The Family Business - Essay Example

Management Introduction Family business is a business where, one or even more members of a family or more families have a remarkable share ownership and important commitments in the overall well-being of a business. In a family business, the management team comprises of two or more members are drawn from the family that owns the business. It is possible for a family business to have members who are not family members in the operation of the business. However, family members are normally involved in the running of the family business in some way. In smaller companies, one or more members of the family are the managers and senior officers. Most of the companies that are public were once family businesses. Participation of the family members in the running and managing a family business strengthens the business since family members are mainly loyal and dedicated to the business of the family. However, family members’ participation as owners or managers of the business may present some unique complications since there is no balance between the dynamics of the business system and the family system. The problems associated with family members operating a family business are such as; there may be no alignment between the business interests and those of an individual family member. The interests of the whole family may not balance with the business interests. In addition, one family member’s interest may not align the interest of another family member. Balancing of the family business is automatic where family business is owned and operated by one individual. The balancing is automatic since the owner balances the interests of the business and his own interests. In most family businesses, first generation owners make most of the decisions. The moment the second generation takes over control of the business, the issue of decision-making becomes consultative. Decision-making may become more consensual when the third generation takes over the control of the business. Decision-making becomes more rational as it goes through generations of the founder. Most family businesses have grown in to big companies with world recognition. These family businesses are very vital to the economy because they provide a source of economic growth to a nation. They provide services to the people of the nation and provide job opportunities to the mass. Some examples of family businesses that emerged as a small family business and expanded to big world recognized companies are Wal-Mart, the Raymond, Motorola and Samsung companies. Family Governance Family operated businesses do better as long as the owner and founder of the business is involved in the running of the business as CEO or chairperson of the business. Value of the business is lost if the descendants of the founder of the business are in control of the business. The descendants tend to dilute the vision of the founder. Competition is the main contributing factor that makes family governance be defeated in a business. For example, the fourth generation of Ford, William Ford, who runs a manufacturer business, has faced stiff competition from Japanese rivals and has reported a drop in sales. The same case applies to Motorola wireless phone manufacturer. Family governed businesses usually deliver good sales growth and their rate of asset returns are high. The voting power may differ in different family governed businesses. In some businesses, the family members have the majority of voting powers keeping business in control of their hands. In such a scenario, the family members vote in favor of things that support the family business. In most family governed businesses, where the founder is either the CEO or the Chair, shareholders are catered for in the best way possible. Complications set in where the founder of the family business is the CEO or the Chairperson of the business. As the CEO, he has to show accountability in the outcome of the decisions that he makes that will affect the business. However, as the CEO or the chairperson, he feels that he has all the powers in making decisions that will control the business. It is not possible for other employees to influence the decision of the family business. In some cases, the business is faced with super voting powers from the family members. Hence, the family members influence the decisions made in the business by voting towards implementation of the decision that they desire. In this way, the family controls the business. Family governance is also faced with the problem of selecting a successor. There is a tendency of family members to expect a family member to succeed the outgoing CEO or chairperson. The situation may be very worse when all the siblings have expectations of inheriting the top positions of the business. There is always the tendency of leaving succession to the descendants of the family when the top leaders quit leadership. The family may govern in the family business for more than three or four generations, where each generation leaves leadership to the next generation. The issue of family governance may turn problematic where in drafting the constitution of the business; it will favor family members mostly. Family governance institutions and structures require a degree of formalization for them to function well. Wal-Mart applies family governance in its operation. The leadership is with respect to the family set up. Since its incorporation, it has been under the leadership of family members. Important decisions affecting the family business are solved within the family set up. Corporate Governance Corporate governance refers to structures, processes, laws and policies that govern a business. The main purpose of corporate governance is to enhance accountability, fairness, transparency, responsibility and disclosure, which are the central values of promoting success in a business. Family businesses with good corporate governance perform better compared to other businesses. Good corporate governance leads to reduced financing costs, better access to capital and builds strong investor confidence. Good corporate governance creates an organization, which is capable of