The Success of Family Business - Term Paper Example

?Different academics use different means to assess the success of a family business, where the means of assessment can be used in a combined manner or as a single way of identifying success or lack of it. However, a study of these methods that are used to determine the relative success of a family business are not at all difficult to understand because they are used together with conventional means used to determine the success of other businesses, but these are used especially for family businesses. It is as a result of this that methods can be observed, recorded and assessed, as well as evaluated in that they all hold a common agenda and ground in looking after the functionality of family businesses. Consequently, these criteria can be identified and discussed to determine the successes and failures of family businesses, as we seek to find out. Family businesses are observed and viewed as a crucial part of an economy in any country, as they supply substantial contributions to economic growth and revenue development for those countries. Because of this, family businesses can be seen as part of the reason that the world has developed economically as the same families then sell stocks of the companies, which consolidates the businesses even further. It is as a result that family businesses have become some of the world's largest multinationals and conglomerates. Assessing these businesses is a crucial part for any economy in order to look into how these businesses can be made successful, or even fail based on different criteria as mentioned earlier. Family Governance Family governance is the first criteria through which family businesses relative success is measured, in which the measure lies in how the wealth of a family keeps growing or deteriorating in relation to proper management and poor management respectively. This measure manifests itself from one generation to the next, in which case it is based on economic factors of different generations and their prevailing economic conditions, which then allow academics to judge how well the businesses are doing (Davis, 2001). It is as a result of this that every generation is expected to play its own key role in running the family businesses and ensure that it does not regress, and should this regression occur, there should be adequate means to bring it back up. Should this family governance criterion fail, it means that a family is under a relative slump, where the business could never recover or is just in a dormant state. Other than this, the concept of family governance looks into ensuring that there is integration between different familial generations in the management of a business, which is just a measure of how the future looks for the company after the current older generation relinquishes its management rights. Looking along the lines of this family governance concept of success determination brings in an aspect of corporate governance, which is similar to how central and federal governments work. As such, there is the question of authority in the business, where there are family gatherings that are focused on the wellbeing of the business and its expansion. This is aimed at the development of policies that are friendly to expansion of assets and communication, as well as revenues, in which there is another aspect of familial values and beliefs that act as guides towards how different members of the family direct and relate to one another in the business (The Sloan Brothers, n.d). This can be defined as the definition of roles for all family members involved in the business, which primarily serves to ensure that there is harmony in different roles, as well as lowering the possibility of familial wrangles over hegemony and authority. Responsibility is fostered in these aspects of assessment, where all family members are expected to reflect on their conduct and how it affects the business, which could be positive or negative, but the main feature of assessment is how the organization of the family works (Walsh 2011, p.7). This is as evident in the definition of roles mentioned earlier, which also serves to ensure that the best interests of the business are looked after. Distribution of power is also featured in the family governance criterion, where authority is shared all through the family and in the different integrations between and amongst generations (Mandi 2008, p.55). This is applied in management in an attempt to look at cooperation and satisfaction for all family members involved in the business as without this, the business can rightfully be labelled as a failure. Integration, in different generations, serves to ensure that there is only adequate sharing of roles so that the younger generations learn from the elders and teach the elders how they could do some of the management roles better than their elders could (Institute for family business n.d., p.16). Corporate Social Responsibility In order to gauge the success of a family business, there is need to look at how compliant it is with the obligations of corporate governance by serving its social and moral obligation to society. Responsibility, as a criterion for the success of a family business is based on the ability of the business to look after the needs of the environment around it such that it legally protects or serves the community stakeholders of the business other than the family itself, its employees and directorship. This criterion is crucial in labelling success in that at any given business is judged according to how effectively it has fulfilled this responsibility and how the people have benefited from the company despite not being direct shareholders, but stakeholders (Breeze 2009, p.9). Corporate social responsibility is used due to its ability to manipulate the opinion of the public towards or against a given family business. With this in mind, businesses that fulfil their obligations have better images than those failing in their responsibilities; thus, even their sales fall below par due to lack of popularity with the public. Therefore, this brings up the concept of business performance in that the aspect of customer loyalty is raised from corporate social responsibility. This is because clients want to be associated with family businesses that look after the society and those whose personal or corporate interests do not overlook those of the society (Habbershon and Williams 1999, p.132). Business Performance Business performance is also another criteria used in the determination of the relative success of a family business, which is based on how well the business holds up and weathers tough times. This relates to the earlier mentioned family governance, where there is need for cooperation between generations to ensure that revenues are maintained or improved, while the business grows. It is because of this that academics assess the plans made by family businesses in relation to their future and how these businesses intend to grow or get out of business (Gorgievski et al 2011, p.7). In addition, this is used to evaluate sectors in the business that needs improvement in relation to having weaknesses that threaten the relative success of the business. There is also the concept of appeal to clients as earlier mentioned in corporate social responsibility, where