The Challenges of Family Business Management - Term Paper Example

Family Business Family Business Introduction A family business is an organization in which decisions are taken by members belonging to several generations of a single family. These people may be related by blood or through marriage, and they identify rather intimately with the company. Owner-manager business firms are different from family business companies, in that they do not comprise the multi-generational aspect or the influence of family that differentiates the dynamics and relationships of family businesses Problem Statement Family business is a very old and an extremely wide spread concept throughout the world. The economic establishment and importance of this kind of business often tends to be underestimated. For most of the 20th century, academics and economists were more interested by a new and better business model – the large, publicly-traded companies that are run in what appeared to be a pragmatic and bureaucratic way by thoroughly trained employees. The rather unique management models and intricate psychological processes involved in family run enterprises often paled in comparison to the publicly traded companies. (Poza, 2013) Participation of Family Members The participation of family members (in the role of managers or owners of a business) can definitely be an advantageous factor, provided that family members are firm in their integrity, as well as loyal and committed to the enterprise. However, their role as managers or owners of a business can also pose some distinct challenges owing to the fact that the dynamics of a family system and the dynamics of business systems may turn out to be incompatible or unbalanced (Lee & Rogoff, 1996). Interests and Fairness The interests of a particular member of a family may not be well synchronized with the larger interest of the business. For example, if one family member desires to be the president of the business but is not as qualified to hold that position as a non-family member might be, the personal interest of the family member who is a ‘presidential hopeful’ may clash with the well being of the business. Similarly, the interests of the whole family not are the same as the interest of their common business. If one member of the family desires that funds from the business be distributed to cover his living expenses as well as his retirement, but the business requires those same funds to maintain its competence, the vested interests of the whole family and that of the business are bound to clash. Finally, the interest of any one family member may not be the same as that of another family member. One of them of may be the owner of the business and may desire to sell the business in order to optimize their return on investment. On the other hand, another family member who may be an owner as well as a manager in the business may want to keep the organization because to him it would be a career that he would want his children to have a change to work in the company as well (Sharma, 2004). Effective Communication A lot of family businesses are faced with problems that arise due to poor communication; family members have a tendency to take for granted their ability to communicate effectively, at the expense of the fact that this very critical ability should be dynamically improved. The main reason for this is that people change over the course of passing years as do the nature and depths of their relationships. For example, as the family business grows and its intricacies increase, the tools and platforms that family members employ for communicating also change, influencing the necessity to consult and make decisions. Likewise, as the family itself grows, the number of points of contact within the family also changes. Individual family members themselves change a lot as they get on in years. It inadvertently follows that the canvas for communication for the members of a family working together changes rather fast without any of them being aware of this fact (Ramachandran, 2011). Mutual Trust and Respect The aspect of mutual trust and respect in a family business implies the extent to which members of the family who participate in a common enterprise respect each other for both, their similarities and well as their differences, and how much do they trust each other and each other’s abilities. Ideally, there should be sufficient mutual trust and respect in a family owned enterprise, so that their ample diversity of ideas, viewpoints, and consequently plenty of potential for the business to grow. The important of mutual trust and respect is realized in a lot of family members, especially if each or most or even some of them are well educated and naturally tolerant and respectful. Individuals, for a large part, do appreciate that in order for there to be integrity in the family business, they have to accommodate different thoughts and ideas. Moreover, they also appreciate that if they were to leverage different skills, the overall business would benefit considerably (Gersick, 1997). It is when trust and respect are absent in a family business that there exists a large threat to the enterprise. Contentious owners and managers not only create a hostile and unpleasant work environment, but there are at least two other critical ways in which a significant disadvantage can jeopardize a family enterprise. Family members can get too carried away in arguments and mistrust to keep an eye on important aspects, which if neglected can vital harm the business. As well, the stress caused by feeling of mistrust and disrespect can take a toll on the physical health and energies of the individuals involved in running the business. This can, naturally, also prevent a business from growing if not deteriorating. Commitment Trust and commitment are the most significant aspect of a family business and they are not only complex but also dynamic attributes which are associated with an emotional attachment of concern and