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FAMILY BUSINESS

Definition of family business


 A family business is a business in which one or
more members of one or more families have a
significant ownership interest and significant
commitments toward the business’ overall
well-being.
 A business actively owned and/or managed by
more than one member of the same family or a
corporation that is entirely owned by the members
of a single family.
 A business actively owned and/or managed by

more than one member of the same family .


Stages of Family Business
Development
 The typical family business goes through four
stages in its development:

 1. Entrepreneurial

 2. Functionally-Specialized

 3. Process-Driven

 4. Market-Driven
Six key aspects of Family
 head of the family takes all decision
 all members live under one roof

 share the same kitchen

 three generations living together (though often two


or more brothers live together, or father and son live
together or all the descendants of male live together)
 income and expenditure in a common pool-

property held together.


 a common place of worship

 all decisions are made by the male head of the family


Problem with family business
 the interest of one family member may not be
aligned with another family member
 Example: a family member who is an owner

may want to sell the business to maximize


their return, but a family member who is an
owner and also a manager may want to keep
the company because it represents their
career and they want their children to have
the opportunity to work in the business.
research
Several years ago, researchers David Sermon
and Michael Hit examined the strategies
behind successful family businesses. They
found that success is tied directly to how well
a company manages the five unique
resources every family business possesses.
Human capital.
Social capital.
Patient financial capital.
Survivability capital.
Lower costs of governance.
Proposition 1: A business firm may be considered a family business to the extent
that its ownership and management are concentrated within a family unit.
 
 
Proposition 2: A business firm may be considered a family business to the extent
that its members strive to achieve, maintain, and/or increase intraorganizational
family based relatedness.
 
 
Proposition 3: A business firm may be considered a family business to the extent
that its ownership and management are concentrated within a family unit, and to
the extent its members strive to achieve, maintain and/or increase
intraorganizational family based relatedness.
 
 
The Litz definition of a family business, therefore, incorporates three broad
issues: the extent of ownership and or management, the degree of family
involvement’ and the availability of family members for generational transfer.
 
FAMILY BUSINESS SYSTEM
 It is important to recognize that family
business comprised of three separate, but
overlapping domains.
Families exist to care for and nurture their members and
provide safety and refuge in an impersonal world.
Success in family is measured in terms of harmony,
unity and the development of happy individuals with
solid and positive self esteem.

Business, however are economic entities where


success is measured in terms of productivity and
profitability

Ownership is based on yet another set of rules.


Success for owners is measured in terms of return
on investment, protection of ownership interests
and in terms of owners values and philosophy of
business.
CHARACTERISTICS OF A HEALTHY
FAMILY BUSINESS
 Individuals can manage themselves and relationships with others
 Family has the ability to resolve conflicts with mutual support and

trust
 Boundaries between work and family are appropriate and

respected
 Knowledge is used wisely and isn't blocked by unresolved

relationship problems
 Communications are open and clear

 Individuals are flexible and able to use advisors wisely

 Family has the ability to make decisions and move forward

 Family is clear about goals and navigates towards the goals

 Family has good direction and leadership

 Transitions are managed and marked by rituals and

 Intergenerational boundaries are appropriate and respected


CHARACTERISTICS OF AN
UNHEALTHY FAMILY BUSINESS
 The family has poor communications skills and is unable to manage
conflict
 There is low trust between family members
 The goals and values of the family are unclear
 Family members’ roles and obligations are unclear
 The business lacks a sense of direction and does no strategic planning
 The business lacks sufficient expertise – the family tries to do it all
 There is little thought to succession planning
 There is little collaboration between the family and non-family

employees
 There is not a functioning board of directors
 There is no one to turn to for advice and help with key problems
 Family issues spill over into business issues and vice versa and
 Boundaries between work and family are unclear
Thank you

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