Family Run Business: Eye Candy - Case Study Example

? Family Run Business: “Eye Candy” BY YOU YOUR SCHOOL INFO HERE HERE Family Run Business: “Eye Candy” Background of Business Eye Candy is a family run business that provides a variety of products, founded in 2007. These include bulk candies, specialty chocolate products and imported candy goods from other countries. It is governed by a second generation family structure and managed by third generation younger family members. The business currently experiences yearly revenues between ?800,000 and ?900,000. The information for this business review comes from interview research of several family members, including second and third generation ownership and management. The health of this business is compared to literature on family-owned businesses and from the interview data. Determining the health of the business Governance is one part of this business that makes it so successful. It is currently in the growth stage of development that has brought it sales success through the efforts of many family members. When it was founded, Eye Candy was launched under the investment of a first generation family investor who maintained most of the decision-making. However, due to his traditional leadership style and business focus, Eye Candy was at first losing many sales and was unable to create lasting relationships with the community. The first owner did not want to invest in advertising, marketing or technology improvements and therefore the quality of the brand and its products was not satisfying the local community. In order to make the business succeed, the second generation owner (a father) bought out the first generation owner and created a more successful business model. Succession planning was the product of much family conflict as this family was from a collectivist culture that valued tradition and respect for elders. The original first generation owner would not consult with family members, which Al Bawaba (2011) identifies as being one of the largest factors that leads to family business failures. This original owner was very authoritarian and wanted to control both operations and accounting practices without the input of others. When it became clear that this leadership failure was causing the business to lose sales revenues, they created a succession plan that honored tradition, but also put the business profit first. “It makes sense for a family that founded a business to continue to be associated with it” (HT Media 2011: 1). The succession plan, after buying out the original investor, continued to include the original owner in some of the business decision-making in honour of tradition. This reduced family conflicts that continued to cause problems with delivering quality service as many arguments occurred right in front of customers. The new governance system included less traditional business practices and more modern philosophy with more investment in advertising and customer relationship management. These changes are due to the input of the younger generation who are very active in decision-making and educated on modern marketing activities. Injecting younger talent into the business has given Eye Candy the ability to create better community relationships and set up a known brand in the local market. Without having input collectively from the family members, Eye Candy would still be losing money. When the original governance system was in place, the company was funnelling family expenses through the business model which kept leading to personal losses individually. According to Fitts and Rowe (2011) the best way to maximize company value is to remove all family expenses from business accounting. Under traditionalist family systems, it is common to pool resources, but only when there is a quality decision-maker that can manage all business activity successfully. The losses being taken were not only related to the business, but were reducing personal incomes in the process. The conflicts created in all generations of the family were causing motivational problems at work and negatively impacting customer service guidelines. Eye Candy is now a successful business due to its modern governance systems. Instead of focusing on short-term gains, Eye Candy now has a strategic plan in place for long-term sales growth. The younger generation has offered that the business would benefit from conducting market research. Regularly, the business prints questionnaires and surveys that are given to current customers and potential customers in order to gain feedback about product and services. The information taken from this research effort helps improve the supply chain and give customers a better experience when they visit the business. There was a situation in which a member of the third generation management was ready to attend college. This individual was one of the most important in setting up new marketing ideas and changing the method of supply chain purchasing. According to Achleitner, Herman, Lerner and Lutz (2010) knowledge transfer in a family-owned business is important to preserve competitive advantages. Individuals in the business have what is known as tacit knowledge, knowledge that is unique and held by one individual and not easily transferred from one family member to another. “The transfer of tacit knowledge is challenging and possible only by its application in practice” (Achleitner 2010: 9). The family members understood that the business would be losing an important resource and decided to offer the younger manager a consulting position while away. For a regular payment, the individual continues to provide ideas via video-conferencing. Since it is difficult to teach tacit knowledge to others, the business remains healthy with this individual’s input on advertising, market research, accounting principles, and customer service theory. This