care. Members of the family working as business partners should also properly understand the relation between risk, trust and commitment. Trust can only be established if there is consistency and fairness in work, combined with responsibility and benevolence. Shared trust in family business is administered through justice and equality which itself includes relational ethics combined with cohesion and consensus. At an initial stage a family business is completely based on relationships and level of trust with every party which is involved. However when a business starts evolving additional processes are required to be monitored and the stage of delegation of power and work arises. Now this is again all based on trust, mutual consent and comprehensive understanding of the business partners (Tagiuri & Davis, 1996). Hence it is recommended by experts that family business leaders must compare, contrast and then evaluate the consequences of any decision which they are foreseeing in future. The sustained level of trust is the only element which is regarded central for achieving success in a family business. With regards to the aspect of commitment in a family business, there are really two types of family commitments towards the enterprise that the family owns: the family centered commitment and the business centered commitment. It has been shown that family centered commitment tends to be higher when a business is not performing very well, whereas business-centered commitment is higher when a business is flourishing. Conflict Management Another very important issue that must be considered seriously in any family business is that of managing conflicts effectively. Family members who work in the same enterprise often face great challenges owing to the fact that stakes are very high. Relationships as well as assets are highly vulnerable when conflicts are not appropriately managed. The family system is inadvertently an emotional system, and although it can be the binding force in keeping families together, it can also go off track and detrimentally impact decision making and create schisms. Because families exist in the past, present, as well as in the future, from the emotional point of view, the past is always prevalent in their minds. Previous experiences of conflicts, loyalty challenges, and disappointments can linger on for a long time (Sorenson, 1999). It is very important to bear in mind that any human system also has an emotional dimension to it, with a long, intricate record. In any emotional system, it is wise to proactively develop a fair and timely process that can ensure security and confidence. There always comes a time in business when we have to deal with situations involving conflicts, hence it is an entirely inevitable part of the family business. Disputes and conflicts can either make or destroy not only a company but also families; hence the personnel involved in decision making should always make strategic decision as opposed to personal decisions. If any such condition arises expert help or opinion must be listed as top priority for resolving conflicts in a timely manner. The person with the greatest authority must transform into a leader for managing and resolving these disputes. The best technique is to start dialogue, assemble a combined meeting and outline the related concerns. The facts presented by each side must be open and honest and each participant of the meeting must be heard properly. After this start, discuss the outlined problems and find out solutions for every problem one by one. Each participant must be motivated to bring forward their queries and suggested solutions if they have any. Select the best possible solution to the problems defined and resolves all conflicts without any haste. Conclusion In conclusion, the mutual goals of any family business are based on the prosperity of the business as well being of all those who are involved in it. Given the fact that the unique style with which family and businesses are run, these goals can often appear to be more like challenges rather than objectives. However, if a clear, mutually agreed upon vision is established and the business’s larger values are defined, the family can help significantly in achieving the objectives of the business. It would be a very wise idea, if, after establishing a clear vision and a set of values, reliable family business advisors are consulted, those who intimately understand the business as well as the markets in which it operates. These advisors would be able to suggest some valuable strategies to safeguard against any of the challenges discussed above, thereby ensuring that the business continues to flourish and also that family members can uphold their personal relationships in the long run through be trustworthy, respectful, and committed to their common goals of achieving success for the larger business and well-being of the family. References Bersick, K. E., 1997. Generation to Generation: Life Cycles of the Family Business. s.l.:Harvard Business Press. Lee, M.-S. & Rogoff, E. G., 1996. Comparison of Small Businesses with Family Participation versus Small Businesses Without Family Participation: An Investigation of Differences in Goals, Attitudes, and Family/Business Conflict. Family Business Review, 9(4), p. 1996. Poza, E., 2013. Family Business. s.l.:Cengage Learning. Ramachandran, K., 2011. Family business: Effective communication a necessity. [Online] Available at: http://articles.economictimes.indiatimes.com/2011-03-25/news/29188577_1_communication-family-members-egos [Accessed 9 April 2014]. Sharma, P., 2004. An Overview of the Field of Family Business Studies: Current Status and Directions for the Future. Family Business Review, 17(1), pp. 1-36. Sorenson, R. L., 1999. Conflict Management Strategies Used by Successful Family Businesses. Family Business Review, 12(4), pp. 325-339. Tagiuri, R. & Davis, J., 1996. Bivalent Attributes of the Family Firm. Family Business Review, 9(2), pp. 199-208. Read More