Management of a Family Business - Essay Example

Introduction The success of the any business organization is depended on many factors that have to be carefully integrated. Business managers have to keep analyzing the internal and external environment to ensure that any emerging issues are well taken into consideration to meet the expectations created. It is important that all the needed resources be kept in the business so that all the production of goods and services is done in the most effective and efficient manner. In many instances, employees have been described as the most important resources that any business can ever have (Dicken, 2011, p. 82). This idea stems from the fact that employees have the ability to develop and implement strategies that can be used to enhance the competitiveness of the business in the industry. Different businesses are started and managed by different people; for instance, the government can initiate business activities by investing in certain industries for the benefit of its citizens. On the other hand, people can join their resources and efforts and invest in different fields for different motives. In all these cases, the principles of effective business management are supposed to be selected and applied in the best way possible to achieve the best desired results. Dicken (2011) explains that businesses have to be managed under the highest levels of professional irrespective of whether they are being run by the government, an individual or family. However, in the recent past, there has been an increase in research on family businesses and how they can be managed in the most effective way. in the world. The family is simply a system that is made up a mutual relationship between people that are united by a common ancestry. There are different business units that have been started and run by businesses in different countries; while some have excellent success records, there are many others that have often failed. In this paper, I examine some of the essentials of managing family businesses, focusing on the research that was carried out by The Economist on how family businesses are striving to fit in the highly competitive business landscape. Family businesses A family business can be described as the kind of commercial organisations where the decision-making process is often influenced by several generations of a group of people that are united by marriage or blood (DeRond &Bouchikhi 2004, p. 61). In many instances, these people are often identified by the particular business through ownership or the process of leadership. It is important to realize that businesses that are characterized by an effective relationship between the owner and manager cannot fall into this category of businesses because of lack of the element of marriage or blood relationship. For this reason, family businesses are those that have a unique relationship of the leaders and managers of the particular business. In the recent, studies on the growth and operations of family-run businesses have been increasing; however, DeRond &Bouchikhi (2004), explains that this is not always easy as compared to those businesses that do not have such kinds of mutual relationships. According to Deresky (2006), one of the reasons that makes the study of these businesses something quite hard depends on the fact that these businesses do not always have proper standards of business management like other businesses. On many occasions, it is the high level of trust among the managers and other leaders that drives the growth and success of these businesses. These businesses tend to lack many of the requirements for effective financial reporting; additionally, very little information is often given to the public about these businesses regarding their financial performance as well as other important aspects (Deresky 2006, p. 95. Family businesses tend to have their ownership being distributed to people depending on the level of trust that is created in the particular business. This is always the case with structuring the business to meet its goals and objectives in the market. It is important to appreciate the facts that as businesses are turning to the global economic model of the 21st century and replacing the old industrial model. In this development, it has become evident that academicians, policy makers and economists are beginning to turn to entrepreneurial and different kinds of family businesses as important sources of employment and wealth creation. There are countries where family run businesses have become very successful than those not managed in this way. This has seen many of them get listing on the stock exchange of those countries. According to Carsrud (2012), a business is said to be family owned when it has a certain person is the shareholders that controls the decision-making process. The majority shareholder tends to have a large control of the company’s voting rights as compared to the rest of the shareholders in the company. In many family businesses, at least one member from the company’s management is always from the immediate family that owns the business (Carsrud, 2012, p. 134.). In this regard, it becomes clear that not all family businesses have family members as people that run the business. Faghfouri (2013), says that some families can establish businesses then give them to professional managers in those fields to manage them; however, in this perspective, they remains with the privilege of making important decisions regarding their effective management. In India, many of the large businesses in the country were once family businesses before they sold their major shareholders to other members of the public. Carsrud (2012), explains that having one or two members of the family can be an important step in managing family businesses because they tend to be loyal to the owner. Despite this understanding, researchers agree that having family members on the management board can present unique challenges to the growth and success of these businesses. This is because, the dynamics for effective business growth and success and family relationship tends to different considerably. Effective business management approaches require that there should be proper systems of accountability in the business, something that tend sot lack in family-run businesses because they are based on the element of trust. This trust can be betrayed because a particular manager may miss these management skills and experience and have trust, which may not be necessary for the success of these businesses. According to The Economist (2015), family businesses in the contemporary times are facing a different kind of competitive landscape that forces them to redefine their competitive strategies unless they die and be forgotten. The dynamism of the business environment has seen a high increase in technological advancements, which calls for recruitment of employees that have this knowledge and experience