competition indicates success of family businesses due to quality of services or products. Monitoring competition against a family business provides room for evaluation of how well a business works. This is especially so in efficiency, where stiff competition just indicates income generation and the financial results are used to evaluate how successful a business is as having more revenue shows that it is successful (Sharma et al 2009, p.15). Low amounts of revenue and lack of investors backing means that there is doubt in the ability of the business to raise revenue, which further translates to poor success or results in transacting business. Therefore, business performance acts as a means of evaluating the relative success of a business based on amounts of revenue and backing, as well as competition that a family business gains or loses. Justification The justification of these criteria lies in the presence of family businesses in the UK such as Office Cleaning Services, which was established in 1930 by members of the same family before it merged with New Century. Frederick Goodliffe founded the company in the early 1900s under the name of The New Century Window and General Cleaning Company, which had been in business as a family business prior to its merger with OCS, making it OCS (Cave, 2013). In order to evaluate the criteria used in assessing the success of a business, it is apparent that business performance is a means in that there is a large presence of investors in the business, where they back the company by providing funding. It is also because of the criterion that the business can be considered successful putting in mind that there was a willing acquisition and merger so that the business became bigger. This investor interest marks the success of the business and its potential to pull through tough economic times due to the presence of financing and adequate throughput of revenue in the entire business, where the revenue generated has been substantial and on an increasing trend since foundation and merging. Consequently, the business is in a competitive edge that further proves the point of having business performance as a criterion for judging the relative success of a business. In addition, this competition brings into perspective the concept of quality service to show that the family business has been successful before it merged with Office Cleaning Services to mark that the two businesses could acquire improved revenues as one, instead of competing for a single market share. It is through this that the two businesses merged and expanded to more revenues and services. In relation to family governance, the role of the family in business has come up as a means of assessing success through involvement of the entire family in different aspects of involvement and roles in the business. The success of OCS can be measured using family meetings and relationships, where the original founder’s family has been in the businesses under different sectors, but all for the growth of company. As such, there has been involvement on a multi-generational range, in which case the founder and his children were all involved in the business successfully building it from strength to strength as board members and with other shareholders. In the definition of relations, OCS has developed substantially to include three business ventures that are separate from the main cleaning business and the role of each member being defined allowed it to sell some of its ventures to focus on hotel and support services. Using family governance and business performance expresses how the relative success of a business as OCS clearly justifies the use of these means in that over the years it has even grown in relation to the number of employees it has. In addition, the concept of family governance in assessment of relative success is expressed with the presence of family values and culture, where the businesses can be judged as per its ability to maintain family values. This can also be attested to by the ability of OCS to make decision on different authority roles of family members and shareholders, where over the years the company is run by the family, but its management is based on professionals. As such, it shows the decentralization of authority from the family to different executives, but ownership remains with the family making it a family business. Success for OCS can also be measured with corporate social responsibility, where it gives its employees a sense of belonging in its different endeavours, as well as charity work as is seen in dispelling genetics in succession. From this perspective, any employee who is not necessarily from the bloodline of the founder can run the business, and continuity creates a sense of belonging for other members of society. Following the different criteria offered in the essay, looking at OCS using the criteria provides an image of OCS as a successful family business that is capable of running for a long time and expanding even further. This shows that the provided criteria is viable for any family business and can be used to show how well or poor a business is running at any given time. References Gorgievski, M.J., Ascalon, M.E. & Stephan, U. 2011. Small business owners'success criteria, a values approach to personal differences. Journal of Small Business Management, 49, 207-232. Habbershon, T & Williams, M. 1999, A Resource-Based Framework for Assessing the Strategic Advantages of Family Firms. The Best of FBR II. [Online] Available at: http://c.ymcdn.com/sites/www.ffi.org/resource/resmgr/best_of_fbr_english/bestoffbrii_habbershon_resou.pdf [Accessed 26/05/2013]. Walsh, G. 2011, Family Business Succession Managing the All-Important Family Component. KPMG Enterprise. [Online] Available at: http://www.kpmg.com/ca/en/services/kpmg-enterprise/centre-for-family-business/documents/3468_succession.pdf [Accessed 26/05/2013]. Sharma, P et al 2009, Strategic Management of the Family Business: Past Research and Future Challenges. Family Business Review 1997; 10; 1. Mandi, I. 2008, Overview of Family Business Relevant Issues. Austrian Institute for SME Research. [Online] Available at: http://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusiness_study_en.pdf [Accessed 26/05/2013]. Institute for Family Business. n.d., Family Management Perspectives: Succession. [Online] Available at: http://www.barclayswealth.com/Images/IFB-succession-planning-guide.pdf [Accessed 26/05/2013]. Breeze, B. 2009, Natural Philanthropists: Findings of the Family Business Philanthropy and Social Responsibility Inquiry. Natural Philanthropists. [Online] Available at: http://www.kent.ac.uk/sspssr/cphsj/documents/natural-philanthropists.pdf [Accessed 26/05/2013]. The Sloan Brothers. n.d., 12 Keys to Family Business Success. StartupNation. [Online] Available at: http://www.startupnation.com/business-articles/1109/1/ [Accessed 26/05/2013]. Cave, A. 2013, Family firms defy downturn as generation game fuels profits. The Telegraph. [Online] Available at: http://www.telegraph.co.uk/finance/businessclub/9904510/Family-firms-defy-downturn-as-generation-game-fuels-profits.html [Accessed 26/05/2013]. Davis. J., 2001, The Three Components of Family Governance. HBS Families. [Online] Available at: http://hbswk.hbs.edu/item/2630.html [Accessed 26/05/2013]. Read More