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Recipe for success

Joachim Schwass is Professor of Family Business, IMD and co-director of The IMD – Lombard Odier Darier Hentsch Family Business Research Center.

Fresh from winning the 2004 IMD – Lombard Odier Darier Hentsch Distinguished Family Business Award, Joachim Schwass reports on the Barilla family and the history behind their flourishing bread and pasta empire

Barilla is a household name all over the globe, and the family behind the name has recently been awarded the 2004 IMD – Lombard Odier Darier Hentsch Distinguished Family Business Award. The Barilla Group is not only the largest Italian food processing business but also the world market leader for pasta products. The business is controlled by the fourth generation of direct descendants of the founder Pietro Barilla.

The beginnings
In 1877, Pietro Barilla, then in his twenties, opened a bakery shop in the center of Parma, Italy, where he sold bread and pasta. He produced the pasta in a traditional way using a small wooden press; the maximum daily capacity was 50 kilograms. With the support of his wife and by working 18-hour days, Pietro grew the business slowly but steadily. Expansion into a second shop did not succeed so he focused on developing the pasta production. He specialised in egg pasta, which differentiated his business from the mainstream offerings that used just flour and water. By 1900, he was using five wooden presses and five ovens. Ten years later, the first factory was built, employing 80 workers. This factory was run by Pietro's two sons, Riccardo and Gualtiero, the second generation, who were then in their thirties.

The second generation
Riccardo and Gualtiero had worked alongside their father since they were 14 years old. In 1914, the two brothers took the unusual step of launching a marketing campaign with posters showing Barilla pasta with a mother and child. The objective was to reach the consumer directly and create demand for Barilla products.

While Riccardo was in charge of production, Gualtiero looked after sales. He emerged as the entrepreneur and risk taker. He wanted to be a missionary and never married, but his father pushed him to join the business, where he had a reputation for taking good care of the employees. But in 1919 Gualtiero died suddenly and unexpectedly from food poisoning. Ownership reverted to Riccardo, thus returning the family business in the second generation to the owner-manager structure that had prevailed with the founder, with 100% control in the hands of one family member.

The business continued to grow. In Parma, Barilla pasta was sold through company stores; in the rest of Italy it was sold through grocers with exclusivity contracts. Following participation in international trade fairs, there were a few minor exports. The first world war had led to a shortage of meat, and pasta was increasingly seen as an inexpensive, but nutritious, alternative.

The third generation
Riccardo, with the help of his wife Virginia and his two sons Pietro and Gianni, continued to invest in both updating the production equipment and building the brand. By 1936, 700 workers were producing 80 tons of pasta and 15 tons of bread per day using six continuous presses. As in the previous generation, the functional responsibilities were split into technical (Gianni) and commercial (Pietro). The problems started when Pietro, the more entrepreneurially oriented of the two brothers, was drafted into military service in 1939 when the second world war broke out. During this time, the government directed food production primarily to the army, and the consumer-based distribution system that Barilla had ably built up over decades was starved of supplies. Air raids also damaged part of the plant. Meanwhile, Pietro Barilla was driving trucks for the Italian army at the Russian Front. His son Paolo later said that the time during the war had greatly shaped his father's character: "He saw poverty, death and human misery. That certainly put everything else in perspective."

When he returned from the war, Pietro and his brother Gianni started to rebuild the business. For them 1947 was an important year. Sadly, their father Riccardo died. They cancelled the supply contract with the Italian army and developed a new distribution system throughout the Italian peninsula by acquiring a fleet of small trucks. In 1950, Pietro visited the US to study American marketing practices. As a result, they stopped bread production in 1952 in order to focus exclusively on pasta. The Italian graphic artist Erberto Carboni created a new trademark for Barilla, inspired by the white and yolk of an egg lying on its side. This was adopted as the firm's logo and is, after several evolutionary changes, still in use today. In 1955, Barilla was the first manufacturer to pack pasta in portion-sized cardboard boxes. The consumer market was growing again. In 1960, Barilla became a joint-stock company. By this time, there were 1,300 workers and a sales team of 200. In 1965, Barilla opened a new plant for non-perishable baked goods, such as breadsticks and rusks. Four years later, the company built the world's largest pasta manufacturing plant in Pedrignano, with a surface area of 1.25m sq m. The production capacity was 1,000t/d.

