Leaders In Family Businesses Business Essay

It is very difficult to identify the comparison between family and non-family business; it lies within the fact that there is not even a single accepted definition of family business to form the basis of research (Westhead and Cowling, 1998). This essay explores in isolation, the skills required in leaders in family and non-family businesses. Then, the skills required in these two categories of leaders are compared and contrasted. Various theories and concepts on family business are used to facilitate the process.

Family business is a business in which family’s involvement is a must, making the business different from others. Many researchers interpret the involvement of family as ownership & management. (Chua et al.,1999)

In a family business, managing the profits and losses are not the only thing that matters. It’s all about understanding the family tradition, values and beliefs also to do succession planning. It is also important to make sure that there should not be any conflict between family members regarding the ownership and management. Indalecio(2012) said that there are some conflicts which typically happen due to the inability to separate personal and professional lives and also because of interest which varied from one member to other. Family businesses are mostly made up of strong relationship of trust, loyalty and communication and they have a shared vision.

In a non family business, they mainly focus on the smooth functioning of the organization to make profits and also to expand the business. They don’t need to worry about family values or tradition. As compared to family business employees are much more motivated in non family business. In Family business, they hire & promote employees after considering relatives or any other family member which makes the non family employees lose motivation towards the work. This will lead to a limited growth and opportunities for the firm. (Indalecio,2012)

We’ll discuss in detail that how the leaders require different skills to work in these two totally different types of businesses. As we know that Leader play the main role in running the business either it is emotion based or simply profit based. We’ll discuss about different theories of leadership in family business to differentiate the leadership style from non-family business.

LEADERS IN FAMILY BUSINESS

“Leadership is not magnetic personality that can just as well be a glib tongue. It is not “making friends and influencing people”, that is flattery. Leadership is lifting a person’s vision to higher sights, the raising of a person’s performance to a higher standard, the building of a personality beyond its normal limitations” (Peter F Drucker)

The environment in a family business is very different from non family business for leaders and employees in the organization. Heuristic Model, defines leadership as the person, process, position, result where leader is an individual, a centered person who they are. The style adopted by them or sense-making or the way they get things done. They keep into consideration what those in authorities do and where they do it. As a result they achieve the purpose through mobilization like a leader achieve. (Grint,2010)

Tagiuri and Davis (1996) stated the existence of shared vision, values and beliefs, as well as a long term orientation with loyalty and trust which is based on relationships as one of the important or strong advantage of family business as compared to a non family business. Which allows a family business to have a unique or clear identity and also a strong sense of success in their mission, they wish to undertake and concentrate on the efforts for what they can do best, which helps them to gain a competitive advantage (Ibrahim & Ellis, 1994).

Dyer (1986) and Sorensen, (2000) describes five description of the leadership that is exercised in family firms: participative, autocratic, laissez-faire, expert and referent. This author said that the head involves member in decision making and they guide through adapting, also have the capacity to motivate personal regards in others. Which allow these type of firms to achieve the goal expected by both the family and the business at the same time, and that leads to higher level of satisfaction & commitment among the non-family employees. (Vallejo, 2009)

(Figure 1) [Source: Vallejo, M.C. (2010), Pg. 6]

A leader in a family firm should take care of some points which are very important for the success of the organization in a market place: family disputes, favoritism, running business emotionally, and limited growth, also a succession plan. Family disputes takes place mostly due to the varied interest of each family member towards business, their personal egos, and rivalries among them which spill into the business environment. Managing family and the business at same time is very delicate matter and it is also important that if a leader in a family firm wants someone from the family to join the business then he needs to create a company culture based on favoritism. In most of the cases everyone wants to help family but it’s totally wrong to hire, promote or pay someone just because of familial relationship, rather than hiring someone based on their actual merits and abilities. It is very difficult in a family firm to keep personal & professional life in a separate way, and also not an easy task to separate your emotions from your business. Especially, giving a critical feedback or receiving it from someone you love is also a big problem. Mostly in family firms all leadership positions are always occupied by some family members which limits the growth of the company & opportunities for non-family employees. Many talented and ambitious employees will lose their motivation and they will move on to another job. There should always be succession plan for family firms otherwise it will lead to failure. (Indalecio, 2012)

LEADERS IN NON FAMILY BUSINESS

A simple definition of leadership is that leadership is the art of motivating a group of people to act towards achieving a common goal. (Ward, 2012)

A leader in non-family business requires many types of skill for the better functioning of an organization. When it comes to the leadership quality in a leader for a non-family firm, we consider a leader who is ambitious, creative, self-reliable, inspiring, and innovative, also in addition to commitment & determination, opportunity obsession, adaptability, self-motivated. (Timmons and spinelli, 2003)

