family_firms.pdf [Accessed April 6, 2011]. Sharma, P. & Et. Al., 1997. Strategic Management of the Family Business: Past Research and Future Challenges. Family Business Review. [Online] Available at: http://www.ffi.org/user_files/documents/2009/FBR/2008_1_strategic_management.pdf [Accessed April 6, 2011]. Read More