spelling out the roles of each person in the business and the extent of bearing responsibility. It draws the distinction between management and ownership separating policy guidance from the daily running of the business. Although leadership is a problem to all family businesses, well-defined policies on selection of a successor are necessary. Corporate should be made part of the family business culture. Corporate governance is important in the running of the family business since it helps in solving conflicts that may exist in the running of the business. This helps the family members to end conflicts and focus on other important issues. Corporate governance assists the family business in ensuring fairness in making of decisions. In addition, it solves the problem of recruitment and giving promotions. It is capable of giving a clear guide for employing non-family members and family members in to the business, and how promotions should be carried out in the business. Wal-Mart has practiced corporate governance in providing job opportunities to the people of America. It has well set policies and standards guiding its functioning. Corporate governance in supporting the welfare of more than 1.3 million guides Wal-Mart. It has employed the corporate governance in its operation, which has led to great success due to accountability of the decisions made. The CEO does not work in a way that dissatisfies the employees and shareholders. Instead, the CEO is guided by rules that help him in the decision-making process. The Wal-Mart family works in respect to provisions guiding the business. Due to good corporate rules and policies, the shareholders of Wal-Mart feel confident in their investment. Success of Wal-Mart Wal-Mart has been successful due to the various success strategies that it uses. The following is an analysis of the success strategies that the family business uses. Cross-docking system This is a system whereby, warehouses are treated as stock coordination points as opposed to stock storage points. Wal-Mart uses this strategy where it delivers most of its goods using the system of cross docking. In order to make cross docking possible, Wal-Mart operates an individual satellite communications coordination, which sends POS data to its vendors permitting them to access sales at all its stores. Wal-Mart also has a dedicated number of trucks that help in replenishment of stock within twice a week. Through cross docking, Wal-Mart achieves economies of scale by buying full truckloads. It minimizes the need for holding safety stock decreasing cost of sales. Through decreased cost of sales, Wal-Mart is capable of making large profits. This has made Wal-Mart remain successful for a very long time. Low Pricing Due to its efficiencies in production, Wal-Mart is capable of offering its commodities at a low price. Its motto is to offer low price value to its commodities all the time. All its commodities are lowly priced in order to ensure, each individual; can be capable of accessing the goods that he needs. The low prices have attracted many customers. The increase in number of customers has enabled Wal-Mart to expand. Because of provision of goods at low prices, the customers prefer buying their goods at any Wal-Mart outlets. Offering of low prices by Wal-Mart is made possible by its increase in productivity as opposed to its competitors. Through increased productivity, it is capable of reducing cost of production, as opposed to its competitors; hence, it is capable of selling goods at a relatively lower price than its competitors sell. This has made Wal-Mart business become recognized worldwide and has led to its success. Increased productivity Wal-Mart has been able to produce more goods due to its efficiency in production. It has been using advanced technology in its production. It was one of the first businesses to use electronic scanners in capturing movement of an item to the point of sale. It encouraged the use of UPC, which increased production for retailers world wide through streamlining processing of orders and management of inventory. This assisted in the tracking of sales. This helped the business in increasing productivity. Use of electronic data interchange allowed transmission of invoices, purchases orders, and other electronic communications to the suppliers. This enabled Wal-Mart in responding to any shortages in inventory within the shortest time possible. It also ensured that there was efficiency in coordination with the supplies, which ensured enough and quick supply at all times. Productivity has also increased with private database. Wal-Mart, having the largest private satellite and database in the world, it is capable of linking every store with home office directly. This has sped up communications in its entire business, automating a big number of processes, which have made it possible to analyze its business and any data it requires at any time. This has helped the business to discover any fault in retail outlets, and solving any sale problem whenever it occurs. The business is moving from the use of bar codes to the use of RFID. This will help the business to increase its efficiency and thus its productivity. Communication Communication is important in any business since it enhances productivity and ensures efficiency in the production process through solving of a problem within a short period. The flow of information in Wal-Mart business is of the highest rank. There is effective communication between the retail outlets of the business and the main office. In case, there is any problem, the use of satellite system conveys the message instantly without wastage of time. Any sales data of a retail outlet can be accessed at any moment. This makes the business aware of any problems that occur, and where the problem has occurred. There is also efficient communication between the business and its suppliers. This makes the business avail all the inventories it requires at all time. This helps the business in maintaining its success. References Poza, E 2004, Does the Family Business Interaction Factor Represent a Resource or a Cost? 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