The Criteria for Identifying the Success of a Family Business - Term Paper Example

Topic: Management (Family-Business) Lecturer: Presentation: Introduction Family owned businesses’ success relies fundamentally on the status of the relationship between the family members (Gordon 2008 p 10). This is due to the fact that every member of the business feels a sense of ownership that gives them the urge to protect their interests. If their relationship goes sore, it can result to internal conflicts in the management which can result to the collapsing of the business unlike in the non family businesses where there are no personal attachments to the interests of the business. In most cases, a family business is one that has its ownership having 50% and above shares owned by a certain family though most are those that are completely owned and controlled by a single family entity (Gordon 2008 p 7). The success of these businesses faces various challenges which have been discussed in this essay. Also, they have their advantages over nonfamily businesses especially in attracting customer loyalty as well as other factors that have been discussed. Succession also has been identified as a key issue that results to conflicts especially in the process of passing the business from one generation to the other. This essay is an evaluation of the criteria that academics and others use to assess the relative success of a family business. The Success of a Family Business A family business is one whereby a family owns 50% or more of its property. It could be an inheritance from previous generations in the family linage or it could be an investment of the current generation in the family. Family businesses are faced by various challenges which may determine their success. Some of these challenges may arise due to the emotional attachments that family members may have on the business (Fleming 2002 p 67). For example, a case of divorce or separation may tamper with the administrative roles that the partners may hold. This may result to poor communication which is an essential tool in the well being of the business. As such, the formulation of policies and strategies may be hindered thus leading to the downfall of the business. Successful family businesses are those which disintegrate family issues with business. Personal differences should be solved in different avenues other than in business meetings and also business issues should not be discussed in family gatherings such as weddings and parties. If this is not checked, it may interfere with the well being of the two institutions which may result to constant conflicts. Any time wasted through poor interpersonal relationships between the family members should be considered as a liability to the business considering the fact that they are earning their salary from their responsibilities which they may not accomplish with bickering and hatred for each other (Gordon 2008 p 42). The hiring process may also lack the important ethics which should be followed when hiring personnel. This is due to the fact that since it is a family business, there is a possibility of hiring family members who are not well skilled to fill the positions. This may result to poor performance in the overall production processes. This also results to high turnover for non family members who may feel that they do not have chances of excelling professionally due to the dominance of incompetent family members in the management (Gordon 2008 p 54). As such, they tend to search for greener pastures where their efforts would be recognized and appreciated. This is in contrast to the non family businesses which conduct the hiring process purely based on the academic achievements of the interested candidates who undergo through interviews in order to demonstrate their skills as well as their suitability to fill vacant positions. By doing so, it enables the management to make better decisions while offering promotions to the best performing employees unlike in family businesses whereby nepotism is paramount. Other challenges that may determine the success of a family business are for example the ability to develop an effective succession plan (Lloyd 2001 p 310). This is a common problem that is faced by these businesses whereby there are no clear guidelines as to what would happen if a senior member dies or is incapacitated. As such, conflicts may arise after such an occurrence thereby threatening the welfare of the business (Gordon 2008 p 108). This also determines the continuity of the business especially where it is being handed over from one generation to the other. In such situations, the problem arises due to lack of proper transition policies that would protect the legacy of the older generations as well as maintaining the standards of the business production. This is due to the fact that a new generation may bring in new policies that may seem good to them whereas some especially the older generation which most of the times is said to be conservative may feel that they are not fit for the business success. They may feel that they would be cut off from the operations of the business, which amounts to the fear of change which is difficult to break through unless they are provided with further skills which would help them to participate fully under the new business environment. This results to conflicts in ideologies which may in turn result to the failure of the business. In contrast, non family businesses do not have a form of hierarchy in the ownership. As such, there cannot be conflicts in the transition processes since all the relationship in the personnel is professional in nature (Gordon 2008 p 199). Vacant positions can be filled by anybody as long as he satisfies the necessary academic and experience requirements fit for the vacancy. The fear of change in nonfamily businesses is also handled properly through the relevant departments headed by experts who are answerable to their supervisors in the higher management levels. Through these departments, employee motivation is accomplished which enhances their productivity thus ensuring competitiveness and profit maximization. The success of a family business may be put at stake due to personal ambitions among the members (Fleming 2002 p 66). Every individual in the business holds a different thought on the right direction that the business should take in order to reach the desired results. If this is not well addressed, the business would turn to be a failure since there would be no harmony in the development of strategies and