Essay On Successful Family Businesses: Thematic Analysis.

In this course, students are provided with an overview of the variety of topics and subjects that fit within the field of organization design. For this assignment, students are given the opportunity to choose, research, and write about a topic of personal and professional interest that fits within the larger heading of Organization Design at a much deeper level. Students are also asked to use their critical and creative thinking skills in applying their new found knowledge to the business environment/global business environment in general and to an actual situation that currently affects/has affected their place of business.

Literature Review

Family owned businesses are business organisations where the decision making activities are influenced by multiple generations of family members, having the power to determine as well as influence the mission and vision of the firm. Chienwittayakun and Mankin (2015) defines family owned business as commercial organisations which involves leadership of the members of families created both through blood relations as well as legal procedures like marriages and adoption. Roth, Tissot and Gonçalves (2017) point out that family owned businesses are one of the most common forms of business. The sizes of family owned businesses can vary from small sole proprietorship firms to global business conglomerates listed on some of the top exchanges around the world. This fact can be justified by the fact that some of largest business conglomerates like Samsung are family owned business (Samsung.com, 2018). The creation of a successful family owned business is dependent on several factors like financial strength of the family members, knowledge about market and degree of family support. Ward (2016) opines that family owned businesses though prevalent in the development as well as emerging markets and play important roles in economic development and creation of employment opportunities, their legitimate importance is often undermined due to the fact that family owned business often suffer from poor financial reporting. It can also be pointed out that they are often subject to legal supervision compared to partners and limited companies. This often gives the owners to the liberty of not revealing financial facts before stakeholders. However, it can be pointed out that this fact does not always true since some of the world’s largest business companies are listed companies. Their shareholders are jointly held by the family members as well investors. The success of these family owned international companies can be attributed to a considerable extent to this mode of ownership partly by family members and party by investors (Businessinsider.in. 2018). The aim of the paper would be exploring creation of successful family business. As already clear from the discussion that the scope of the topic is vast taking business of varying sizes right from sole proprietor shops to business conglomerates. The area already boasts a rich body of knowledge by various authors. The research method would secondary research based on articles, books and newspapers.

The literature review section would be a thematic analysis of different aspects which contribute towards creation successful family businesses.

Entrepreneurship theory lies at the very crux of creation of successful family businesses. Carr and Hmieleski (2015) defines entrepreneurship as the process of designing, starting and operating a new business firm. The entrepreneurial business firms initially enter the market as sole proprietorship. Lisi (2018) points out that at the initial stages, family businesses take sole proprietorship formats since the format suffices their limited market presence. The sole proprietorship businesses usually at initial stages have minimum resources to offer goods or services to customers. Slemrod et al. (2015) point out that at the initial stages entrepreneurial family businesses have small customer base owing to their minimum production capacity. The ownership rests with the founder of the business at the initial stages. Xi et al. (2015) point out that as the family business enters second generation, the decision making consultative owing to involvement of children in the decision making process. The decision making process at this stage shifts from consultative to consensual as the decision making board expands. The participants of the family business take part in the decision making by casting vote. Thus, it can be inferred that though creation of family business is simple, it is extremely complex in reality. It can further be pointed out that the decision making process of the family business become increasingly complex as the businesses pass from one generation to the next.