The breakpoint
The completion of the plant coincided with one of Italy's darkest periods. Having overheated in the 1950s, the economy now paid the price through enormous inflation. Political and social unrest grew. A spate of terrorism with almost daily victims and kidnappings created uncertainty and unrest. Many companies went bankrupt or were sold. Gianni Barilla felt that they should sell the business and leave the country, but Pietro wanted none of that. Gianni, who held 50% of the business, offered his share to Pietro, who said he could not buy his brother out. In 1971, the 94-year old family business was sold to the US multinational Grace, which wanted to enter the food market in Italy. While Gianni moved to Switzerland, Pietro – who had reluctantly agreed to accept the offer from Grace – stayed in Parma. His sons later commented about this period: "The sale broke our father's heart. He loved the business. And he had only one thing in mind – how to regain control of the business."

Grace undertook several strategic moves with the Barilla Company, which were important for the future:

- 1972: Entered the milling sector with the acquisition of a first mill in Italy.
- 1973: Purchased the Voiello pasta factory, taking Barilla's market share in Italy to 15%.
- 1975: Created the Mulino Bianco line of baked products that taught Italians a whole new way of thinking about breakfast.
- 1977: Extended the Mulino Bianco line to include fresh products: snacks, mini-cakes and soft sliced bread.

By 1979, the company had sales of €130 million and employed 1,600 people. But Grace was not satisfied with its entry into the Italian food market and put the company up for sale. Pietro Barilla, who had never given up hope of regaining ownership, worked feverishly to raise the necessary capital. For many months he commuted between Italy and New York. Once, his son Guido recalled, he felt so close to achieving his dream of recapturing the family's business but did not make it and broke down in tears. Finally, Pietro succeeded in buying back the company from the US multinational. His children recalled this period: "We were very young then, in our teens. But we understood how much our father was emotionally attached to the business and that he must have suffered when it was sold to Grace. But at home, he was always a warm, caring and positive father."

Pietro was 66 years old in 1979, but appeared to have boundless energy. Both he and the workers were enthusiastic, and a strong period of growth started. This time, the economic environment was considerably better than it had been a decade earlier. The government lifted the ceiling on the price of pasta, which had been one of the key irritation factors for Grace. Once again, the pasta market became attractive for manufacturers. In 1985, Barilla launched a creative marketing campaign with the Italian filmmaker Federico Fellini, which involved many Italian and international stars over the years. In 1989, a new line of pasta sauces was launched. Two years later, Barilla made a strategic move outside of Italy by purchasing Misko, the leading pasta manufacturer in Greece. The following year, Barilla bought Pavesi, the famous and historic bakery company in Novara, Italy. And then, in 1993, at the age of 80, Pietro Barilla died, leaving the company of 8,500 employees and 25 factories to his four children. Barilla Group revenues amounted to about €2 billion. After three generations of dominant owners, the siblings shared equal ownership of the 85% their father had held. A new era began.

The fourth generation
The fourth generation consisted of Guido, Luca, Paolo and Emanuela. The two eldest children joined Barilla in their early twenties, shortly after their father had bought back the company. They both moved through various training phases in Italy and abroad and joined the board in 1987 as vice chairmen. Guido studied economics and philosophy and lived in New York for over two years. There he developed a strong interest in the US market and marketing practices. He joined the company's Barilla France subsidiary in 1982. Luca completed his education and management training in the US. In 1984, he joined the management team as a product manager. In 1987, he became a member of the board of directors, assuming the role of executive vice chairman together with Guido. He has been managing director of GranMilano since 1998.