policies. As such, proper guidelines should be put to ensure that every member is given an equal chance to contribute his ideas towards the welfare of the business. If this is done, it would reduce the probability of arguments occurring by ensuring that every member is contented with the decisions made concerning the business. In contrast, non family businesses do not suffer from these kinds of setbacks due to the fact that decision making is done by people with a common goal though deliberations have to be made in order to share ideas which helps in coming up with the best alternatives (Cooper 2005 p 114). These discussions are professionally controlled since the members are answerable to their superiors and as such they have to observe high levels of discipline otherwise face the consequences which may include demotion or suspension. In family businesses, these consequences have no much effect due to the nature of relationship that exists between the members which may promote arrogance and indiscipline due to the view that all the members are equal and as such, no one is supposed to issue orders to the other. However, in situations whereby family relationships are well founded and strong, business progress is recorded to be higher than nonfamily businesses. This is enhanced by the loyalty of customers towards the business especially those with close family ties with the management (Anderson 2004 p 220). It is also attributed to the fact that every member will have the interests of the business at heart and as such, they will ensure excellent customer relationships are enhanced which may promote customer loyalty. The family name would also help in marketing the products since they would be associated with the business which will acquire good will from customers due to individual efforts by the members to market the name. Whereas this factor may also apply in nonfamily businesses, they cannot achieve it through cheaper methods due to the expenses related to marketing and advertisements as well as employee education and software and hardware to assist in attracting customers. Family businesses may on the other hand benefit from family’s political and social influence that they may have in the society and which may help the business in acquiring good will from their customers (Anderson 2004 p 130). In addition, this influence may reduce a lot of expenses that may be required to facilitate various capital oriented activities such as licensing though depending on the governance of the region where it is operating from. This is due to the fact that there are areas where personal and family influence puts the persons at an advantage for example in the awarding of tenders in the different government institutions whereby due to the economic stability and high esteem that the family name may hold in the society, the various sectors in the government would have the confidence to award such tenders to them as well as due to the possibility of friendship between key persons in the government and a family member. Succession in family businesses has been identified as a key challenge that threatens their success as well as their stability (Erven 2009). This is due to the fact that it has been noted that it is almost impossible to isolate issues related to business with those related to family. As such, there is always a form of struggle between the family members while deciding on whom to comprise in the new management without some feeling discontent. In this context, some members may feel that due to their long service in the business, they should be given the first priority of taking over from their predecessors, a factor that may not be appreciated by the younger generation who may feel that they are well suited for the positions may be because they are more educated than their elder relatives (Erven 2009). The discontent may also be promoted by the inability of the businesses to offer chances of excelling in career due to the fact that it may take a long time for a person in one level to climb up the ladder to higher levels of management. This may arise due to lack of proper guidelines which may be used to restrict and define the amount of time that a person may take in one position without creating monotony. In many cases, a person may hold an office or position as long as he is alive and healthy therefore denying others especially the younger persons chance to achieve the required experience that would help them in managing the business well after the positions becomes vacant (Erven 2009). This in itself is a disadvantage to the business since it fails to exploit the knowledge and skills that these people could bring into the business. In addition the parents may refuse to give up their control on the business thus creating discontent among the younger persons waiting to take over from them. In order to correct this, the owners should come up with good retirement and promotion schemes which would ensure compensation to the services that the retirees have offered to the business so as to encourage them to go on retire, which would go along in creating opportunities for others (Bork 2004 p 129). If not so, the positions should be given on renewable contract basis so as to ensure that members get jobs by competing among themselves and also based on their performance record. By doing so, this would enhance the relationship between the members by promoting trust which would in turn promote respect among them thus reducing possibilities of conflicts which may result from members feeling that the appointments are done in favoritism other than merit. For the family businesses to overcome these challenges, they should ensure that employees are prepared well enough to take up any positions in the business whenever there is the need to (Lloyd 2001 p 312). This can be achieved through on job training as well as supporting further education for them so that the can acquire the necessary skills to overcome any challenges. They should also be made to search for experience from other companies at least for not less than five years. This would ensure that the thought of expecting favors due to family attachments is corrected. Instead, it would encourage hard work and discipline in the areas of work thus separating family and business matters. There are those individuals who may think that as long as it is their relative who is on the helm of leadership, they can do whatever they think and whenever they wish. This is a misconception that family businesses’ management should work hard to discourage. Every