Entrepreneurship theory and creation of family businesses

Risk is an inevitable part of business activities especially with family businesses having minimum resources to manage risks. Miller, Steier and Le Breton–Miller (2016) point out that family business, especially the sole proprietorship business face more risks compared to established family businesses following public limited company format. Steier, Chrisman and Chua (2015) opine that risks refer to the opportunities of earning insufficient or lower returns from business operations. The family businesses following sole proprietorship formats have limited financial resources mostly consisting of capital investments by the entrepreneur. De Massis et al. (2016) point out that banks and financial institutions lend limited financial assistance owing to their limited revenue generation capabilities and limited ability to pay back the principle amount borrowed as well as interests. It can be pointed out that this limited availability of financial resources impedes family owned entrepreneurial business from acquiring material resources as well as human resources. Frank et al. (2017) point out that the sole proprietorship family businesses owing to their limited market presence can give limited scope for their employees to achieve professional development. This shortcoming repels personnel with experiences of working with large family owned businesses. Tung (2016) supports the opinion of the previous authors and further point out that small scale family owned firms due to their limited ability to offer career growth opportunities to employees are usually not able to retain employees for longer span of time. This low retention of employees and loss of talents creates human resources risks to these businesses. Cooke, Wood and Horwitz (2015) do not fully agree with the opinion of Tung (2016) but do not contravene either. They shed light on the second type of family businesses which consist of multinational business conglomerates.  They point out in comparison to smaller family owned business, large publicly owned multinational family businesses do not suffer scarcity of financial resources or human resources. Moreover, the new business ventures inherit the competitive advantages of the mother company like supply chains and capital resources. However, the large multinational family business houses have to comply with immense amount of laws and policies both in their home as well as host countries. This creates legal risks for the large multinational family business conglomerates. Friedman, HusVar and Friedman (2017) strengthens this opinion by highlighting that the scarcity of financial resources leads acquisition of lower amount of raw materials to manufacture goods. Wilhelm et al. (2016) point out that the supply chains are largely under the control of the established firms including family owned business conglomerates. Thus, it can be inferred from this discussion that small family businesses have to acquire materials at higher costs from supply chains. Moreover, the suppliers of high quality raw materials work collaboratively with established businesses and are under contracts to supply specific raw materials. Venkatesh, Rathi and Patwa (2015) point out that that this control over supply chains which established firms exercise over supply chains create supply chain risks for small family owned businesses, specially the small businesses. The inability to procure raw materials in bulks for the production of goods and services increases the cost of production of the small family owned businesses. This forces them to fix high price for their goods, thus losing their customers to their larger counterparts which are able to sell products at lower prices. This competition from larger firms manufacturing similar goods lowers the customer base of the smaller family owned businesses, thus, creating revenue risk to the latter. Johnson (2017)   on the other hand point out that larger firms today also increasingly coming under the threats from smaller family owned businesses. This is because their operations are dependent on the capital generation from the market. Any unexpected change in the market conditions like government decisions is capable of causing their share prices and consequent capital to fall. This risk of capital generation does not apply to the smaller firms to the same extent. Thus, it can be inferred from the discussion that risks are indispensable to creation of successful family businesses irrespective of sizes.  

Risk-taking

A very important aspect of consideration while forming success family businesses both on small scale as well as large scale is legal compliance. Tissot and Gonçalves (2017) can be reiterated in this matter that family businesses in both small and large forms generate employment and revenue generation. This role of family business in further stressed by the Organisation for Economic Cooperation and Development or OECD in its report titled ‘Regulatory Reform For Smaller Firms’ (Oecd.org, 2018). The OECD mentions that small and medium scale businesses mostly run by families play immense role in development of countries like the USA and Japan. The report again goes on to mention that family owned businesses face immense impediment due to stringent, complex and expensive legal compliance. However several national and international bodies are taking steps to lower the legal burden on the small scale family owned SMEs. For example, the European Commission in order to protect the family owned businesses from data thefts, has very strict data protection law. The EC on the other hand has made the taxation policy simpler for easy compliance by family owned small scale businesses. The EC has enacted Small Business Act to oversee the operations and ensure governance systems of family owned SMEs (Ec.europa.eu, 2018). These initiatives are directed towards attributing the family owned businesses success.             

