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AUEB Guest Lecture Family Firms Growth Strategies and Practices

AUEB Guest Lecture Family Firms Growth Strategies and Practices. Dr Sarah Drakopoulou Dodd. Today’s session. Family Firms: Growth Strategies and Practices Strengths and Weaknesses of the Family Firm Mapping the Stakeholders in Family Firms Balancing Family & Firm: Systems & Subsystems

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AUEB Guest Lecture Family Firms Growth Strategies and Practices

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  1. AUEB Guest LectureFamily FirmsGrowth Strategies and Practices Dr Sarah Drakopoulou Dodd

  2. Today’s session • Family Firms: Growth Strategies and Practices • Strengths and Weaknesses of the Family Firm • Mapping the Stakeholders in Family Firms • Balancing Family & Firm: Systems & Subsystems • Familiness and continuous strategic renewal in the family firms. • The Role of Networking in the Growth Processes of Family Firms: An International Study

  3. Who am I ? Associate Professor at ALBA , for the past 10 years Before that, 7 years at Deree Professor, CEEDR, Middlesex University Honorary Professor at Lancaster University Business School Visiting Professor at Aarhus University, & the University of Limerick. Also worked at Aberdeen University, and RGU Aberdeen. I teach and research in entrepreneurship, family firms, and the social context of enterprise And before that…real jobs! In marketing, training, and business development Before THAT I was a nanny, a soldier, a cook, a deckhand, a driver (Founding) Academic Director of AHEAD, and the MSc Entrepreneurship All 5 of my grandparents had family businesses My cousin is now 5th gen leader of one of these

  4. What is a Family Business? • A family business is a synthesis of: • Ownership control (15%+) by two or more members of a family or a partnership of families • Strategic influence by family members on the management of the firm • Concern for family relationships • The dream (possibility) of continuity across generations

  5. Something to dance about…

  6. Let’s start with the good news about family enterprises • Family firms make a vital contribution to the world economy • Family firms are among the world’s largest • The world’s oldest businesses are family firms • Many of the world’s best known brands are family firms • Family firms perform better than non-family firms • Family firms have lots of strategic advantages • And family firms have a special place in Greece

  7. Let’s start with the good news about family enterprises Family firms make a vital contributionto the world economy

  8. Contribution to GNP of Family Firms

  9. Family Businesses . . . • Constitute 80–98% of businesses in U.S. and other market economies • Generate 49% of GDP in U.S. and more than 75% in most other countries • Employ 59% of private sector U.S. workforce and more than 85% of working population overseas • Created about 80% of all new jobs in the 1980s and 1990s

  10. Let’s start with the good news about family enterprises Family firms are among the world’s largest

  11. No 1: Wal-Mart Stores, USA. Founded: 1962 Revenues: $ 469,000 million No 10: Samsung, Korea. Founded: 1938 Revenues $ 268,000 million

  12. 2012 GDP Greece (42) 249,000 The World’s Biggest Family Firms Bangladesh (59) 123,000 5 Families - through their firms made more money than 129 of the world’s 187 countries

  13. Let’s start with the good news about family enterprises The world’s oldest businesses are family firms

  14. What’s your best guess?When was the world’s oldest family firm founded? 718 1218 1518 1718

  15. The world’s oldest family business • Houshi inn and spa • Houshi Ryokan • KomatsuJapan Founded: 718, • 46th generation http://www.ho-shi.co.jp/ “Loved and enriched by all who have visited her, at 1,300 years of age, Houshi is the oldest inn in the world”

  16. The world’s longest-lived family business • Kongo Gumi, Construction/Osaka, Japan Founded: 578, sold 2007 • 40th generation www.kongogumi.co.jp • Prince Shotoku brought Kongo family members to Japan from Korea • More than 1,400 years ago to build the Buddhist Shitennoji Temple, which still stands.

  17. Islay’s Ice Cream – from a dairy founded in 1598

  18. And based here … where the family has lived for more than 900 years!

  19. Family Business MagazineWilliam O’Hara and Peter Mandel (on the webboard) • Château de Goulaine,Vineyard, museum, butterfly collection/Haute Goulaine, France,Founded: 1000 • Fonderia Pontificia Marinelli, Bell foundry/Agnone, Italy, Founded: c. 1000 • Barone Ricasoli, Wine and olive oil/Siena, Italy , Founded: 1141 • Barovier & Toso, Glass making/Murano Venezia, Italy Founded: 1295 , 20th generation

  20. Europe’s oldest business – more than 1000 years old

  21. America’s oldest company, which started in Constantinople

  22. America’s oldest company • The company`s cymbals have been made since 1623 • An alchemist in Constantinople developed a special melting method for making cymbals • Which is still a closely guarded trade secret today • His family were given the name Zildjian, which means son of the cymbal maker