perspective of the business issues should be handled with professionalism regardless of the fact that it is a family business. Just like the non family businesses do, disciplinary action should be taken on any member who contravenes the standards of the set business ethics (Ward 2002 p 144). This may go a long way in preventing other ethical dilemmas such as embezzlement and employee theft which may happen due to the enjoyment of the members to tenure of office and their positions. In non-family businesses, this challenge is not common due to the fact that there are guidelines which are set to govern the hiring and retiring processes. Vacancies are not designed purposely for any certain individuals as in the case of family businesses whereby only a family member can occupy certain positions (Cooper 2005 p 100). In addition, many companies and organizations usually advertise vacant positions on the print and electronic media such as television and internet whereby any interested person can apply and later be interviewed so that he can get the job. An example of a family business that satisfies the criteria used to determine the success of family businesses is one that is owned by the family of Halai, which is a building and construction company. The company depends entirely on tenders which it gets from private investors who for example may be upgrading their sewerage systems, plumbing, as well as constructing new buildings but mostly which are of large scale. Having worked for the company for two years before joining university, it would be true to say that the theories satisfy the criteria for determining the success of family business. In its management the company is controlled by the two most senior brothers i.e. Mulji and Devraj who are above 80 years of age and who inherited the business from their late father, Halai. Though their way of managing can be said to be average, the extent to which the junior management staff displays its incompetence can not be under estimated. The hiring process is the main obstacle to the success of this business due to the fact that they do not rely on the academic qualifications of the individuals but rather on family relationship. This most of the times create conflicts between them and the nonfamily members especially those who work as casual laborers but who have both academic and practical experience that exceed that of their supervisors, who do not even have the capacity to manage human resources. As such, the supervisors are not able to assist in times of difficulties especially where technical knowledge is applicable. This results to wastage of time and resources due to trial and error method used in solving these problems which does not in any way justify their salaries which are much higher than those of the other employees. The best solution to this problem would be to ensure that these supervisors are first made to undergo training so as to ensure that they have all the necessary skills to tackle all hardships that may occur during the execution of their duties (Lloyd 2001 p 311). If not possible, they should develop a strategy to monitor and assess their productivity so as to enumerate them depending on their input and output towards the success of the business. If this is done, it would ensure that there is a harmonious working environment that serves the interests of the business regardless of the family relationship existing between the employees. Conclusion A family business is one that has more than half of its property and management controlled by a family. In its operations, this type of business has its up and downs especially in its various models such as ownership, family and business. These three issues intertwined determine the success of family businesses. In family circles, relationships are the most influential since they determine the cohesiveness between the family members which is important in the process of decision making as well as maintaining the legacy left behind by the older generations. In many cases, it becomes difficult to separate business issues from family matters, which interferes with the business welfare. For example, cases of divorce and separation may result to poor communication in the work place which is essential in discussing and formulating plans. When this happens, it becomes difficult to express ideas and worries, an occurrence which can witness the downfall of the business. Lack of proper formulation of policies and guidelines for the purpose of determining clear succession procedures is also a factor that is identified to cause mayhem in case there is a need to overhaul the management as a result of death or incapacitation of a member. This leaves a loop hole which encourages infighting and bickering among the members and personnel who would want to assert themselves as the apparent heirs to the positions. The conflicts may also be ignited by the inability of the older generations to accommodate the views and contributions of the younger generation thus dominating in the control of the business. This enhances poor attitude from the disadvantaged who may feel left out in the important matters concerning the business. This also denies them the chance to participate and contribute their ideas which could be even more valid than those of the older generation who sometimes are considered to be conservative. For a business to succeed, the management should be able to appreciate diversity in all its forms so as to ensure that they keep up with the current market structures in place. Bibliography 1. Anderson C. 2004 Board Composition: Balancing Family Influence in S&P 500 Firms. Administrative Science Quarterly 49: 209-237. 2. Bork D. 2004. Family Business, Risky Business: How to Make it Work, Bork institute 3. Cooper M. 2005 Customer Relationship Management: a Comparative Analysis of Family and Nonfamily Business Practices, Journal of Small Business Management, 43(3), 90-115 4. Erven B. 2009. Management Succession Issues in Family Business, Retrieved 25 November 2009 From 5. Fleming Q. 2002. Keep the Family Baggage Out of the Family Business: Avoiding the Seven Deadly Sins That Destroy Family Businesses, Fireside 6. Gordon G. 2008. Family Wars: Classic Conflicts in Family Business and How to Deal with Them, Kogan Page 7. Lloyd F. 2001 Issues in Growing a Family Business: A Strategic Human Resource Model, Journal of Small Business Management, 10(2), 300-325 8. Ward J. 2002. The Special Role of Strategic Planning for Family Businesses, Family Firm Institute, 25(8)140-147 Read More