particular family has very strong connections with the local community which are long-standing even before Eye Candy was launched. Being from a collectivist culture, they believe strongly in social responsibility and also philanthropy. “Family-centred businesses have unique perspectives of socially responsible behaviour due to ties to the community” (Niehm, Swinney and Miller 2008: 335). In countries that are collectivist, it is common for business owners who are successful to have heavy demands placed on them for philanthropy. Fitzgerald, Haynes, Schrank and Danes (2010) believe that society often expects philanthropy and social responsibility that are either economic, legal or ethical in nature. The family governance system determined that it would be in the best interest of the business to provide charitable donations as part of their social responsibility efforts. This has given the business an advantage over competition, which has reduced their philanthropy during the current global recession. Research shows that during recession, family-operated businesses are more likely to keep up with their corporate giving than larger corporations (Jordan 2009). The family governance system recognized that they could improve their Eye Candy brand and also outperform competition with more social responsibility and giving. The business now provides certain inventory products to food centres on a regular basis and provides a small portion of profit to their favourite charities. This information is now printed on their advertising pamphlets that describe the business and its ownership to show customers their dedication to improving community relationships and lifestyles of the disadvantaged. “Findings suggests that social responsible behaviours can indeed contribute to the sustainability of family businesses” (Niehm et al: 337). One major success factor for the business was their family-wide agreement to remove non-business issues from the business environment during hours of operation. In many family businesses, self-interest often conflicts with business activity and therefore the business loses focus in favour of family conflicts. The business operates on stewardship theory, which is protecting wealth and firm performance through responsibility and “altruistic” motivations (Braun, Zacharias, and Latham 2011). Altruism are values that promote trust, loyalty and family stability whilst also protecting the reputation and sales growth of the business. This has brought the family together to remember their responsibility to the business first, with opportunity to discuss family conflicts in a more personal home environment. Separating business from family has improved its efficiency and productivity and even the family dynamics. When the first governor of the business was present, the first generation investor, the business was unable to separate family conflict from business conflict due to traditional values. Family members, under governance of the second generation, now treats the third generation managers as workers, giving them formal performance reviews and opportunities for promotion based on productivity. The younger individual responsible for new marketing and advertising concepts recommended a performance management system that links goals with individual performance. By having family members recognize themselves under a traditional corporate management system, they have found more cost savings and even better service. The family members are motivated when they receive pay increases based on merit and meeting strategic goals and customers receive better quality of service. This is the difficulty of family-owned businesses. It is often difficult to operate the business as a system unit without bringing family problems into the environment. The second generation ownership now acts as a controller when family conflict begins to seep into the business environment and stops it before it becomes a real problem with productivity. Each week, the family sits down together and discusses all parts of the business. These discussions include knowledge transfer of accounting, sales, inventory control, goals and objectives, and the results of regular consumer research (the survey and questionnaires). Together, when problems arise, they come up with creative solutions so that all members feel like they have been empowered to give their opinion. These group meetings improve business development and have kept Eye Candy in a growth stage, rather than decline. In other businesses managed by family members, there are often conflicts that happen due to age differences and self-interest. This business makes all family members happy by sharing profits (which are high due to labour cost savings) and given everyone a voice regardless of their attitudes or beliefs. The family agreed to include at least one idea from every family member in all areas of operations which motivates and empowers the entire family. The business also set up a drop box for anonymous comments from family members, where weekly they are addressed in a group meeting format. Again, this gives them a voice which improves productivity and cooperation among all family members. There is another advantage that has given Eye Candy its high profit today. The current governance investor maintains full responsibility for the business as it relates to liquidity. This is to ensure that the rest of the family is protected in the event that the business takes sales losses or goes out of business. Eye Candy, today, is now better at understanding risk management and has established a financial system that gives them less liability. The business conducts regular audits for risk management, including safety hazards and financials to make sure it is avoiding risk. Setting up auditing systems is a means to control quality and expenses to maximize profit. The business has