Challenges of Family Business - Literature review Example

Challenges of Family Business Challenges of Family Business Conceptual Overview Family business is a commercial enterprise whose decision-making is influenced by multiple family generations. These families are closely identified as owners through leadership and everything. Multigenerational dimension together with family influence to business credits a business as a family business. Family business is the most economic form of doing business. Family business is the cornerstone from local shops to numerous multinational and publicly listed organizations with a vast number of employees. Most businesses around the world are family businesses. It is not easy to judge whether private-controlled enterprises are family businesses or not. Economic importance and prevalence of these businesses is often underestimated. These businesses are not subject to financial reports like any other businesses in the economic world. The current economic global model has replaced the old system whereby, family enterprises are prime sources of wealth and employment creation. The organization is said to be family-owned if it is the person controlling shares rather than the government when compared to other shareholders in other firms. For instance, Walmart is a family-run business that accounts over thirty percent of its wealth and more than one billion sales. Discussion In most business challenges lurks along finance belts and management. These challenges are seen in almost all family-owned firms. According to (Donald Getz, Jack Carlsen and Alison Morrison, 2007), when examining what is unique about family-owned enterprises in the tourism and hospitality industry and how it relates to the core family issues ,a framework has been developed for this purpose that includes setting modifiers; such as location, level of economic development and culture. And industry specific modifiers.” The essence of a family business is not to dedicate its progress towards profit, growth and performance in general but rather to purchase and use it with the needs of the owners and their families being paramount (Donald et.al. 2007) Donald et.al. reviewed an additional study and found that most tourism and hospitality industry sectors are dominated by small, owner-operated business, little has been written specifically about the family dimension. Books and manuals have been published to guide families and owner operators in generic business terms. However, many challenges have risen and hampered this business from many dimensions. These predicaments include; I. Family feuding Internal family feuds and conflicts are no jokes to the business. They are capable of separating your business and personal lives. Regardless of the cause of the conflict, try as much as possible to terminate it because if this continues for an elongated period, it can easily deter achievements in the business. II. Nepotism It is so delicate to manage a family matter in business or any other profit-oriented organization. The only important step one as a manager can make to introduce a culture-based on nepotism. Hiring, paying and promoting someone based on a familial relationship rather than their actual merit advantages and abilities. Nepotism does not empower employees at all and, this results to the downfall of an organization to its bottom line in terms of performance. III. Allowing emotions run the business Family business are always personal as the name indicates, is personal in the real sense. It is not easy for one to separate emotions from the business especially when one is directly managing family members. Notably, if employees realize that the manager easily lets out emotions towards them, then the weakness will be paramount and consequently is will severely affect your ability in sound decision making. IV. Losing non-family employees There are two reasons that will make non-family employees quit work. Firstly; there are limited growth opportunities in a family based business. Employees will love when they find themselves advancing and making progress while in the firm. Non-family employees will not find an opportunity to advance in leadership while in the organization. When a feud arises within the organization non-family members in the organization finds it easy to flee because they feel being in the middle of the feud. For proper running of the family business, the owner should take a proper ratio in non-family employees and family employees as well. According to Peter et al, as far as problems are concerned, it is difficult to manage the entire family’s personal, intricate relationships well. Most of us only get one chance of doing this and are, so to speak, learning on the run. v. No succession plan Research has shown that less than thirty-three percent of the family business survives the transition starting from to generation of ownership. As a result most families are unwilling to run a business. It is, therefore, paramount that for succession in the family business, there should be co-ordination between the ones to take a hand and the ones to hand over the business. A succession plan is imperative for proper permanence of generation to generation. According to 2014, family enterprises often go beyond a single business entity that constitutes the stereotype of a family business. Long-term sustainability in the family business is highly determined by the ability to own and manage several businesses over multiple generations. According to (Ernesto,2014)The business may flourish well as an entrepreneurial company and may