Abstract
The purpose of this assignment is to build a basic understanding of family businesses. Family businesses are those which are owned and operated by family members which are related to each other by blood or marriage. In family businesses, most of the employees come from within the family and the decision making power lies at the hand of the elders and influential of the family. Family owned businesses still follow traditional approaches to profit making however; non family businesses are more open to new and innovative business ideas. SWOT analysis has been presented on general family businesses. The SWOT of family owned and operated businesses is different from non family owned businesses because of difference in their nature and practical approach. Nonetheless, family businesses are more stable and face fewer losses as a result of changes in the dynamic global business environment. Employees of family owned businesses are more satisfied with their jobs as they receive respect of a family member.
Keywords: Family businesses, strengths, weaknesses, opportunities, threats, conflict
Introduction
The purpose of this task is to carry out a swot analysis of family businesses. Businesses are of various natures. Some are solely owned whereas others are based on partnerships. In both cases, the management is hired from outside and no family ties exist. The employees are promoted on the basis of their performance and not on the basis of personal relationships. The case of family owned business is, however, different. Family businesses are those which have a strong background. The ownership of these businesses is transferred from one generation to another. In this assignment, the strengths, weaknesses of the family businesses as well as the opportunities and threats they would be facing the external environment would be discussed in much detail.
Family Businesses
Sharma, Chrisman & Chua (1997) suggested that by definition, family businesses are those types of commercial businesses where decision making takes place only by the owners of the business who are family members related to each other by marriage or blood. No one from outside the family is required to play any role in the decision-making process of the business. Traditionally, businesses were family owned and operated and even today, many businesses whether small or big are being run by families and generations. The foundation of family businesses as compared to non-family businesses is strong because the ideology stems from the original values and ethical principles which were laid down years ago by the founding family members. A business which are not owned by families usually has flexible values which mean they can undergo a little modification as per the challenges offered by technology, innovation and most of all, globalization. Family-owned businesses face certain issues which do not exist in non family owned businesses. For instance, some young members of the family do not see the family businesses’ philosophy in line with their passion and interests and may want to try their luck in some other profession which could create severe situations. Sometimes, family members of different personality traits do not go along well which could again lead to issues affecting the productivity and functioning of the firm. In a rural setting, the trend of family businesses is quite common. For instance, a person running a small sweet shop in a village may have inherited it from his great-grandfather who was the first one to offer small treats to villagers. In big cities and towns, doctors run clinics and then their sons and grandsons take over with the promise to continue the legacy. Some big companies in the tourism and hospitality industry are good examples of family owned businesses. Insurance companies and even banks are also owned by some families.
Like every organization, family owned organizations can also conduct SWOT analysis. SWOT analysis would provide a clear picture to family businesses based on where they stand at present and where they must reach in the future. The challenges to family owned businesses are quite similar to those faced by non family owned businesses. No business can survive in isolation. Business must enter into contracts and partnerships with suppliers and dealers which influence they way a business is carried out. The stakeholders of family businesses include customers and employees. The customers are the end users who will be the recipients of the company’s products or services whereas the employees include those individuals who are actively involved in ensuring that the customers stay committed and loyal to the original brand. Taking care of employees is of prime significance for family owned business. The employers take extra care of its employees because loyal employees and their related family members are strongly linked to the foundation of the business (Ward, 2011). Employees prefer to work at family owned businesses as strong values and ethics are practiced there. On the other hand, the employees are treated in a different manner at the non family owned business as they are offered growth opportunities but the respect and care which is for a family member are absent.
SWOT Analysis for Family Businesses
Strengths
There are several strengths of family owned businesses. For instance;
The organizational structure of the family business is informal which means that although tasks and responsibilities are clearly defined but goals are achieved by full cooperation of all organizational members. There are no stringent regulations which make work environment fun and productive one.
Families have strong ties and bonds and while doing businesses, they ensure that use the strength of their relationships as their strength and work with peace and collaboration to achieve their goals.
The belief and value system of families is shared. Employees do not need to be taught about the organizational culture from scratch as they how to perform and go about certain situations at hand.
In family businesses, the principal investors are the family members themselves which mean all the capital comes from family members and then the risk is distributed equally. Since no external investors are involved so the risk of fraud is minimized.
Working with family members could be more productive as it eliminates communication barriers and employees feel comfortable while discussing important business issues.
Since all the employees belong to the same family- this means they know each other very well. In an environment where no struggle is required to understand the employees’ nature and potential, high productivity can be ensured.
Family businesses are established for a long period of time. Establishment of a business over long duration specifies that the business is stable, has sufficient market share and growth potential (Bryan, 2015).
The employees express a high degree of loyalty and commitment towards the family owned organization.
Employees trust each other because they belong to one family and understand that families are meant to care and trust each other on various personal and business matters.