already, with family input, considered the next succession plan for the future. It is the goal of the current investor to retire in 2014 and it was decided that a third generation investor should take over the business. The family realized that it was the younger generation that was giving the business more success and sales growth and helped to build a better image with the local community. Having a succession plan ensures “continuity and a constancy of values that is good for business” (HT Media 2011: 1). The family wanted to make sure that the most successful members of the family team would take over governance and ownership so that the current values, mission and vision were still in place. It is these values related to philanthropy, strong management focus, social responsibility, and conflict management that was giving the business a positive community reputation. Since the older generation in the business did not understand how to conduct market research, it was decided that after retirement a third generation owner would operate and govern the organisation. Braun et al (2011) describes many family businesses as myopic, which by definition means prejudiced, intolerant and narrow-minded. Eye Candy had operated under this type of leadership with the original first generation investor and could not find a proper position in the sales market. The strong qualities of clanism were creating a problem with meeting business goals that were always being lost in favour of family conflict. On several occasions, when family arguments started in the sales environment, customers commented about the unprofessionalism of the family. In a small, collectivist community, this damages the reputation of the business and the family reputation when negative word-of-mouth is spread. This was another reason why the business decided to take up more social responsibility and promote its philanthropy giving efforts to recover the service failures. Since changing the previous governance, Eye Candy has had no more issues with negative word-of-mouth and is often referred for catering important events. The business has also experienced more productivity by identifying one family member as the designated change agent. From time to time, this business has to change its processes in order to service customers, such as launching new software or installing new equipment. Having a family member take on the role of change agent maintains professionalism and also ensures everyone is trained properly related to the change process. Each family member signs off that they understand the changes which, again, keeps the business running much like a large corporation. Having these systems in place improves the health of Eye Candy and shows everyone is committed to achieving success. Summary Eye Candy is a healthy business that has managed a quality system of governance, social responsibility, professionalism, conflict control, and better operational standards. The first step was to shed age-old principles of traditionalism that were causing serious conflicts and also profit losses that were impacting every family member involved in the business. Today, the original investor now only provides opinion about product inventories and new product innovations learned about through research. This is also part of their social responsibility practices by honoring traditional family values and keeping it internal for family harmony. By unanimously deciding that the business would be better off by maintaining professional distance and removing the family dynamic, it has found great growth and respect in the community. The high profit and sales are a product of younger, educated insight and opinion. This business has built a strong professional culture of commitment whilst not losing any of its important family values in the process. Through this current system of governance, the family maintains its cash cow, ensures its livelihood, improves lifestyle of all family members, and maintains dedication to heritage. This is done through efficiency of communication and professionalism, as identified by the R Skynner British Institute of Therapy. In many ways, Eye Candy is a family-focused strategic alliance that gains access to better ideas through inclusion. The artifact of disclosing information is another health factor that improves trust and productivity with all family members involved in Eye Candy. In many ways, Eye Candy is a family-owned business that could be benchmarked for best practice and its stewardship governance systems. It is likely that Eye Candy will remain healthy for years to come if they keep these current values as the business and family norm. References Achleitner, A., Herman, K., Lerner, J. and Lutz, E. (2010) Family business and private equity: conflict or collaboration? The case of Messer Griesheim, The Journal of Private Equity 13(3), 7-24. Al Bawaba. (2011). Corporate governance a must for family businesses, Saudi Economic Survey, May 18. Braun, M., Zacharias, L. and Latham, S. (2011) Family firms versus leveraged buyouts: a conceptual comparison of distinctive governance structures, Journal of Family Business Management 1(2), 89-106. Fitts, J. and Rowe, M. (2011) Family business transition planning, Journal of Accountancy 212(5), 22. Fitzgerald, M., Haynes, G., Schrank, H. and Danes, S. (2010) Social responsible processes of small family business owners: exploratory evidence from the National Family Business Survey, Journal of Small Business Management 48(4), 524-551. HT Media. (2011). The four challenges for family business groups, Mint, 3 February. Jordan, H. (2009) Family firms more loyal in their giving, Third Sector, July 7, 5. Niehm, L., Swinney, J. and Miller, J. (2008) Community social responsibility and its consequences for family business performance, Journal of Small Business Management 46(3), 331-350. Read More