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Chapter 3

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Administrative Studies
ADMS 3920
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CHAPTER 3: FAMILY ENTERPRISE Family Business – a company that has two or more members of the same family own or operate together or in succession. Ownership passes through one generation of the family, to the next. FAMILY AND BUSINESS OVERLAP Family Concerns:  Care and nurturing of family members  Employment and advancement in the firm  Loyalty to the family Business Concerns:  Production and distribution of goods and/or services  Need for professional management  Effective & efficient operation of the business ADVANTAGES OF A FAMILY BUSINESS 1. Firm-specific knowledge: These companies are in a unique position to pass this knowledge along from generation to generation. 2. Shared Social Networks: Family members bring valuable social capital to the business when they share their networks with younger members of the family and thus help to ensure the firm’s future performance. 3. A focus on the long run: Most family managers tend to take a long-range perspective of the business. 4. Preservation of the firm’s reputation: Because they have a stake in preserving the family’s reputation, members of the family are likely to maintain higher standards when it comes to business ethics and ideology. 5. Reduced Cost of Control: Because key employees in a family business are related and trust one another, the firm can spend less on systems designed to reduce theft and to monitor employees’ work habits. DISADVANTAGES OF A FAMILY BUSINESS  Families tend to be stable, while businesses, especially those competing in the global economy, often face instability  Family seeks to perpetuate traditions, while the business must innovate to prosper  A business must deal with differences in competence and merit  A family is characterized by unity and cooperation, but a business grows through diversity and competition  For families, loyalty usually trumps opportunity, but businesses are regularly challenged by opportunities that arise for both the company and its employees FAMILY BUSINESS MOMENTUM Organizational culture – patterns of behaviours and beliefs that characterize a specific firm. Cultural Configuration - total culture of a family firm, consisting of the firm’s business, family, and governance patterns The culture of a family firm may be a strategic resource that promotes learning, risk taking, and innovation. FOUNDER’S IMPRINT ON CULTURE Distinctive values that motivate, guide, and help to create a competitive advantage  A special way of delivering customer service  Core values and business ethics permeate the growth There is also the risk of a negative imprint on culture. For example, narcissism, self- importance, fixation with success THE COMMITMENT OF FAMILY MEMBERS 1. Desire-based commitment – commitment based on a belief in the purpose of a business and a desire to contribute to the firm. 2. Obligation-based commitment – commitment that results from sense of duty or expectation. 3. Cost-based commitment – commitment based on the belief that the opportunity for gain from joining a business is too great to pass up. 4. Need-based commitment – commitment based on an individual’s self-doubt and
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