INTENSIFYING competition and the call of overseas markets are forcing many family-run, small and medium-sized enterprises to change the way they have operated for decades and to look at more efficient ways of doing business through information technology systems such as enterprise resource planning (ERP).
Passed on from generation to generation, these businesses have built up good reputations and have found it difficult to shrug off their traditional ways.
Local coffee and tea supplier Tsit Wing Group (TWG) is one such example. Established in 1932, TWG supplies coffee and tea to several outlets in Hong Kong, including McDonald's, Cafe de Coral and the luxury Ritz-Carlton hotel.
But with prices of coffee beans and tea leaves fluctuating, and competition increasing, TWG chief executive Peter Wong, the third-generation business owner, realised the company needed to evolve.
Mr Wong had aspirations to turn his family's business into 'a world-class food and beverage services provider', but to do so the company needed to modernise its management model.
When Mr Wong was ready for a management makeover, implementing an ERP application became an inevitable step. Aiming to integrate different business applications and their related data into a single unified system, ERP was seen as a critical step to enable the company's transformation.
But while ERP is hardly a nascent technology, introducing it to a traditionally run Chinese business is a painful process.
'Traditional family businesses have been slow in adopting technology,' says Alan Tong, research manager at technology research firm International Data Corporation.
'But they are gradually changing their perceptions as they gain greater awareness of the benefits of technology.'
These benefits include providing visibility to business operations, transparency for monitoring performance, historical data for trend analysis and business structure for easier succession.
'An integrated ERP platform is a core step in the transition of a family business into a modern enterprise,' says Lee Boon Lee, chief operating officer of SAP Asia Pacific, the company which provided the ERP system at TWG. 'When businesses operate under a single platform, more transparency is available across business units as well as between the business leader and employees.'
The ERP platform encourages a company to define its business processes, providing a clear picture of the entire business operation, which is often a weakness of many family-run businesses as operations are usually in the hands of one person or a small group of people.
Mr Lee says an integrated ERP platform also consolidates data from different business units, providing a clear view of business performance.
'Business owners no longer have to rely on their employees to generate reports; they can proactively monitor business performance through logging into the system,' he says.
'As a result, instead of generating reports and presenting the company's business performance, employees can spend more time meeting business goals.'
Sometimes, implementing an established ERP platform is a strong corporate brand-building activity for the family business, Mr Lee says. The platform provides a competitive edge for these family businesses, especially when it plans to raise capital or go public.
'By implementing a branded ERP application platform, the companies are proven to be more dedicated in transforming their management and operation,' he says.
Another major concern for family business owners is succession planning, Mr Lee says.
When the next generation of owners take control, they are often hindered in expansion due to a stringent management style and business operation.
The situation becomes more complicated if the company is established through partnership. The second generation from the two partners' families may have a very different management style and business vision.
The ERP platform encourages a standardised business structure for easier succession. When the next-generation owner takes control of the business, they can easily continue with the established policy in place, without going through drastic management changes. But before enjoying these benefits, family businesses will face great challenges and have to undergo a drastic shift in mindset.
'It was a very painful process, especially at the beginning of the implementation,' TWG's Mr Wong says.
When TWG decided to introduce an integrated ERP application, the biggest challenge was to make changes to its decades-old corporate culture.
In a traditional Chinese family business, the management model tends to be people-oriented, with a single person determining the entire company's direction. This person is often the CEO of the company, or sometimes even the father of the CEO, Mr Wong says.
'This management style is an effective and successful one under a small operation,' he says. 'But in a modern enterprise, we need to operate our business based on standardised processes and policies.'
Through encouraging defined business processes and objective performance monitoring, ERP enables this process-based management model. But the new business model is something many employees find very uncomfortable.
'Some of our employees resigned, mainly because they could not cope with the new business processes that align with the ERP platform,' Mr Wong says.
Some employees viewed the business performance visibility provided by the ERP platform as a lack of trust in their ability, he says. In addition, as new business processes were introduced to align operations with ERP, others felt insecure because their roles in the business were taken away.
'When IT can reduce the number of employees from 10 people to eight to handle a business process, that does not mean two people will be fired,' Mr Wong says. 'It only means the company is equipped with more manpower to expand and explore new business areas.'
However, this vision may not be shared by all employees, especially those who are looking forward to retirement. 'They are only seeking to make as little change and trouble as possible, instead of making development plans. That makes it very difficult to expand the business,' Mr Wong says.
During the implementation process, a lot of education and convincing is needed, he says. 'It took a major effort to educate my team that a defined process was required in the new business model and that a streamlined operation did not equal termination, but instead was an opportunity for them to play a new and more strategic role within the company.'
The difficulty in being able to justify the investment in ERP by showing an improved return on investment (ROI) is also a major barrier to its adoption in family businesses, Mr Wong says.
'In a family business, it is often the business owner, or the father of the CEO, who makes investment decisions. If a person does not have an IT vision, it's very difficult to convince that person to invest in ERP.'
In many families, business processes are often unclear and only a few people in the organisation may have an overall view of the entire operation. So, when a new generation of management suggests the implementation of ERP, it is very difficult to calculate the ROI and justify the heavy investment in the project.
'Thanks to the support from management, we were able to concentrate on the technical implementation work,' says Wesley Chan, group Management Information Systems (MIS) manager of TWG.
The TWG IT team implemented the ERP application in less than seven months. The system went live in January, and is now supporting 300 users in the company.
Mr Chan says the ERP platform integrated five major business functions: finance, material management, production, sales, and distribution.
'We started implementing [the SAP platform] only about six months ago, so we are still at the primary stage in seeing its benefit to the company's operation,' he says.
But the company is also planning to expand the ERP platform to cover advanced warehouse, fleet management and customer relationship management applications.
'When TWG went public in 2001, board members all shared the same family name,' Mr Wong says. 'But now we have only a couple of Wongs. The board is made up of other names, who are mainly professionals such as accountants and lawyers.'
He says the process of implementing ERP, especially at the beginning, can cause some difficulties, but through vision and dedication success can be achieved.
'In the end, IT is still just a tool. It's not magic; IT won't make things different simply by bringing in a new application.
'A lot of co-ordination with other related business processes and operations [is needed] before we can enjoy the benefits,' Mr Wong says.