8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 1/23
FAMILY BUSINESS
MANAGEMENT
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 2/23
Definition of Family Business:
A family business refers to a company where the
voting major ity i s in the hand s of the cont r olling
family ; including the f ound er(s) who int end topass the business on to thei r d esc endant s
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 3/23
What is a Family Business
� High percentage of share capital owned by a f amilyeither jointly or individually.
� Familymembers employed in the highest decision
making posts� Expression of intention to maintain f amily
involvement in the future.
� A number of generations of the same f amily involved
in management or ownership� Direct descendants of the founders havemanagement or ownership control
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 4/23
Features of f amily businesses
� There is of ten a convergence of ownership
and management roles
� Identified ownership� Family culture and values define business
culture and value
� Top position for
the f am
ilym
em
ber� No chance of retirement
� Family name is corporate identity (Michel dell)
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 5/23
� Family owners are long term share holders
� Here relationship are more important
� Family members play many roles here (as
relatives, co-owners, and business colleagues)
� Family firms are closer to community
� Emotions affect decision making
� Tradition is protected and preserved
� Family firms tend to be secretive
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 6/23
Importance
� It provide competition in market.
� It also provide magic of ownership.
� They fuel innovation� Family business provide customized service
� They are the prime source of employment for
f amily� They preserve the community culture
� They helps in retaining tradition and rituals.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 7/23
� They are the training centers for future
entrepreneurs
� They are the promoters of many philanthropic
Entrepreneurship© Oxford University Press2008All rights reserved
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 8/23
Advantages of a Family Biz
� There is a long term orientation as the continuity of the firm isof great concern to the older generations.
� The f amily culture is a source of great pride for f amily andnon-f amily employees alike.
� The f amily firm functions in a less bureaucratic manner and it is not impersonal in dealing with employees and customers.
� Family firms have shown greater willingness to weather thebad times by ploughing back profits.
� It is structured to impart training to younger members of thef amily.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 9/23
Advantages of Family Businesses
� Commitment
� Knowledge
� Flexibility in time, work and money� Long range thinking
� A stable culture
� Speedy decision making
� Reliability and pride.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 10/23
Disadvantages of Family Business
� Family businesses are prone to some serious
and endemic disadvantages. Many of the
problems hinge on the inherent conflicts that
can arise between f amily and business values.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 11/23
Disadvantages of Family Business Cont.
Disadvantages could be summarised as follows:
� Rigidity
� Business Challenges - Modernising outdated skills
- Managing transition
- Raising capital
� Emotional issues
� Leadership and legitimacy
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 12/23
The Three Circle Model of Family Business
2
Ownership
5
3
Business
1
Family
4
7
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 13/23
Disadvantages
� Theymay have a confusing structure where the roleof many f amilymembers is not clearly defined.
� The style of functioning may be autocratic .
� Ma
ny of th
e younger generat
ionma
y not
be worth
yof their position and role in the organization
� There can be very strenuous succession battles
� Sometimes f amily members can selfishly drain thefinances from the company.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 14/23
Roles of the Founder
� Starting the business
� Building the organization
� Providing guidance and direction toemployees and f amily members
� Constructively involving f amily members in
business� Planning for succession
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 15/23
The Next Generation
� They know the business well. Ideally, they like or even lovethe nature of the business
� They know themselves and their strengths and weaknesses
� They have had the necessary outside experience andeducation
� They want to lead and serve
� They are guided responsibly by the previous generation,advisors and the board
� They have good interpersonal relationships particularly with other f amily members in business
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 16/23
The Next Generation
� They can count on competent non-f amilymanagersto complement their own skills
� They have controlling ownership either directly orthrough allies
� They have earned the respect of employees,suppliers, customers and other f amilymembers
� Their skills and abilities fit the strategic needs of thecompany
� They respect the past and focus their energies andresources on the future of the business and thef amily
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 17/23
Stepping Up
� A new entrant should have a track record that gives legitimacy to his ideas and his claims.
� It pays to consult the older generation while
making the plan.
� Suggest a step by step approach.
� If the plan is still not acceptable, accept that
theremay be something wrong with the plan.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 18/23
Retaining Non-f amily Managers
� Discuss career paths in the company and clearly stateif top positions are not open for them.
� Offer compensation and benefits that are at par with the others in the industry.
� Involve non-f amilymanagers in top level decisionmaking by getting them to be part of decision makingteams with other owner-managers.
� Set targets and use performancemeasures to build
motivation. Achievement of targets providessignificant motivation.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 19/23
Retaining Non-f amily Managers
� Emphasise the contribution of non-f amily managers incompanymeetings.
� Treat f amily members like employees at work. It helps build a healthy atmosphere.
� Involve non-f amily managers in succession planning.
� Some senior non-f amily managers can be used as bridgeheads to smoothen the succession from one generation toanother.
� Periodically assess the motivation level of non-f amilymanagers and the working relationship between f amilymembers and non-f amily managers.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 20/23
Succession Planning
� Choose a successor
� Grooming the successor
� Planning
� Early entry
� Late entry
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 21/23
Advantages of Early Entry
� The successor becomes f amiliar with the nature of the business
� Gets a chance to develop relationships with other
employees� Gets to know other business associates
� Skills specifically required for the business can beacquired and developed
� Good performance during employment will lead tocredibility with employees and other stakeholders
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 22/23
Advantages of Late Entry
� Success outside the firm establishes credibility
� Best practices from other firms are brought
intoth
e f am
ily business� Business perspective of the successor is broad
� The successors competence is judged with
great
er objectivity.
8/7/2019 Chapter 04_Family Business
http://slidepdf.com/reader/full/chapter-04family-business 23/23
Best Practices in Family Biz
� Communication
� Independence
� Shared Vision� Documentation
� Conflict resolution
Top Related