Strategies & Practices of Family-Controlled Businesses
In most countries, the majority of business firms are family-controlled. Increasing attention has been given in recent years to determining what strategies and practices differentiate a family-controlled business from other businesses. The literature, however, does not have a consistent answer to this question. This problem stems in part from the fact that there is still no consistent definition of the term "family business." In fact, research has found that in many cases when other demographic characteristics of the businesses being studied are held constant, many of the differences between family-controlled and other organizations disappear. However, family-controlled businesses do differ from most other businesses in one important way: The owners have a long-standing personal relationship outside the firm. This can either be an advantage or disadvantage to business success. There are a number of considerations to help leverage the familial relationship into an advantage, particularly the tools and techniques of conflict management.
Keywords Conflict Management; Demographic Data; Groupthink; Stakeholder; Succession Planning
In many ways, there is no difference between family-controlled firms and other firms. Both types of organizations need resources of human capital, financial capital, and technology and materials. Both types of organizations require policies and procedures for getting work done. Both types of organizations require strategic planning and management in order to help ensure that the organization is successful in effectively accomplishing its work — whether that work is producing products or providing services — and managing projects and employees. Where family-controlled organizations differ from non-family-controlled organizations, however, is who is in control. Family-controlled organizations are by definition owned by groups of people who have long-standing, personal relationships that can affect their working relationships either positively or negatively. In addition, the familial relationship between top management in family-owned firms can create a hindrance to leaving the organization, a situation typically not found in non-family-controlled firms.
In most countries, family-controlled firms represent a significant portion of business organizations. However, focused research into the difference between family and non-family-controlled firms is a fairly recent phenomenon. Although there are many theories about how these two types of firms differ, there is currently no consensus. In fact, there is still not a generally accepted definition of the term "family business" among researchers and theorists. Traditional definitions of the term have focused on various combinations of the family's involvement in the firm such as ownership and control, governance, influence in decision making, involvement of family members as employees or management, and planned succession within the family. The choice of which of these variables is important, however, varies with the researcher or theorist. Further, some researchers and theorists define family firms by their essence. This concept includes variables such as the degree of the family's influence over the strategic direction of the firm, whether or not the family intends to maintain control, the behavior of the firm, or the unique set of characteristics and capabilities that result from the involvement of the family in the business. To further complicate an already complicated problem, research has found that not every firm with the same degree of family involvement in the organization considers itself to be a family firm. In addition, firms may change whether or not they consider themselves to be a family firm over time.
As research progresses, definitions of the term family-controlled are beginning to converge. However, the current lack of consistent definition is foundational to the inconsistent findings on the differences between family-controlled and non-family-controlled firms. Without a consistent, standard definition, trying to make sense of the research can be like trying to compare apples and oranges. For example, research has been done to determine the differences in customer relationship management practices in family and non-family-controlled firms. The assumption is frequently made that family-controlled firms can turn their ability in relationship building into a sustainable competitive advantage. This assumption is based on the hypothesis that because their product or service is associated with the family name, family-controlled firms are more interested in providing high quality than are other firms. As a result, the theory is that family-controlled firms tend to provide quick customer response, higher quality goods or services, and have a sincere desire for good customer service. This notion is supported by research that has found that family-controlled firms understand the importance of good customer relationships and believe it is critical to success. Based on these assumed characteristics, it has been hypothesized that family-controlled firms are more likely than other firms to institute the policies and practices of customer relationship management. However, recent research into this hypothesis found that family-controlled businesses were not more committed to formal customer relationship management than were other businesses.
Similar lacks of differences or inconsistent findings are found elsewhere in the literature. However, an analysis of the differences of strategy and practices in family-controlled and other organizations found that when the demographics of the firms compared were held constant, most of these differences disappeared. This means that other characteristics of the business (e.g., size, structure, experience of management, organizational culture) are more important in determining its strategies and practices than is whether or not the firm is family-controlled.
Although at this time there is no consensus in the literature as to what strategies and practices differentiate a family-controlled firm from one that is not, the importance of the role of the family in the organization is a given. Based on this fact, there are a number of recommendations that recur in the literature regarding steps that a family-controlled firm can take to help leverage the power that comes from being a family and reduce the dysfunction that can also result.
The fundamental difference between family and non-family-controlled firms is the involvement of the family at top decision making levels. This can be either a strength or a weakness. On the one hand, families come to the business with a knowledge of each other, including strengths and weaknesses, decision making styles, management styles, personalities, and communication skills. Family members have learned (outside the business context) the degree to which they can trust each other. Building a working relationship like this between strangers can only happen over years of working together. On the other hand, families know how to push each other's buttons. Any dysfunction or conflict from their personal lives is unlikely to be left at the door of the business. There are, however, some principles that can help families overcome the potential disadvantages of their personal relationship and leverage the advantages to make them a highly functional and effective team.
First, it is often helpful to form an outside board of advisors to act as a sounding board and give the family members objective feedback on their actions and interactions. This can be invaluable in helping circumvent problems such as groupthink, where the members of the group reach a consensus in decision making to avoid conflict, reduce interpersonal pressure, or maintain an illusion of unity or cohesiveness. Although this can be an acceptable method to keep down conflict in the family setting, in the business setting it can be disastrous. Rather than helping the group reach the synergy that is the hallmark of a team that is working well together, groupthink short-circuits the decision making process and leads to poorly thought-out plans and actions. An objective board of advisors can help the family recognize when they are in a situation of groupthink and encourage them to constructively re-examine the situation.
Another thing that families in business together must understand is the need for good communication skills. Practices such as active listening — an approach to improving communication in which the receiver of the message attempts to better understand the message being transmitted, formulates a response based on this understanding, and responds in a way that clarifies the message — can help family members better understand what each is trying to say. Family retreats where the involved members of the family meet on neutral territory to work out issues or resolve problems can also be helpful.
One of the problems faced by any business is how best to deal with any conflict that arises. The fact that family members not only have a business relationship with each other but a personal one as well often complicates and exacerbates the situation. On a small scale, this can mean that the option to go home and unload the cares of the office on one's spouse is not available if one's spouse is the cause of those cares at the office. This can not only have impact on the working relationship, but can affect the personal relationship as well. Women family members, for example, may experience particular tensions arising from motherhood where obligations to the business conflict with the interests of her children. Eventually, when the senior member of the corporation looks toward retirement and needs to choose a successor to run the business, conflict can arise....
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