Breaking Barriers in Family Owned Firms Writing Assignment (Term Paper Sample)

Breaking Barriers in Family Owned Firms
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Family owned entrepreneurial ventures have claimed a distinctive position within the world economy as tools for creation and accumulation of wealth to enhance the livelihood of generations. While some make headlines as epitomes of success, others struggle to survive brutal competition and conflicts thereby leading to a short lifespan that barely goes beyond a generation. The losses that follow such a failure are immense, but with increases entrepreneurial knowledge and other available resources, family owned businesses do not have to fail, ultimately. The author of this essay seeks to trace the boundary between family as a resource and as a liability in these family-owned organizations. The study does not stop there. Also presented herein is a critical discussion and illustration of strategies and management approaches family firms can use in leveraging their distinctive strengths while overcoming underlying weaknesses to enhance competitive edge. Thus, a family owned business cannot be sustained through a limited perspective of creating wealth in the present; it requires a comprehensive approach seeking to maintain wealth creation as the business environment changes.
Family as a Resource or a Liability
Family businesses are ubiquitous locally and internationally, but they are inherently different. Some have been limited to local outlook while others defy boundaries of a nation to spread their tentacles to others countries – huge multinationals such as Mahindra & Mahindra. As diverse as these family firms may appear to be, one aspect unites them all: the businesses are founded on a complex web demarcated by two social institutions in both extremes: family and business. The institutions are qualitatively unique regarding guiding values, norms, and principles that rule in each segment. It is in these parallel sources of rules of conduct that a contrast lies between benefits and disadvantages a family owned firm can derive from the institution of the family.
Family owned businesses have won the preference of many people because of the cost benefits it can provide. Compared to typical workers, family members working in their businesses can provide the needed labour at lower costs and even contribute their finances toward the company in tough times. Family understands what it means to their future generations if their initiative survives. As such, they can offer capital, or accept lower pay to help their business to withstand economic downturns.
Trust is a powerful ingredient in the successful running of the business. Families uniquely present an in-built trust factor that has been strengthened by decades of shared views, values, and emotional bond (Heck 2004). Given the sensitive nature of family owned businesses trust is especially needed for the successful management because it is a significant determinant of the fate of the enterprise (Neff, 2015). Family, in this case, can benefit the family owned business by inculcating trust. Primarily, this trust is not limited to individuals within the family cycles as even externally sourced employees as enmeshed as extended family. This, as scholars have demonstrated, enhances employee engagement thereby reducing the rate of turnover. The long-run effect of retaining talented workforce includes the profitable functioning of the family business (Farrington et al. 2014).
Family can be an enormous liability in family owned enterprises. Studies characterise the families as the scourge of incessant wangles in such type of organisations. Deep-seated bitter fights and quarrels have made history as reasons behind the devastating ending that split India’s petrochemical manufacturing giant, Reliance Industries, in 2005 that led to what Ramachandran (2006) calls “amoebic” split. The difficulty in resolving conflicts where family members are involved can sometimes lead to a worse ending where the business collapses altogether.
It is pertinent to mention that trust does not mean that a family owned business has overcome some problems emanating from the family members. Determining who works in the company is often a challenge, and even a tougher one it comes to addressing succession issues. Deciding who should assume a leadership position, and how to share the business’ proceeds remains a sensitive issue in family run businesses. Ramachandran (2006) explains that companies often present complex but crucial issues that require quick and efficient decision making, a cause that suffers because of emotions that obscure critical reasoning. For instance, a cousin may vow not to let go of a business unit that is poorly performing because it is his favourite.
The stability of family owned business has many managerial benefits. On average, a publicly run company’s CEO has a short tenure that is less than a decade long. On the other hand, the leadership tenure of a family owned business stretches to two or more decades; in some instances, only life events like illness, retirement, or death relieves them of their inherited duties. The longevity in leadership tenures, although requiring more theoretical and empirical proof, has a positive connection with stability and continuity in the firm (Tàpies & Fernández 2012). Nevertheless, Stalk and Foley (2012) cautioned that such prolonged leadership tenure could be a recipe for inertia and most prominent barrier to initiating “changes in technology, business models, and organisational structure” (p. 1). How does this affect the business?
Responsiveness to change is one of the critical factors for continued survival of businesses, both public and privately owned. Technological advancements and the overall change in the business landscape slams businesses with more brutal competition than ever before. Successful companies have earned a reputation for anticipating change and flexibly responding to them; those who have failed to keep up have either collapse, acquired, or are doing quite poorly. A leadership that is characterised by conservative thinkers may stick to old modus operandi that costs the family business its future.
Commitment is yet another factor that differentiates a successful business from the rest. In a family owned firm, commitment and accountability are built through consciousness of the needs of the family at stake. As Kotlar and De Massis (2013) observed, in family owned firms wherein critical positions are manned by family members themselves, unparalleled levels of commitment are observable – the kind that is unattainable in non-family owned businesses. The benefits of a high level of commitment are abundant. One such advantage is stronger customer relations. Research evidence shows that customers are the boss; an organisation that actively bonds with its clientele through superior service delivery has high chances of surviving even turbulent markets (Kim & Mauborgne 2014). A family owned business that leverages the passion family members have for the organisation can thus strengthen its brand.
Commitment equally predicates a nuanced understanding of the industry, as well as the business and the job. One of the fears associated with external sourcing is that an employee may seem a perfect fit, but fail to understand the intricacies the industry embodies and, in many cases, fail to fit into the organisational culture. Hoshi Ryokan, a hospitality business located in Japan, is said to have been operational for 46 generations because of the unmatched level of family commitment that has sparked a deep understanding of the firm (South China Morning Post 2014). From this analogy, it can be deduced that family can be instrumental in inspiring the necessary level of commitment that will promote gaining and passing of critical information about the company and the market from one generation to another thereby perpetuating longevity.
Strategies and Management Approaches for Building Family Owned Competitive Advantage
As identified earlier, succession issues present a significant challenge for family owned firms. The first step to ensuring that a company can effectively compete is to draft clear policies that govern the transfer of power and sharing of resources among members. To minimise conflicting personal wants and needs and focus on the success of the organisation, Moitoza (n.d.) proposed a multidimensional strategic succession model consisting of five main areas: Business Succession, CEO/Owner Succession, Management Succession, Ownership Succession, and Estate Succession. Each section translates to a bunch of questions that must be answered accurately before moving to the next. Upon highlighting areas on contentions, such as succession, the business can leverage the power of commitment and trust to create a family constitution and procedure that will guide decisions on who leads the organisation.
Stalk and Foley (2012) identified one pitfall into which family run businesses often fall: Leaders emphasising the importance of their children joining the organisation. It is not automatic that if one owns a school then all his children must be teachers in that institution. The logic behind this assertion is that people have unique interests and career dreams that may veer immensely from the specialisation that the family business requires. Compelling a family member to join the company by virtue of bloodline can impose an incompetent or uninterested leader on the firm, which increases chances of business failure. Even when this is not the case, family members tend to pursue skills in fields that their parents are, to help them assume their positions when the time comes. This leads to lack of diversity in skills that new business environments require.
Still, a family business is perfectly situated to groom the best talent...