  23. Let’s start with the good news about family enterprises Many of the world’s best known brandsare family firms

  24. As well as the names you’ve seen already, did you know that these brands are also owned by family firms?

  25. Let’s start with the good news about family enterprises And family firms have a special place in Greece

  26. Family Firms have a special place in Greece • Between 50% and 65% of very large firms are in family control • And fully 100% of middle sized firms. • 3E / Frigoglass • Titan • Alphabank • MOH / Bardinoyiannis Group • Fourlis • Boutaris (La Porta, Lopez-de-Silanes and Shleifer, 1999; Morck and Yeung, 2004)

  27. Let’s start with the good news about family enterprises Family firms have lots of strategic advantages

  28. Family-firm specific strategic advantages • Heightened commitment, • longer term perspectives, • patient capital; • sustained values and vision; • continuity, • specialized knowledge; • easier organizational renewal, due to lack of external owners / directors • cultural preferences for entrepreneurship and innovation • “the personalism and particularism associated with the family firm form enhance rapid and flexible opportunistic investments based on intuitive heuristics” (Carney, 2005).

  29. Special organizational competencies of the family firm • Overlapping responsibilities of owners and managers, along with small company size, enable rapid speed to market • Concentrated ownership structure leads to higher returns on investment • Desire to protect the family name and reputation often translates into high product quality and higher ROI • Patient capital, lower admin costs, skills/knowledge transfer, agility in rapidly changing markets.

  30. Now we’ll look at the other darker side,with the bad news about family enterprises • Surviving Transition • Family / Business Boundary Problems

  31. Succession Imperatives

  32. Surviving Transition 85% fail by year 5 30% of the rest make it to gen 2 • In their first 5 years of operation, approximately 85% of entrepreneurial and family-owned companies disappear • Among those that survive, • only 30% are successfully transferred to the second generation of the founding-family owners • Only 12% survive under current ownership to the third generation 12% of the rest make it gen 3

  33. Separating family and business roles can be very tough too…

  34. Family / Business Boundary Problems • Nepotism • Confusion • Expectations and exploitations • Forming one’s own identity • The path of self-validation vs zone of comfort • Supervising Family Members

  35. The Challenge: To maximise the good news and minimise the bad news about family enterprises, by working out how to build on their special features. • Surviving Transition • Family / Business Boundary Problems • Family firms make a vital contribution to the world economy • Family firms are among the world’s largest • The world’s oldest businesses are family firms • Many of the world’s best known brands are family firms • Family firms perform better than non-family firms • And family firms have a special place in Greece

  36. Family and Firm: Systems, Subsystems and Overlaps

  37. Ownership Management Family Adding family to the mix 7 possible “locations” any one person could assume on this diagram

  38. Non-family manager, rewarded with stock; business partner of family founder Ownership Management Family Silent equity partner Heir who works elsewhere, spouse, minor Ownership All the rest of the family, who don’t own the firm, or work in it 5 2 3 Management Family 1 6 Family CEO owner 7 4 New generation, without shares. Working spouse Non-family employees and managers

  39. Ownership Management Family People can make great contributions to the family business from ANY of these positions Ownership 5 2 3 Management Family 1 6 7 4

  40. Family Business Overlap Ownership Stewardship Values ROI Family Harmony Unity Self-esteem Management Production Profit What happens if one of these domains dominates?

  41. Family Business Overlap Ownership Stewardship Values ROI Family 1st Management Production Profit Harmony Unity Self-esteem If family dominates, we have a “family first” firm

  42. Family-First Businesses • Employment in the business is a birthright • Members of the same generation are paid equally • Perks that transfer from the business to family members are often extensive • Financial systems may be obtuse by design, and secrecy is often paramount • Commitment to continuity depends on the agendas of individual family members

  43. Family Business Overlap Ownership 1st Stewardship Values ROI Family Harmony Unity Self-esteem Management Production Profit If ownership dominates, we have an “ownership first” firm

  44. Ownership-First Businesses • Investment time horizons and perceived risk are the most significant issues • Have shorter time frames within which financial results are evaluated

  45. Family Business Overlap Ownership Stewardship Values ROI Management 1st Family Harmony Unity Self-esteem Production Profit If management dominates, we have a “management first” firm

  46. Management First Family Businesses

  47. Management-First Businesses • Employment is on the basis of qualifications—family is discouraged from working in the business • Performance of employed family members is reviewed in the same manner as the performance of nonfamily managers • Compensation is based on responsibility and performance • Conversation between family members is usually all business

  48. Balancing and Separating the Domains is the key to Optimising Family Firm Performance Ownership • Process • Systems • Professionalization Management Family

  49. Process, Systems, Professionalisation • How can we distance the three domains? • Spelling out rules and roles clearly • Communicating them well • Planning professionally • strategic plan • succession plan • Preparing and using (for family AND non-family staff): • clear job descriptions • HR policy and procedures • career development guidelines • organizational chart • code of conduct • performance evaluation measures • Respect the need for privacy • Family members encouraged to work outside business to get experience, and some space • Developing formal governance systems for family and business • Writing a family business protocol

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