In a non-family business, mostly these are transformational leaders who motivate their followers to achieve a long term objectives rather than selfish short term goal. They have the ability to convince their followers to work hard for the achievement of the goal which leaders have in mind. This helps to motivate the followers that turns out to be self compensatory. (Bass, 1985, 1999)

Leaders in a non-family firm don’t worry about feuding, nepotism, emotions, values and beliefs of family, succession plans. They don’t have a shared vision for the organization; everything is cleared about the goal they want to achieve for the expansion or growth of their organization. They have high growth opportunities for their employees because they never hire, promote, and criticize individuals on the basis of familial relationship. They only concentrate on the profits, motivation of employees, monitoring the performance, to gain competitive advantage for the benefit of the firm or to be successful in the market. (Indalecio, 2012)

The Leader should be able to introduce a sense of value, respect, and to express a clear vision for the employees so that they can work accordingly. He should also pay attention to the need of the followers & assign them particular projects for their personal growth, also teach followers to find a sensible path to examine a situation and also encourage them to be creative. (Bass, 1985)

CONCLUSION

In a firm, whether it is a family or non-family firm leaders are require running them. Mainly, for a non-family firm leader it is easy to run the organization as compare to a family firm leader. Because he has no tensions about the family values, beliefs, succession planning, family member interests or any other way to run a business in a manner so that it should survive for their upcoming generations. But for a family firm leader these all points matters a lot for their success in the market. The trust, loyalty, and relationship they make with their customers to gain sustainability. Family affect the business in each aspect if the firm doesn’t have a Leader with all the leadership quality require operating a family business.

In a family firm, leaders require a skill which helps the business to overcome the threats they get in running a family business. He should define the goal of the organization very clearly & make sure that there is no partiality in hiring, promoting the employees, and it should be based on the individual’s merits & abilities. Outline the responsibilities & role of each family member and hold them accountable. There should not be any communication gap and also run the business in a non emotional manner. For the advancement of your business everyone working for the organization should be on the same line either for promotion or criticism, also to have a succession plan for the survival of the business after he is gone. (Indalecio, 2012)

There are different theories that explain these differences of skills required for a leader in a family & a non-family firm. But the main thing is to understand the way a leader should work to keep the employees motivated and also provide them proper opportunities for their personal growth because a successful business is a mixture of different people with different skills. If a leader will follow these in a firms culture then this in turn will lead the organization to achieve their goal in a given time either it is a family business or a non-family business.

Referencing:

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Bass, B. (1999). ‘Two decades of research and development in transformational leadership’. European Journal of Work and Organizational Psychology. 8, pp. 9-32.

Chua, J. H., Chrisman, J. J., and Sharma, P. (1999). ‘Defining the family business by behavior’. Entrepreneurship Theory and Practice, 23(4), pp. 19-39.

Dyer, W.G. (1986). ‘Cultural Change in Family Firms: Anticipating and managing Business and Family Transitions’. San Francisco, Jossey-Bass.

Grint, K. (2010). ‘Leadership, a very short introduction’. Oxford University Press, London.

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[Accessed: 18 January 2012]

Ibrahim, A. & Ellis, W. (1994). ‘Family business management: concepts and practice’. Dubuque, IA: Kendall/Hunt.

Sorensen, R.L. (2000).’The Contribution of Leadership Style and Practices to Family and Business Success’. Family Business Review. Vol. 13, no. 3, pp. 183-200.

Tagiuri, R. and Davis, J.A. (1996). ‘Bivalent attributes of the family firm’. Family Business Review, Vol .9, pp. 199-208.

Timmons, J. & Spinelli, S. (2003). ‘New venture creation: entrepreneurship for the 21st century (6th ed.)’. New York: McGraw-Hill Higher Education.

Vallejo Martos, M. (2005). ‘Cuando definir es una necesidad. Una propuesta integradora y operativa del concepto de empresa familiar’. Investigaciones Europeas de Dirección y Economía de la Empresa. [The Need to Define: Towards an Integrative and Operational Definition of the Family Firm], 11, pp.151-171.

Vallejo, M.C. (2009). ‘Analytical Model of Leadership in Family Firms Under Transformational Theoretical Approach: An exploratory study’. Family Business Review. pp. 6.

Ward, S. (2012). ‘Leadership’. About.com: http://sbinfocanada.about.com/od/leadership/g/leadership.htm

[Accessed: 18 January 2012]

Westhead, P., Howorth, C. and Cowling, M. (2002). ‘Ownership and management issues in first generation and multi generation family firms’. Entrepreneurship and Regional Development, 14(3), pp. 247-269.