In this paper, I have prepared a report after doing a deep research on the extent of family firms enablers and barriers. I interviewed few of the family firms and have got various responses based on which i have framed the report. In the following report I have also stated the ways of overcoming these barriers by doing a wider range of study on family firm. I have backed up my points with definitions, graphs and current stats.
This report provides information about the entrepreneurial activity extent in a family firm. It discusses about the common problems and boundaries faced by family firm which was derived by interviewing the managing directors of few long running firms such as Seyadu Group of companies and P.M.M companies pvt.ltd. Based on the interview i have listed out the advantages and disadvantages of a family firm and have concentrated more on overcoming the problems by analysing datas and case studies. in the report there are references and stats are added to backup the points and to give a more clear idea of the findings.
ENABLERS & BARRIERS OF FAMILY FIRM:
These are list of enablers of entrepreneurial activity enablers in family firm derived from the interview and research.
According to Phan and Butler(2008) “there is a close trust bond among the family members which enhances the research flow quality”. Eddleston, K. A(2010) describes “trust as a willingness of an individual to be vulnerable and truthful to another party. He also says trust and governance combined together brings further exploration to the firm”. Based on Cruz et al;(2010) the main source of capitalizing for a family firm is the trust over it. Trust is one of the major strength of a firm as a business is full secrets which is hard to keep it within the firm, but when it comes to a family firm it becomes an easy task as there is a lot of trust level between the blood relations. Study have further proved people consider investing more on family firms as there are more trustworthy policies and less chances of fraudulent or dissolution.
ii) Control And knowledge of the firm:
According to “an individual belonging to the family has a closer contact with the management and gets an early training and exposure to the whole business, It also removes the succession issue and the problem of creating an identity. He is been rooted with the values and traditions of the firm”. Based on the interview and research it is clear that most of the family firms successor is been pulled into the business at a very early stage which helps the successor to get a clear picture of the firm and makes the task easy when he takes control. He has no need to seek for identity as the board of members of the firm consists of all family members.
iii) Effective Communication:
According to Nordqvist, Melin, and Waldkrisch (2015) “the firm's reputation and behaviour are strengthened by communication, By actively communicating about the firm's identity will increase the product and service values which can make the customer take easy purchase decisions. It gives a positive view and perception to the customers”. A good effective communication within the organisation is beneficial to all employees as it removes the pressure at work, job satisfaction and makes everyone understand the success factor of the firm. For an effective succession in a business, communication is a must factor.
Barriers of Family-firm:
These are the listed barriers obtained from the interview and research
i) Comfort with the status quo:
According to Johnson, J.(2015) “Well established family firms are resistant to change and become introverted, to remain in the comfort zone maintaining the status quo” According to Lindow (2013) “family firms are conservative and take less risk in the business because of considering the firm as a family asset”. The family holding the higher stake in the firm is a major barrier from taking risks. The board members of the firm are likely to influence the employees of the firm which automatically stops the manager from bringing any changes on the firm's floor as well. For a fact family firms are more concerned about maintaining the status rather than building the business by taking risks. As this results in overlapping of business methods which can bring the business to a drastic end.
ii) Family Firm trajectory:
According to Breathe HR,(2013) “the statistics usually becomes unfavourable in a period of time. Out of 30% of the family firm merely make it to the next generation”. A family firm producing the same product will soon be outdated in the market. In a family firm usually the attitudes and methods stay the same for a long period which is a huge drawback. In order to withstand in the market it should adapt itself to the modern trend. It is all rooted when a successor is been brought up narrating the values and methods to take the business falls for the trap and follows the narrow path laid by his ancestors. Secondly hesitation makes all the family members from bringing a change to the business which makes it trajectory.
iii) 3rd Generation:
According to Mate(2012) “it is trickier to maintain both the family and the firm in a family business when it comes to the next generation. There is no guarantee for the second generation to make the business successful” As the report and stats describes 40% of the family business are transferred successfully to second generation but whereas only 13% of the firms are successfully transferred to the third generation hands. This is mainly caused because of enforcement, A grand children who was not even born when the business was formed is been forced to take succession and carry out the same old business. Secondly, parents are more concerned about bringing the children into the business than letting them discover their own passion and interest. Ultimately by making someone who is not interested as the CEO will bring the business to a failure.
iv) Alteration in the Board:
According to Dyer(2007) “One of the most important feature lacked in family firm is talent, Not all family members are inbounded with the qualities of running a firm successful”. Sometimes family member might lack knowledge on a particular field such as marketing financing or accounting. Being brought up in a complex environment it is very hard for the individual to seek outside knowledge and develop the skills within him.But at the same time as per the study and research family firms never want to bring a change in the set of board of directors as it remains to be a prestigious issue. Either of the family member belonging to the board will not be happy in inviting someone who is not part of the family into the board.
v) Sustainability :
According to Alun Jones,(2014) “In the entrepreneurial landscape sustainability is an old age problem faced by family business of all shapes”. The sustainability of the company is in the capability of the successor. A capable successor can make the firm sustain for a long term. In a family firm the main advantage is the bond between the family members, if there is a problem arises between the family it would result in affecting the business in drastic way. As mentioned above family firm stick on to the same methodology of manufacturing the products, in that case a new firm with an innovative idea to manufacture the same product can easily replace the position of the present company. So running a company successfully for a long term is in the effectiveness and capability of the successor.
vi) Delay in Decision Making:
According to Alderson(2011) “Family involvement in a business brings delay in decision making, He states increased diversity and various ideas makes the discussion last longer and delays the decision”. In most of the family firms a decision is made by the head of the family but it is been consulted with all the family members before passing. When an effective change has to be made to the business, It cannot be straight away implied into the business after consulting the leader but takes opinion from all family members where even one opposes the idea it is been taken into consideration to know the reason of opposition. Thus a good change needed for the moment takes time to come into action and fails to achieve the benefits in the market for an early change.
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