Human resource management is a very import aspect of creation of a successful family owned businesses. Albrecht et al. (2015) define human resource management as the process of management of human resources so to align them with the business needs of the business organisations employing them. Nankervis et al. (2016) point out in this respect that human resources play very important roles in creation of successful family businesses. This is because employees come into play while carrying out business strategies formed by the family members owning the respective businesses. Lim (2017) point out a salient feature of human resource management in family owned business, division of labour. This is because the family members running and making decisions regarding a family owned business may not have sufficient or any knowledge in certain areas of the business operations like marketing and accounting. Employing human resour`  ces enable the family members to gain advantage by using the knowledge of the employees to run the business efficiently. This utilisation of human labour in a strategic manner has emerged as the cornerstone behind the success of the family owned businesses. However, Tung (2016) can be reiterated here that limited financial resources prevent small scale family owned businesses from acquiring and retaining highly skilled employees unlike their larger counterparts. The human resource management in large family owned business are far complex with involvement of multiple family members and employees owing to the large span of the business. Ramadani and Hoy (2015) point out that large family owned business follow the three circle model. The three circle model takes into account three main groups of participants of the large scale family owned business conglomerates. The family members not directly taking part in the decision making process put emphasis of emotional capital which means they put priority on the growth of the business through generations. The employees, forming the next component of the three circle model put emphasis on the reputation and goodwill of the firms. The last circle of three circle model consists of shareholders which put emphasis on the maximisation of the financial capital. Mills (2018) point out that this three circle model enable the family owned business to operate efficiently.  The family members involved in the decision making process make the decisions while the employees execute the business decisions. The support from investors including the family members holding shares ensure smooth operations of the business.      

Supply Chain Management

A very important criterion which family businesses have to satisfy is corporate social responsibility and to establish themselves as successful corporate citizens. Campopiano and De Massis (2015) mention that family businesses right from their very inception should work towards bringing the development in the socio-economic conditions of the local communities. Venkatesh, Rathi and Patwa (2015) can be reiterated in this case to point out that supply chains largely remain under the control of the multinational firms. The smaller family businesses as result have to pay higher prices to obtain raw materials from them. These small scale family businesses in order to deal with this challenge can obtain raw materials from local markets and suppliers. Grandinetti, and Tabacco (2015) strengthen this opinion by pointing out that local suppliers cannot provide the amount of raw materials demanded by big business houses and thus are deprived of revenue. Moreover, they cannot comply with the stringent supplier behavioural codes which global companies impose on their suppliers to control their operations to some extent. Thus, small scale family businesses can obtain raw materials from local suppliers and assist the latter to earn. Tung (2016) can be reiterated here to point out that smaller family owned businesses are not able to attract highly skilled human resources due to their limited financial resources and capability of compensating highly experienced employees. Vaiman, Haslberger and Vance (2015) point out that smaller family owned businesses can employ local talents and create employment in the local communities. A?an et al. (2015) add here that small family owned businesses should ensure that they have minimum impact on the environment by operating in environment friendly manner. Thus, it can be inferred from the discussion that smaller family businesses can use CSR to manage several risks like supply chain risk and human resource risks to certain extent. Panwar et al. (2014) point out that on the other hand, the role of corporate social responsibility for large publicly traded family owned businesses is largely business and strategy oriented. The role of CSR in the large family owned businesses is to establish them as responsible corporate citizens operating in environment friendly manner. These large publicly traded family businesses houses emit large amount of wastes owing to their immense production scale which often draw government actions (Nekhili et al., 2017). Johnson (2017) can be reiterated over here that to point out that large family owned businesses are very much dependent on capital generated from the market. Events like government actions cause their share value and consequently their capital generation to fall. Thus, corporate social responsibility plays the role of strengthening the goodwill of the large family owned businesses. Thus, it can be inferred from the discussion that corporate social responsibility plays a very important role towards success of family owned business. However, its role differs according to the sizes of the family owned business. The role of corporate social responsibility in case small family businesses is more about obtaining local resources to operate the business. The large family owned businesses use corporate social responsibility to ensure their high market position and strong goodwill.

Conclusion

The information gathered from the research conducted above can be applied in several ways by family business to ensure that success. The first fact which the discussion sheds light on is that family businesses are entrepreneurial ventures at the initial stage. The family owned businesses may be formed by a new firm entering the market or an existing firm. The family business both large and small are subject to risks due to the unpredictable nature of the market. The family owned businesses can apply corporate social responsibilities to manage the market risks by forming appropriate CSR strategies. 

References:

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