to run these businesses. In The Economist (2015) article, the author explains that the success of businesses should always be determined by the effectiveness and professionalism of its employees and not on other factors. In this regard, he explains that family businesses should develop effective standards of management that does not depend on the family relationship that exists among the members. Where it seems impossible to run the family as a family, then it is prudent to hire professionals in the field, who have the experience to run these businesses in the best way possible. The author says that the current developments in the global business environment have presented the logic of survival of the fittest, where all businesses are trying to establish competitive strategies that can outdo each other to obtain success. Part of the process of building this success is developing effective businesses models that can enable them to manage the increased level of competitiveness that has emerged in the business. Managing the family business in a more effective way According to The Economist (2015), the contemporary theory of the firm that applies in the business environment is that of the public company. This theory seems be finding a certain level obsession with various kinds of transaction costs. Although, it has remained blind to questions involving transmission of wealth to many generations that are coming up in future. However, according to Lee & Li (2009), large economies in the world seem to be dominated by businesses that are run and management by families. These businesses have become famous, having several ranges of companies that they control as opposed to specific firms. This development has seen an increase in employment opportunities as well as an improvement in technological innovations. The Economist (2015) states that the idea of emphasizing on public companies is a concept that has long been bypassed by time; there should be a shift in thinking so that lasting businesses can be developed and passed to future generations. Inasmuch as there are good examples of family businesses that have become highly successful in many countries, there are many that have been started but failed to go beyond their first anniversary. This is a common observation in many places; the solution to this problem can be developed by first developing a perfect understanding of the global business environment and the competitive nature of the business landscape. One of the problems affecting family businesses is that the interests of each of the family members can tend to lack an alignment to the goals of the business in question. People may have diverse objectives in life and in businesses, which may play a big role in the failure of the business to pick from its time of inception. A good example can happen in the case of a family member wanting to be the president of the business but lacks the competence and professionalism exhibited by another family member, the diverging interests may affect the success of the business and its profitability path. At the same time, there are instances where the interests of the particular family are inconsistent with those of the businesses, which is not healthy for the growth and success of the business. For instance, the family may be interested in spending more money on charity events in their CSR while the business may prefer using the same money to increase their competitiveness. In this regard, the differences in the goals can cause the business to lose the focus because of the inability to reach consensus on the best models of management and decision-making. Another line of challenge that can affect family businesses originates from the observation that the interests of a particular family member may differ with those of other members in the same business. For instance, one of the owners of the business may reach a point and decide to sell the business or part of it to venture into another business or other industry; at the same time, there can be another manager and owner of part of business in the same family with the intention of keeping the business. The result of such a conflict would be a sabotage of the strategies that are needed ensure the success of the business. Therefore, it is important that new models of managing family businesses be developed to save these businesses from collapse and enable them to be successful in their operations and functions. According to Faghfouri (2013), it is important to ensure that family businesses learn how to strike proper balance between the right business management standards, the relationship of their family and the aspect of ownership and wealth creation as presented in the model below. The three elements are essential for the success of the business, which means that competent management should not neglect each one of them. According to Leach & Pedder (2011), it is not always a good idea that differences in the management of family members cause a disunity among family members because their unity is important than the business. For this reason, where there possibilities of conflicts, it is always a good idea that owners get professionals to run their businesses. This development can let the entrepreneurs remain on the board of management but not in trhe active running of the business, which can be left in the hands of competent managers. Fig 1. The family business triangle (Leach & Pedder (2011) Family and interpersonal At the base of the triangle, there is the element of business and family systems that have to be created and nurtured in the best way possible. The base explores the diverse issues regarding the interpersonal relations that exist between members of the family and the business management team. According to Landes (2006), there are people that have the impression of the business as a place where products and services are manufactured and dispatched to users. While that is a clear picture from businesses, it is also important to realize that a business is a system that is made and managed by people. The people in the business are supposed to have proper communication, leadership as well as development and sustenance of their motivation. The people are supposed to learn how to handle success, manage through failure and other hardships as well as tackle the daily challenges that keep emerging in the business. In this regard, there is always the need to have effective management strategies that ensures the employees in the business are appreciated on the efforts that they put in the business for its success. As Bartlett & Ghoshal (2004), puts it, the skill of managing many of the “soft” issues that keep emerging in the business is a matter that is often very delicate, requiring effective management. Management and operations The second aspect of the business relates to management and operations that are in the business. The operations and management of family businesses tends to