Family Business Success - Essay Example

and Section # of Issues in Family Business What is a family business? There are numerous definitions of a family business. The most common ones are “businesses in which two or more extended family members influence the business through the exercise of kinship ties, management roles and ownership rights” and “a business which the owner intends to pass to a family heir” (Vinton). Now the success of such businesses cannot be measured using the same conventional factors by which we measure success of non family businesses. Before we determine the success of a family business it is essential to know what differences make a family business unique and hence require assessment using unique factors. A family business is different from a traditional business because the business stakeholders are related to each other unlike the conventional business where stakeholders are individuals and not related by blood. Secondly, in a family business there are three primary roles and they are family, ownership and business. The family means relationships, i.e. mom, dad, son etc, ownership means who owns the business (who are the primary stockholders) and business means people who work at the business. Since, the business is tied together with more than just professional attitudes the day to day functioning of the business is not as easy as it seems. Conflicts occur more in family businesses as compared to the traditional business and these conflicts are extremely hard to resolve especially if there are close blood relations (Family Business Conflict Resolution). With emotions playing a vital role in decision making, not everything is simple as it may seem. While traditional business success can be judged by a lot factors which include use of technology, level and capability of resources, growth opportunities, using electronic commerce for business, customer satisfaction, customer retention and the company’s market share (Top 7 critical Business Success Factors 2000). Family business can only be judged using special factors that take into consideration the dynamics of the family business. Factors used to access success of a family business Work Boundaries One of the most important factors in accessing the success of a family business is to determine whether work boundaries are specified or not. For the smooth running of a business it is necessary that the roles of individuals are well defined and communicated (Essentials for Family Business Success). In a family business it is easy that roles may often be neglected or might not even be defined. In such situations a single person gets overburdened with work while the others simply remain absent from work. Additionally, when a business runs in the family people tend to talk about business every now and then and in all sorts of places. This should be avoided and business talk should be restricted to the business domain and not family gatherings. It differs from the factors used to assess non family business because in a non family business people are hired according to their capabilities and their experience in a particular field of work. Therefore, individuals are hired for specific jobs and have a specific work domain. In a non family business one employee from a department need not necessarily know what is going on in the other department. On the contrary, in a family business, the business is viewed as a whole and people will tend to look into domains other than their own line of work. Relationships Relationships are extremely important for a family business. And the success of most family business depends upon the relationships that occur within the business. Most businesses can survive in intense competition, economic cycles, changes in technology etc but the deterioration of interpersonal relationships will not only destroy the business but will also create rifts in the family (Relationships are KEY to family business success). Therefore, managing relationships is a key factor in the success of family businesses. Relationships can be managed efficiently by taking care of the following factors. Communication Effective communication in between the family members is a metric to judge the success of a family business. Open and honest communication leads to a good understanding in between members and also enables accurate and timely exchange of critical information (Relationships are KEY to family business success). Business members must be willing to address controversial or critical issues. They should also try to resolve problems before they become severe and cause rifts in the relationships. Additionally, people should voice their disagreements in a manner which does not offend the other member but it should project one’s opinion fully. Expectations and accountability In a family business there are built in expectations from certain individuals while the other are left on their own. Hence, the entire business process concentrates in a single or few hands rather than division of responsibilities and assigning roles to individuals. Similarly, there is no sense of accountability in family businesses. People should be accountable for the work they perform and their rewards should be linked to their individual success. These metrics for success differ from the conventional metrics because in a non family business the relationships are professional instead of personal. In a non family business an individual can get away with criticism and disagreement on a certain issue. While in a family business this may damage personal relationships. Similarly, in a non family business there are official and unofficial communication channels while in most family businesses there are only unofficial communication channels. Hence, people cannot be held accountable for their actions. Treat it venture as a business What most family businesses fail to do is to treat the venture as a business and keep it separate from personal and family relationships. Successful execution of a healthy business may not always be compatible with family harmony. Therefore, individuals must be ready and draw a concrete line in between personal relationships and the functions of the business (12 Keys to family business success). But this does not mean that one treats the family members improperly. All members should be treated fairly and honestly. While some experts think that hiring family members to run a business is the worst mistake possible other believe that it is the core essence of running a family business. There are numerous examples where companies have prospered due to the endless work of family members. It is only possible if people running the business avoid favoritism, pay individuals on merit and job responsibilities and invite criticism from family and non family employees equally. It is also important not to give sympathy jobs to members of the family. It causes increased burden on the business with no or minimal productive output. Conventional businesses differ from family business in this aspect because in traditional business domains people are only hired if they perform and success of the firm is dependant upon the productivity of its employees. A conventional business never carries extra load, in terms of people who are paid and do not contribute to the business. They keep business separate from personal lives and manage their roles professionally rather than being driven my emotions or sympathy. Written contracts Another factor to measure success of a family business is the presence of formal written contracts for day to day operations of the business. Most family businesses fail to recognize contracts as an important ingredient of doing business and hence suffer from mismanagement. Mismanagement could be in the form of fights or quarrels over pay scales, compensations, bonuses, number of leaves from work and daily office timings. Not paying heed to such small problems can cause long term conflicts. Compared to the family businesses almost all non family businesses value contracts and make their employees sign written contracts before they join the organization. This helps in putting up effective control measures and communicating pay scales and other benefits clearly. Contracts also offer legal protection to companies in cases of breaches of contracts by employees and