Paolo was fascinated by professional car racing and became a successful driver, winning the Le Mans 24 hours race in 1985 in the prototype category. He spent two years in Japan working for Toyota. There he gained strong insights into the principles of industrial quality. His father had agreed to support Paolo's ambition on two conditions: firstly, that his siblings were supportive of Paolo and, secondly, that he took this move seriously and professionally and gave it his best. When Paolo turned 30 he decided to return to Barilla, joining the French affiliate before moving to Italy. He joined the board in 1993. Emanuela pursued a career as a journalist but maintained a close interest in the business.

Guido and Paolo mentioned several key principles that their father had taught them all:

- The business can only be truly successful if it improves the life of people.
- The richness of man is the work – not the money, which is only a tool to go through life.
- Have clarity on what you do and make it readable to the outside.

When their father died, the siblings made it clear that they would jointly continue to develop the family business according to the entrepreneurial spirit of the previous three generations. But they also wanted to introduce new ways of managing the growing business. Their father had run the business in a very paternalistic way. His soul can still be felt in the business headquarters in Parma, where photos show him in the plant and where his impressive art collection adorns the gardens, offices, hallways and boardroom. To support the professionalization process, the brothers brought in a senior, highly experienced outsider. In 1995, former Procter & Gamble CEO Edwin Artzt joined Barilla as CEO for three years. He brought structures, clarity, cost management and marketing expertise. In 1996, the siblings decided to aggressively enter the US market and built a state-of-the-art pasta factory, costing more than €100m, in Iowa. They decided to import Italian pasta taste standards rather than adapt to existing US pasta tastes. Just three years after market entry, Barilla was market leader for pasta in the US. Thanks to its high quality and a very effective marketing campaign, Barilla continued to grow in this important market.

A particularly remarkable move was the acquisition of the German Kamps Group in 2002. The Barilla siblings showed their commitment to entrepreneurial growth and a willingness to take certain risks by staging a hostile €1.8bn takeover of this publicly traded group of bread manufacturing and distribution companies in Germany and France. The Kamps Group had been built up by an entrepreneur, but it was experiencing structural and financial problems. Barilla saw this as an opportunity to strengthen geographic distribution weaknesses in the important German and French markets, and to substantially broaden its presence in the bread market. In many ways, this represented a return to the roots of the company, which had started 125 years earlier in both pasta and bread. The brothers openly state that more work needs to de done in order to bring Kamps up to where it should be in terms of performance.

In 2004, the group employs 25,000 people, with group revenue of €4.4bn and EBITDA of €503m (11.4% of sales). The organisational structure shows a 100% family-owned holding with four subsidiaries: Barilla G + R Fratelli; GranMilano; Harry's; and Kamps.

The family-controlled holding has a board with all four siblings as directors – with Guido as chairman – and four non-family directors.

Adding value in the fourth generation
The brothers' governance philosophy is: 'Influence but not interfere'. The non-family CEO of Barilla, Gianluca Bolla, says that it is good for the business to have knowledgeable and visible owners. In fact, in 2003 the family published a booklet titled Changing to Last, which formally states the views and the vision of the owning family. They expressed their intention to grow the business by "considering its original, founding values, meaning curiosity and passion stimulating the mind and expressing a concept capable of combining imagination and pragmatic thinking". According to Guido Barilla, the organisation needs to be pushed and driven by new products, otherwise it runs the risk of becoming too self-centred. The family is both the driving force of this innovation and the guarantor of traditional values, including the safety of their products. They have stated their opposition to genetically modified organisms (GMOs). "There are too many questions and not enough answers. We cannot guarantee our food products to the consumer when we do not understand all risks".

The four siblings in the fourth generation seem at ease with the future. They draw on each other to build individual strength. They still live together in the group of houses their father built for the family in Parma, which facilitates frequent informal contact. They have made it clear that they will never sell the company or go public. In the words of Guido Barilla, "We are not a family business one can write a novel about, we are committed to simple, basic values and a daily discipline and process of constant improvement."

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