In September 2007, the New York Times reported on a study that sheds light on this question. Citing a study by the London School of Economics on 700 manufacturing companies in four countries, including the USA and UK, the Times reported that "the survey found no difference between a family-run company and the typical one," based on various performance measures.
This study tells us that family businesses can compete on the same playing field against non-family businesses, and that family businesses can be as strong (or as weak) as its competitors. It all depends on how that business manages its strengths and weaknesses. When it comes to family businesses, a company's strengths and weaknesses are usually the opposite sides of the same coin.
There are eight areas where a family business tends to differ from a typical business: infrastructure, roles, leadership, family involvement, time, succession, ownership/governance and culture. How a family business manages a certain area determines whether it is a strength or weakness.
Family businesses usually have an informal infrastructure. This allows strong family businesses to be flexible innovators and entrepreneurs. On the other hand, the informal infrastructure makes weak family businesses indecisive and resistant to change. Some of them don't even have organization charts, which makes boundaries unclear and adds to the overall confusion in the organization.
In strong family businesses, family members have multiple and flexible roles, which allows them to quickly close ranks to face problems and make quick decisions. On the other hand, having multiple and flexible roles can lead to confusion in a weak family business, which results in nepotism, finger-pointing and things not getting done. Having dual roles can also blur a family member's objectivity and constrain his decision-making. It can also lead to unqualified people being appointed to sensitive posts simply because of their position in the family.
Families with creative, innovative, ambitious and entrepreneurial leaders often have a strong family business. Families with autocratic leaders result in a weak family business with weak systems and structure. These poor leaders often refuse to step down even when the time has come and have little regard for succession, which further weakens their organization.
When family members are professional, hard working, loyal to their company and committed to excellence, their family business is strong. These family members also tend to have a strong family spirit, are proud of their family name and share a family dream as well as a sense of mission and vision. On the other hand, weak family businesses are run by people who can't separate family issues from business issues. They lack objectivity and make decisions based on emotion. They think in terms of what is best for themselves and not for the company.
Family members in a strong family business have a long-term perspective and are patient with capital. They have deep ties with their employees, customers and other principals, which have been built over time. Meanwhile, family members in a weak family business are tied to tradition and find it difficult to change and adapt. Their family history has a strong influence on their decisions. Once they are disappointed early in a relationship, they find it difficult to build trust.
Strong family businesses are concerned with succession, and possible successors are trained early and mentored throughout their life. When the time comes, the head of the family business leaves graciously, with full confidence in his successor. In a weak family business, the family is unprepared for succession and often struggles to select the right successor. Also, the head of the family refuses to step down.
In terms of ownership and governance, strong family businesses are usually closely held and the family has a high degree of control over the organization. Weak family businesses often do not answer to stockholders or to an outside board of directors. There's a tendency to sacrifice growth to gain greater control of the organization.
Strong family businesses have a culture that is informal, efficient, creative and easily adaptable. Weak family businesses have cultures that are inefficient, resistant to change and highly emotional. Innovation is often stifled by tradition.
In the final analysis, there are three qualities that determine whether a particular area is a strength or a weakness for a family business: (1) the quality of internal systems and processes; (2) the ability of the company's principals to separate family matters from business matters; and (3) the flexibility of family members and their ability to adapt and learn the prevailing trends within their business and industry.
If a family business can address these three areas effectively, there is no reason why it cannot prosper and perform better than its competitors.
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