while they also offer legal protection to employees (The Importance of Contracts in Your Family Business). Succession plan A succession plan is necessary in order to judge the future success of a family business (Prepare Family Members for Business Succession). A family business without a formal succession plan is bound to face problems in the long run. Succession of the family business is one of the major contributors to fights in between family members. Everyone wants a stake in a business that is thriving and since most of the workforce is related to each other and to the owners’ people tend to take ownership for granted. In the absence of a succession plan, the business suffers because of the rifts in between family members for ownership of the business. But if a formal succession plan is made trouble can be avoided easily and the succession goes through a smooth transition. Usually the successors to a family business are the next of kin but sometimes other family members may have excessive exceptions. A succession plan should lay down the details of how and when the ownership will be passed to the younger generation. It also needs to lay down the financial aspects taking into consideration retirement and other factors. Non family businesses are not run by a group of people who are related and therefore there is no need for a succession plan and the transfer of ownership to the younger generation. Instead such businesses have a standard policy of electing the new head of the institution. My family business My family business is related to construction and our company is responsible for constructing commercial office use buildings as well as small residential units. The company has been there since the past three decades and was started by my father after he finished his formal education. Mapping the company onto the success factors Work boundaries Since my father formed our business, work has been divided amongst the family members based on their capability. Individuals are assigned specific function areas of the business and the roles and responsibilities are defined. For example, my father owns the business but the chief engineer is my eldest cousin, who is responsible for designing and looking after the engineering works. My uncle is responsible for the procurement of raw materials and dealing with suppliers while his youngest son is responsible for the accounts. We also have non family employees like construction workers, staff for operating the heavy machinery, office clerks, store and inventory manager etc. These people are paid according to a stipulated pay scale which is based on their skill level. Since the roles of individuals are defined it becomes easier for the owner to control and manage the overall business. Specific people can be held accountable for specific things and hence business functions smoothly without putting excessive burden on an individual to do excessive work. Relationships To manage relationships in a family business is the trickiest part of management that a business owner faces. In a family business where blood relations are present it is exceedingly difficult to satisfy all the stakeholders while running the business effectively. My father ensures that his family relationships are not harmed because of the nature of his business and he also ensures that no loss occurs to the business because of relationships at the workplace. In order to achieve his goals he has always relied on honest and thorough communication in between the stakeholders and the family members. All tasks are communicated to the respective people before hand and notes are made of what responsibility is designated to each employee. Criticism and suggestions are always welcome if they have the welfare of the business at heart. Most often such suggestions are incorporated in to the business function areas. Since, my father has maintained a crucial balance in between the business activities and his personal relations our business has not run into major setbacks. Expectations and accountability As mentioned earlier the efficient distribution of work amongst the employees has increased the accountability. While expectations from the business exist like they do in any other family business. Most of our family members tend to expect greater results than what they input in to the business. This is because of the fact that they tend to think of the business as their own and want to reap the maximum benefits from it. It is dangerous for a business but people need to be told in a polite manner that their expectations should be based on the inputs they provide to the business. Treating the venture as a business The venture is treated as a business and is managed professionally by giving family and non family employees equal benefits. Family members are only hired if they have the required knowledge and the skill set to perform the tasks associated with a certain job. Pay scales, fringe benefits, designated holidays, medical insurance etc are all laid down in writing and communicated to the employees so that they know exactly what they are getting from the firm. My family tires to run the business professionally but there are still instances where a family member is hired temporarily due to sympathy or to support deserving family members. This does increase the load on the business but is done to ensure that family relationships are not harmed. Written Contracts Our firm uses written contracts for hiring employees and the role of each employee is documented using a formal document. Similarly, the pay scale and benefits are also written on the employee contracts. Other legal or binding clauses are also stated that prevent employees from transferring critical information outside of the business. Succession plan Our business has a formal succession plan that deals with the issues of succession. The plan is to be carried out in case my father retires or dies. The plan nominates me and my uncle as the owners of the business while the responsibilities of management are given to my uncle. The decision making process will involve the suggestions of my uncle and myself. If there is a contention in between me and my uncle I will be able to overrule it as I will be given a majority share in the business. Conclusion Family business and non family businesses cannot be measured using the same yardstick. There needs to be different mechanisms and different factors to access the success of a family business and a non family business. Success factors in a family business are related to the well being of relationships in between family members as well as the efficient functioning of the business. In order to ensure the success of a family business, businessmen need to bring a professional attitude in maintain their family businesses. They must be willing to draw a concrete line in between personal relations and the business. Works Cited 12 Keys to family business success. (n.d.). Retrieved December 03, 2009, from http://www.startupnation.com/articles/1109/1/AT_12-Keys-to-Family-Startup-Success.asp Essentials for Family Business Success. (n.d.). Retrieved December 03, 2009, from Business.com: http://www.business.com/directory/advice/management-and-strategy/special-interest/essentials-for-family-business-success/ Family Business Conflict Resolution. (n.d.). Retrieved December 03, 2009, from hublerfamilybusiness: http://www.hublerfamilybusiness.com/Conflict-resolution/Family-Business-Conflict.asp Prepare Family Members for Business Succession. (n.d.). Retrieved December 03, 2009, from Allbusiness: http://www.allbusiness.com/buying-exiting-businesses/exiting-a-business/2975515-1.html%20 Relationships are KEY to family business success. (n.d.). Retrieved December 03, 2009, from familybusinessstrategies: http://www.familybusinessstrategies.com/articles03/493r.html The Importance of Contracts in Your Family Business. (n.d.). Retrieved December 03, 2009, from wahm: http://www.wahm.com/articles/the-importance-of-contracts-in-your-family-business.html Top 7 critical Business Success Factors 2000. (n.d.). Retrieved December 03, 2009, from top7business: http://top7business.com/?id=127 Vinton, K. (n.d.). Keeping the Family Business Healthy: Four Keys to Success. Retrieved December 02, 2009, from FamBiz: http://www.fambiz.com/Orgs/montana/keeping.cfm Read More