1. Management of Family Business Ventures
A. “Strategic Management of the Family Business: Past Research and Future Challenges”
(Summary) A family business is defined as a business managed in pursuit of the vision held by members of the same family or a small number of families. It includes nuclear-family-controlled firms and also, publicly held firms managed by a two or more generations of the family. Both family and non-family business have the same strategic management processes in the sense that both will have to formulate, implement and control a strategy (whether explicit and implicit) to achieve a set of goals. The difference, however, is in the set of goals, the way the processes are done and the participants in the process. The overriding importance of the controlling family's influence, interests and values leads to dynamics in family businesses that are not present in non-family businesses. In a family business, the family's goal are integrated (and at times at odds) with the business goals. Furthermore, the issue of succession is of critical importance to the business and must be considered when formulating strategies. Family relationships influence (and often drive) business operation (i.e. implementation of strategies) and family culture becomes the context where the entire strategic management process is evaluated and controlled. It is therefore key to understand the dynamics and interplay between the family and business (as distinct subsystems) in order to harness the strengths and counter the weaknesses of the integrated whole. Some authors have proposed a three-stage model to understand the development of the family business. The first stage is characterized by the consistent needs of the business and the family and the total control of the owner-manager. The second stage is characterized by the emergence of the development of the family's children as the primary concern. At this stage, the business becomes the vehicle to secure the future of the children (which may include securing their place in the business). The last stage is characterized by conflict between family and business needs and the stagnation of the business. Other studies have pointed the personal nature of family businesses and their emphasis of personal over corporate values. Another observation was that family businesses tend to adopt strategies that minimize taxable income. In addition, it has been found that succession planning is vital to the long-term prospects of a family business and various studies suggest different approaches which include early inclusion of potential heirs into the business to promote their interest on the business. In terms of strategic management, the goal of succession planning is to identify the best successor and enable a smooth transition to ensure business continuity. In the family business, the family and the business are so entangled that emotions are unavoidable. As such it is of primary importance to effectively handle relationships among the family and relationships between the family and professional managers. In terms of broader relationships and environment, four types of family culture have been suggested: paternalistic, laissez-faire, participative, and professional. In terms of relationship among family members, three types have been suggested: consensus-sensitive, interpersonal distance-sensitive and environment-sensitive. Family culture has been shown to have significant impact on the family business. In terms of organizational structure, it has been observed that family businesses are less horizontally differentiated and rely more on formal controls. Another, interesting observation is the different dynamics between father-son and father-daughter relationship in the context of a family business. While the former is characterized by conflict, the latter is characterized by harmony and accommodation.
(Reaction) Strategic management is important to all businesses. However, there are added factors that need to be considered when dealing with a family business due to the fact that human relationships naturally transcend boundaries. But this is not peculiar to family businesses only (rather, it is only more pronounced in family businesses because family relationships are among the strongest, enduring and most valued relationships people can have). As social and emotional beings, it is impossible for people to totally keep relationships within a specific context or system. That is, a person does not maintain distinct relationships with another person for each context they find themselves in; rather, a person maintains only one relationship with another but that relationship may have several aspects. Therefore, like other types businesses but especially so for family business, managing relationship is a key success factor. The dynamics of the relationships involved will dictate how they can be effectively managed. This is why they not only vary from business type to business type but even from a family business to the next. This is also why, as presented in the article, various studies have come up with various and at times conflicting observations and recommendations. Therefore, the important thing in applying strategic management to family businesses is to not follow generic prescriptions but to understand the dynamics of the relationships in the particular family business and develop a strategy around that.
B. “Transferring Management in the Family-Owned Business”
(Summary) Few family businesses survive the transition from one generation to the next. This is primary caused by lack of planning. There are four plans that will virtually ensure the successful transfer of a business to the next generation when implemented. These are the strategic plan, family strategic plan, succession plan and estate plan. To understand the challenges involve in transferring a family business, it is important to understand the nature of a family. A family business is a business that is majority owned and controlled by a family wherein two or more members are directly involved. It is a complex, dual system consisting of the family and the business; each having its own rules, roles and requirements. Conflicts arise when roles assumed in one system interfere with roles in the other and when communicating patterns in one are used in the other. These conflicts can be eliminated by coming up with policies that meet the needs of both the family and the business. Developing these policies is part of the family strategic planning. It is also important to understand the perspectives of the actors involved in a family business. Broadly speaking, the actors can be categorized into family members and nonfamily members. Family members can be further categorized into: 1) neither an employee nor an owner, 2) an employee but not an owner, 3) an employee and an owner, and 4) not an employee but an owner. Nonfamily members can be further categorized into: 1) an employee but not an owner, and 2) an employee and an owner. It is important to understand that actors coming from the different categories have their own perspectives, expectations and sets of concerns and are capable of exerting pressures within the family and the firm. Conflicts can be traced to a disparity in goals of individuals, the family and the business. One way to define and align business and family goals are through business and family strategic planning. The goal of these plans is to create complementary mission statements and sets of goals and strategies for the business and the family. Integral to this is the identification of personal needs and the alignment of personal objectives, family objectives and business objectives. Furthermore, the family needs to develop a unified vision of the firm that includes personal and career goals. Going on a family retreat could facilitate this. The retreat provides a venue for introspection, problem-solving, policy making and discussion of goals of individual family members and goals of the business. Once a consensus has been reached, the next plan that needs to be developed is the succession plan. Succession is the transferring of leadership to the next generation. It occurs in four phases: initiation, selection, education and transition. The initiation phase is the period when the children are learning about the family business. When the owner wants the children to enter the business, it is important that he talks to them often and openly about it. The “children should learn what values the business represents, what the business culture represents and where the business is headed.” “Selection is process of choosing who will be the firm's leader in the next generation.” It is important that the selection process be based on merit and skills in relation to the family business goals. Education is the phase where the successor is trained and prepared for his future role. Training by objective is one effective approach that may be utilized. It allows the successor to be a participant in defining what he needs to do, when he needs to do them and how he will be evaluated. An excellent way of assessing the successor's skills and thinking process is to ask him to provide his insights on a current problem or situation. Transition pertains to actual transfer of control to the successor. Transitions are smoothest when they are timely, final and the succession plan is publicly committed to by the entrepreneur. Prior to relinquishing control, it may be advisable for the entrepreneur to take a series of planned absences to evaluate the transition-readiness of the successor and the business. “The entrepreneur who successfully lets go has (1) a sound financial plan for retirement, (2) activities outside the business that can provide social contact and power, (3) confidence in the successor and (4) a willingness to listen to outside advisors.” It is a must to communicate to make succession work. Family meetings and discussion can educate the family about the nature of the business, the leadership skills needed to run it, the entry and exit conditions, decision-making policies and conflict-resolution procedures. The last plan to consider is the estate plan. It is of prime importance because the bulk of an entrepreneur's assets are commonly tied up in the business. Due to the intricacies and the changing nature of tax laws, the entrepreneur must seek competent legal help.
(Reaction) The long-term success of a family business, if it were to remain the family’s business, depends on how well the family can align its goals (as a family and as individuals) and that of its business. There are some business principles that are non-negotiable but provided they are observed, it should not matter whether the family goals are aligned to the business goals, the business goals are aligned to the family goals, or a middle ground is establish to align both. What matters is that they are aligned and are continually being aligned. This is where the importance of constant communication and discussions become apparent. The only way for multiple sets of goals (coming multiple individuals) to be aligned is for them to be communicated and discussed.
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