Global expansion vs family commitments

Stuart%20SmithThere are at least two ways of viewing the sale of natural cereals maker Jordans to multinational food conglomerate ABF. On the one hand, it is about a mid-size family business which, though hugely successful over 36 years in surfing rapidly-changing food trends, now appears to have reached the limits of its organisational capability. The entrepreneurial skills which guided its earlier growth are not best suited to sustain international expansion in the future. Although its cereals are already sold in the US, Canada, Benelux and France (where it is the number three brand), in order to go further, Jordans needs a scale of operation and investment it cannot acquire through organic growth.

On the other hand, it’s a story about innovation and the problems that big companies encounter in managing it entrepreneurially. There comes a time when organisations reach a level of bureaucratic complexity which makes it all but impossible to embrace the high risks invariably inherent in new-product development. The certifiable accountability of failure becomes more important than the vagary of entrepreneurial success.

Outside the specialist financial services sector, this is scarcely a recipe for long-term survival, and multinationals frequently find they must outsource the inventions department. Most conspicuously, Procter & Gamble has set up an innovation network that encourages third parties to get involved in new product development.

More commonly, large companies try to buy innovation, or at least the entrepreneurial qualities that make it possible. This might seem a rather unpromising accountants’ solution to the problem. In fact, there are plenty of examples of success (as well as failures). Back in the Nineties, Phileas Fogg, the premium crisps start-up, added lustre to United Biscuits’ snacks division. Ben & Jerry’s, the premium ice-cream maker, gave Unilever the means to fight off a growing challenge from Haagen Dazs. Most spectacularly, Cadbury’s acquisition of Green & Black’s has not only given the confectionery giant a crucial entrée into the premium sector, but massively expanded the appeal and variety of the brand at the same time.

The trick is to ensure that the acquired company continues to enjoy the entrepreneurial culture that fostered success in the first place, so a degree of semi-detachment is necessary. Solid, reliable ABF (80% owned by the Westons family) has a surprisingly enlightened reputation in this area. Time and again its “cluster” strategy of collecting smaller, like-minded family businesses has proved beneficial to both sides of the deal. The most obvious example is the Indian food brand Patak, where the Pathak family remains strongly involved in the day-to-day running of the business.

The Jordan brothers, Bill and David, will be hoping their own deal proceeds along similar lines. Under the terms, Jordans will sit alongside Ryvita in a stand-alone “better-for-you” division, in which the Jordan brothers will have a 38% stake. Certainly ABF is to be congratulated on the way it has patiently courted the Jordan family after taking an initial 20% in the business. Now comes the difficult part: integrated collaboration.

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