The Reasons For Its Success
November 13, 2006 (Press Release) --
The Family-Run Business (FRB) is the bedrock of American economic history. Even today, as corporations have become the dominant Western institution, FRBs are still a vital component of employment and economic development. Despite the challenges of the entrepreneurial and customer-based aspects of FRBs, they have found their niche in the ever-changing global market.
Studies show that FRBs are inwardly directed or closed family-related systems, and are more likely small to medium-sized companies. Among their managers are fewer pioneers and more "all-rounders" (cross-trained employees) and organizers. As a result, the strategic behavior of FRBs is generally conservative, showing slower growth and less participation in global markets. Therefore, FRBs should be viewed as stable companies with long-term commitment horizons rather than progressive or dynamic factors of the economy.
With concentrated ownership, lengthy tenures, and profound business expertise, FRBs have the discretion, incentive, knowledge, and resources to invest deeply in the future of their company. These long-term investments build up over time based on organizational qualities that are hard for other non-FRBs to copy. If tied to their value chain, these investments create sustainable capabilities. Investments in staff and training, for example, create tacit knowledge and preserve it within the company. Also, cultivating long-term relationships with partners serve to enhance access to resources and allow FRBs to focus on their core competencies. When such investments are farsighted, orchestrated, and ongoing, capabilities will tend to evolve in a collective trajectory, which makes them doubly hard to imitate, thereby extending competitive advantage to FRBs.
FRBs also tend to have less formal codes of ethics. They are more likely to employ informal methods to promote ethical behavior such as role modeling of expected behaviors rather than the formalized procedures of non-FRBs. This is reflected in their market approach as well, in that they generally place less emphasis on industry leadership in consumer markets and concentrate more on industry leadership in business markets. As a consequence, while FRBs tend to be less innovative, they are more likely to thrive on fewer inventive ideas because their long-range view is more opportunistic than non-FRBs.
Very often in smaller FRBs, employees share a greater commonality. This makes them more nimble and swift in reaction. Family-run businesses, both small and large, tend to be quick in reacting to threats as well as opportunities. There are fewer decision-making gates and constituencies to deal with. In fact, too often the survival of the family depends on the survival of the business. This results in sharp and decisive action in the face of threats that could be potentially fatal for the business.
Since FRBs are privately owned, information can also be an advantage. The company can see the strengths and we
Studies show that FRBs are inwardly directed or closed family-related systems, and are more likely small to medium-sized companies. Among their managers are fewer pioneers and more "all-rounders" (cross-trained employees) and organizers. As a result, the strategic behavior of FRBs is generally conservative, showing slower growth and less participation in global markets. Therefore, FRBs should be viewed as stable companies with long-term commitment horizons rather than progressive or dynamic factors of the economy.
With concentrated ownership, lengthy tenures, and profound business expertise, FRBs have the discretion, incentive, knowledge, and resources to invest deeply in the future of their company. These long-term investments build up over time based on organizational qualities that are hard for other non-FRBs to copy. If tied to their value chain, these investments create sustainable capabilities. Investments in staff and training, for example, create tacit knowledge and preserve it within the company. Also, cultivating long-term relationships with partners serve to enhance access to resources and allow FRBs to focus on their core competencies. When such investments are farsighted, orchestrated, and ongoing, capabilities will tend to evolve in a collective trajectory, which makes them doubly hard to imitate, thereby extending competitive advantage to FRBs.
FRBs also tend to have less formal codes of ethics. They are more likely to employ informal methods to promote ethical behavior such as role modeling of expected behaviors rather than the formalized procedures of non-FRBs. This is reflected in their market approach as well, in that they generally place less emphasis on industry leadership in consumer markets and concentrate more on industry leadership in business markets. As a consequence, while FRBs tend to be less innovative, they are more likely to thrive on fewer inventive ideas because their long-range view is more opportunistic than non-FRBs.
Very often in smaller FRBs, employees share a greater commonality. This makes them more nimble and swift in reaction. Family-run businesses, both small and large, tend to be quick in reacting to threats as well as opportunities. There are fewer decision-making gates and constituencies to deal with. In fact, too often the survival of the family depends on the survival of the business. This results in sharp and decisive action in the face of threats that could be potentially fatal for the business.
Since FRBs are privately owned, information can also be an advantage. The company can see the strengths and we
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