as well prefer to be known that way because apparently the owners are only interested in the notion of nepotism and lack of professionalism often associated with family businesses Family businesses are ubiquitous. For instance, in the United States family-controlled businesses accounts for approximately seventy percent million including sole-proprietorship and most publicly traded firms remain under family influence. However according to (Ernesto, 7)an interesting related fact about family enterprises is that research suggests that the contrary to the stereotype, they are consistently more tax compliant than other firms. Without the vision and proper leadership from some members of more than two generations from the selected family, management as well as governance practices bleak for family controlled enterprise. Similarly, Ernesto conducted research on the blurring of real boundaries within family membership. Family management, as well as family ownership, can subject family business to a high probability of confusion, slow decision-making and corporate paralysis. Studies conclude that these patterns are observed so frequently. Many family firms will undoubtedly have to battle with them in order to achieve continuity for the family business across generations of owners. Family business is most dominant form of business ownership and management. From the historical point of view, companies developed following individual and family-run farms and businesses, particularly to meet the needs of generating larger amounts of capital and dealing with legal issues (Donald 2010).The desire of one’s boss and family independence appears to be basic and unchanging human traits. According to Donald, many countries’ statistics show that the scope and significance of the family business is poor and non-existent. The result is partly because of the difficulty in separating self-employment from business ownership, and partly because the family business is not used or understood. According to (Kent Rhodes & David Lansky 2012) many conflicts in family businesses or enterprising families are predictable, but they are not inevitable. By focusing on the helping members and other interested parties associated with a family-owned enterprise to recognize those predictable. Family businesses comprise over seventy-five percent of all the businesses in the United Kingdom. Research shows that averagely almost half of the people in the UK are employed in the family business (Peter Leach, Tony Bogod, 2011). Peter et.al. mention that family firms are indeed facing increasingly complex issues that affect not only the destiny of the business itself but also those of the proprietor, his family and his employees. Family businesses differ significantly in a variety of critically important ways from a non-family business. Family businesses function quite differently from non-family businesses. Conclusion Every family business is eccentric; shaped by its set of distinctive personalities, concerns, objectives, and relationships, as well as by a host of other personal and other commercial characteristics. Before we have a look at some types of commercial activity in which family businesses have proved to be successful, it is important to outset what family business means. References Aronoff, C., & Ward, J. (2010). More than family: Non-family executives in the family business. Marietta, Ga.: Business Owner Resources. Leach, P., & Bogod, T. (2011). Guide to the family business (3rd ed.). London: Kogan Page. Poza, E. (2007). Family business (2nd ed.). Mason, OH: Thomson South-Western. Rhodes, K., & Lansky, D. (2013). Managing conflict in the family business understanding challenges at the intersection of family and business. New York, NY: Palgrave Macmillan. Getz, D., & Carlsen, J. (2014). The family business in tourism and hospitality. Wallingford, Oxon, UK: CABI Pub. Ren, R. (2012). Crown princes in the clay: An empirical study on the tackling of succession challenges in Dutch family farms. Assen: Van Gorcum. Burggraaf, W., & Ren, R. (2014). The entrepreneur & the entrepreneurship cycle. Assen: Koninklijke Van Gorcum. Quality issues for the family business. (2014). CABI Publishing. Burggraaf, W., & Ren, R. (2013). The entrepreneur & the entrepreneurship cycle. Assen: Koninklijke Van Gorcum. Bogod, T. (2012). A family business odyssey: The challenges facing the 21st century business : Proceedings of the 2001 conference, October 10-12, 2001, London, England. Boston, MA: Family Firm Institute. Leach, P., & Leach, P. (2007). Family businesses: The essentials (New, rev. ed.). London: Profile. Rhodes, K., & Lansky, D. (2013). Managing conflicts in the family business: Understanding and managing challenges at the intersection of family, business, and finance. New York, NY: Palgrave Macmillan. Getz, D., & Carlsen, J. (2004). The family business in tourism and hospitality. Wallingford, Oxon, UK: CABI Pub. Poutziouris, P. (2013). Handbook of research on family business (2nd ed.). Cheltenham: Edward Elgar. Aronoff, C., & McClure, S. (2011). Family business succession: The final test of greatness. New York: Palgrave Macmillan. Aronoff, C., & McClure, S. (2011). Family business compensation. New York, NY: Palgrave Macmillan. Aronoff, C., & Ward, J. (2011). Make change your family business tradition. New York: Palgrave Macmillan. Aronoff, C., & Ward, J. (2012). Preparing your family business for strategic change. New York: Palgrave Macmillan. Aronoff, C., & Ward, J. (2011). Family business ownership: How to be an effective shareholder. New York: Palgrave Macmillan. Read More