have various chains and levels of authority that have to be controlled in the best way possible. These different levels of authority tend to have responsibilities and roles that are clearly defined (Faghfouri 2013, p. 47). It is important that managers in these roles ensure that they establish effective management standards that can always be evaluated and audited. The management process should put in place proper systems that can ensure the businesses establish better systems of production and supply of those products. At the same time, just as other businesses, there is need to establish effective and efficient systems of customer service as well as the use of information technologies. In the business’ expansion systems, the human resource functions should always ensure that systems like talent management are well developed and implemented to ensure that businesses have lasting expansion strategies (Leach & Pedder 2011, p. 102). Successful businesses in modern times are those that have employees that can develop and implement lasting strategies for the business. In this regard, family businesses should ensure that they get managers that can help them achieve this important objective. According to Gereffi. Humphrey & Sturgeon (2005), talent management ensures that businesses identify people that have the key skills that are needed to establish competitive advantages for their businesses. This includes having recruitment strategies and mechanisms that can attract those competent employees; in addition, there is always the need to establish effective strategies for those employees coming on board. Development of effective strategies to enhance the efficiency of the business requires a better understanding of technological innovations, which are essential for the success of this process. If the managers of the family do not have the ability to create these management approaches, then it is important they get people that can help the business achieve this goal (Faghfouri 2013, p. 95). The third aspect of the triangle concerns the ownership and wealth dimension of the business (Faghfouri 2013, p. 52). Here, money and power are the central points of consideration for these businesses. According to Greenwood, Suddaby & Hinings (2002), the manager and owner of family businesses is always the same person. However, as the businesses grow and pass to other generations, this important function starts to change with other people coming board. It is important o realise that as the business expands, the chances of breaking up because conflicts become big from persistent disagreements. At this stage, it is always important that the owners develop proper management roles for the incoming managers as the business expands. The owners may decide to reserve the decision-making process in their power because of the need to keep in control of the business. The managers in the business are supposed to have clearly defined roles and responsibilities so that the business can remain functional throughout the change in management across generations. The responsibilities being given should ensure that they make a clear distinction between management and family responsibilities. Having a clear separation between business and family responsibilities ensures that family businesses reduce chances of disagreement on crucial matters of decision-making (Grey, 1999, p. 561). On many occasions, family businesses get caught up in unending tassels about distribution of their wealth and planning. This development leads to “bad blood” among the managers, who belong to the same family. There are cases where family members have involved in court cases concerning management and ownership of family businesses. This development is not always desirable because it leads to the collapse of once lucrative businesses (Hauswald, 2013, p. 84.). Most of these families end up avoiding payment of tax, which is an important aspect of effective business management. Therefore, it is important to ensure that effective management systems are establish to make the businesses successful in their operations (Miller & Miller, 2005, p. 63). According to Meyer & Ashleigh (2007), family businesses should always bring on board shareholders that are not members of the nuclear or extended family. Having varied shareholders is important because it brings varied ideas that can be implemented to ensure that these businesses are successful in their operations. The business owners should ensure that they rely on the strengths and capabilities of their family members in running the business. At all times, business interests should always supersede those of the members if that is the goal of the business (Holden 2002, p. 86). Inasmuch as there are some family businesses that have failed in the past, there are several examples of those that have been successful in their operations; something that should encourage the owners at all times (Miller & Miller, 2005, p. 98). An understanding of the family business triangle is important for managers of these businesses. According to The economist (2015), the business environment has become an environment for survival of the fittest; in this regard, businesses can develop effective competitive strategies can always succeed. Conclusion In conclusion, it is important to note that in contemporary times, businesses are looking for strategies that they can use in developing their competitive advantages. Research studies have indicated that the different problems that face family businesses can be managed in the best way when their respective owners can put the interests of the business beyond their personal terms. It is important that business owners learn to separate their personal affairs with those of the business. When the businesses begin to grow and expand, business managers should learn to work with other members by having an understanding of their members so that they can rely on their strengths to enhance the success of their businesses. The success of these businesses in the future should consider the generational differences that exist among the managers that keep joining the business. Models like the family business triangle should always be used where they serve to provide effective competitive strategies for businesses. It is worth noting that at all times; personal time and business time should always be carefully separated because the owners can end up using the business time to undertake their different activities, thus affecting the success and profitability of the business. In general, when the business mixes personal and business terms, chances of failure increases; for this reason, business managers should get professionals on board to manage their businesses. Just like other businesses, the globalization trend should be properly understood so that businesses can be effective in their growth and expansion. Bibliography Carsrud, A. 2012. 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