The family businesses have flexible organizational structure and approach towards goal achievement. This motivates the workforce to perform within their convenience yet deliver positive results.
Since family members are all interconnected, they motivate each other using emotional or nonverbal signals and cues. Motivating family members are much simpler and effective than motivating employees of a non family business.
Weaknesses
Several weaknesses are associated with family owned businesses such as;
Conflicts among family members working in the family owned companies are quite high as compared to those working in non family companies. The reason behind conflicts is that some people like the in-laws in the company do not go along well which is why they try to create issues of conflict of interests.
Conflicts also arise when the young family members suggest that the organization should be modernized so as to compete in the global business arena whereas the senior members oppose this point of view by arguing that modifications would take them away from their basic values and the company’s image and profitability could suffer (Harvey & Evans, 1994).
Family owned businesses are conventional in their approaches. They are least innovative in nature because ideas are not welcome from outsiders. When innovation is limited and viewpoints from those not included in the family are not encouraged, new and innovative ideas become very limited and it is likely that the profits get affected in the long run.
There is no defined boundary for family and work related issues in family businesses. Usually, family problems interfere with business related decisions. Imbalance causes serious financial and performance related issues for the business.
The ownership and decision making power lie in the hands of a handful of senior members of the family. They consider themselves rational and experience and sometimes come up with very traditional decisions which do no synchronize with the external market demands.
Not allowing input from outsiders could certainly limit creative ideas.
Although major employees come from the family but sometimes, outside employees are also hired. The rights of non family employees are limited.
Salaries and compensation packages for family employees are higher than non family employees which create a wave of discrimination and dissatisfaction.
Opportunities
The reputation of family owned businesses is strong because these businesses have been established over a long time. They have captured ample market share and are continuing to tap new market segments.
The employees of family businesses are trained and know how to carry the business on profitable grounds.
The employees are committed and loyal to the company because most of them are from within the family whereas the outsiders include those who have stayed in the organization for long.
The policies, procedures, and systems are well established in the company, unlike other companies where the standards vary as new people continue to join the management.
Neubauer & Lank (2016) suggested that by expanding the family business into new locations and markets, there are chances that the organization would generate profits. This is because the brand image is strong so it would be easier to find new growth segments.
The company owners are not answerable to stakeholders as stakeholders are from within the family.
The risk in family businesses is more which can be minimized by making sub units of the company and letting one elder family member to head it.
Threats
There are several threats which are faced by family owned businesses.
The biggest threat to family businesses from new and emerging businesses.
New businesses are highly innovative in nature and open to new ideas and opportunities whereas family businesses are conventional and do not adopt to new ideas easily
Another threat to family businesses is from the unpleasant family terms. In families, some members are not really friendly with each other and may create troubles at a personal level. The personal level rivalry could reveal on the business level and bring bad repute to the company.
The investors come from within the company in family businesses. Whenever a business undergoes losses, the family members invest and reinvest and share the losses but at times, the financial position of the family is not strong. In this case, the image and profitability of the company suffer.
Quality standards are not the same when the business ownership is transferred from one generation to another. This leads to customer dissatisfaction and the customers who are loyal to the preceding generation may make use of the word of mouth measures to express anger and bring a bad name to the family business.
Usually, senior directors count on the young generation for taking over the business when they become mature and business minded. Sometimes, the young generation wishes to pursue personal dreams and do not wish to be associated with the big family business. Such an event could cause emotional stress and the business functioning suffers to a great degree (Klein, 2013).
Conclusion
It has been learned from this exercise that family businesses operate differently than the non family owned businesses. The nature of family owned businesses is conventional whereas that of non family owned is quite broad and innovative. The basic strengths of family business include the reputation and image which it has earned over the years. Weaknesses and threats are associated with its narrow minded business approach and less acceptance of new ideas whereas opportunities are associated with the loyalty of its employees and chances of business expansion.
References
Bryan, B. (2015). 6 reasons why family-owned businesses are smoking the competition. Available: http://www.businessinsider.com/reasons-family-owned-companies-do-better-2015-6. Last accessed 28th Aug 2016.
Harvey, M., & Evans, R. E. (1994). Family business and multiple levels of conflict. Family Business Review, 7(4), 331-348.
Klein, E, K. (2013). Preparing a Family Business for the Next Generation. Available: http://www.bloomberg.com/news/articles/2013-07-23/preparing-a-family-business-for-the-next-generation. Last accessed 29th Aug 2016.
Neubauer, F., & Lank, A. G. (2016). The family business: Its governance for sustainability. Springer.
Sharma, P., Chrisman, J. J., & Chua, J. H. (1997). Strategic management of the family business: Past research and future challenges. Family business review, 10(1), 1-35.
Ward, J. L. (2011). Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership. Palgrave Macmillan.
