Strategic Management of the Family Business: Past Research and Future Challenges.(Brief Article)

This article reviews the literature on family business from a strategic management perspective. In general, this literature is dominated by descriptive articles that typically focus on family relationships. However, the literature does not usually address how these relationships affect the performance of a family business. Taking a strategic management perspective, we outline a new set of objectives for family-business research. We also identify some of the key issues and gaps that should be explored in future studies if research is to contribute to improving the management practices and performance of family firms.

Introduction

Currently, family-business research is largely descriptive rather than prescriptive. Most of the literature that has taken a prescriptive approach has done so from the perspective of how to improve family relationships rather than business performance. While a better understanding of the family in the family-business dyad is valid and useful, there are other goals that deserve to be pursued as well.

There have been a number of recent review articles on family business by scholars such as Friedman (1991), Handler (1989), Marshack (1993), and Wortman (1994). These reviews, while aware of the literature's orientation toward family rather than business issues, have largely taken the literature as is. In this article we review the family-business literature from a strategic management perspective with the purpose of examining the extent to which this literature deals with issues that might lead to improvements in the management practices and performance of family firms. Recent work has indicated a need for such a perspective (Harris, Martinez, and Ward, 1994; Wortman, 1994).

In this article we attempt to identify, as comprehensively as space allows, the important issues and directions in which future research can prove especially useful in strategic management. Since most of the research has not been conducted from the strategic management viewpoint, many studies fit only loosely into our framework. Unfortunately, with this extent of coverage, it is not possible to explore each topic in detail and do justice to all the researchers and theorists who have made contributions. For example, we exclude topics such as taxation, health, and family foundations. We include, however, some articles that deal with the relation between family and work, recognizing that these relations can have an important influence on the strategic management process in family firms. Thus, what follows is a discussion of the family-business literature's progress in strategic management issues rather than a review that analyses the contents and methodologies of relevant articles.

The next section provides a definition of family business and discusses a framework steeped in the paradigm of strategic management by which, we believe, progress in the field of family business toward improving family-firm performance can be judged. We then use this framework to discuss the family-business literature and present an agenda for future research. We provide our conclusions in the final section.

The Strategic Management Process

Before describing the strategic management process and evaluating the literature on family business from this perspective, it is important to define what we mean by a family business. Following Chua, Sharma, and Chrisman (1996), we define family business as a business governed and/or managed on a sustainable, potentially cross-generational, basis to shape and perhaps pursue the formal or implicit vision of the business held by members of the same family or a small number of families. This definition is important from a strategic management perspective because it implies that there are goals being pursued, a strategy designed to fulfill those goals, and mechanisms in place to implement the strategy and control the firm's progress toward the achievement of its goals. This is what strategic management is all about.

It is important to point out that this definition is based on behavior instead of a list of components. It encompasses the nuclear-family-controlled firm and even the publicly held firm that is shaped and managed by two or more generations of a family that might not hold controlling interest in the firm. Therefore, a large number of shareholders, which is the legal criterion for classifying companies as publicly held, does not automatically disqualify a firm as a family firm. Consequently, we only discuss family versus non-family firms instead of family, closely held, or privately held versus publicly held firms. While this definition explicitly allows for multiple-family ownership, for expository convenience throughout the rest of this article we refer to the controlling family in the singular.

The basic strategic management processes for both family and non-family firms is similar in the sense that a strategy, whether implicit or explicit, must be formulated, implemented, and controlled in the context of a set of goals. In this sense, even performance is similar, since it should be measured with respect to achieving a set of goals. The differences are in the set of goals, the manner in which the process is carded out, and the participants in the process. For example, in family firms, the owner-family is likely to influence every step of the process (Harris, Martinez, and Ward, 1994), whereas in non-family firms, family influences are at best (or worst) indirect.

These similarities and differences hold substantial opportunities for family-business studies. The similarities provide the field with a general working model of the factors that should affect a family firm's performance. The differences, or possibility of differences, suggest that each aspect of the strategic management process in family firms needs to be carefully explored and compared to the processes used in other family firms and in non-family firms. Such comparisons promise to improve the management practices in both types of firms, since the cross-fertilization of ideas cannot proceed effectively without an understanding of what those differences are, why they have occurred, and their results.

The strategic management framework with which we review the literature is based on a simplified model of the strategic management process (Andrews, 1971; Hofer and Schendel, 1978; Schendel and Hofer, 1979). Figure 1 provides a schematic diagram of this model. As the figure shows, the process is dynamic and interactive. Goals must be selected, strategies formulated to achieve those goals, and the chosen strategy implemented. Furthermore, at all stages it is necessary to select and evaluate alternatives, make decisions, and ensure that effective control processes are in place in order to make adjustments where needed. How well an organization accomplishes these tasks in light of the opportunities and threats in its environment, the resources it possesses or can procure, and the values and noneconomic responsibilities held by its managers, determine its performance.

Within this framework, the family business may differ from non-family businesses because the controlling family's influence, interests, and values have overriding importance. How this concentration of control, influence, and values affects the strategic decisions and performance of family firms should be of great interest to family firms, but has not yet been adequately explored. Using this model to set the agenda, we see that for future research to improve familybusiness management, it must help managers do one or more of the following: more accurately define problems and opportunities concerning the environment or organizational capability; refine goals and objectives; generate better strategic decisions; improve the implementation of strategies, policies, procedures, and tasks; or facilitate the evaluation and control process.

This does not mean that we necessarily subscribe to what Hollander and Elman (1988) characterize as the "rationalist approach" to family-business management. Proponents of this approach (Cohn and Lindberg, 1974; Levinson, 1971) advocate the excision of family considerations from the business system. They argue that the two subsystems of family and business are so different that they cannot possibly co-exist except in the most unusual situations. In contrast, as shown in the bolded and italicized text in Figure 1, our approach accommodates family influences in various forms and in all parts of the process. Family interests and values are incorporated into the goals and objectives set for the firm. Family relationships influence the strategies considered. Succession within the family can be one of the most important strategies determining the longevity of the firm. Decision criteria are affected by family considerations built into the firm's goals and the choice of alternatives to consider. Family involvement in implementation creates its own dynamics, politics, and possibilities. Finally, family relationships and how the family perceives the role of non-family managers can make it easier or harder to constructively evaluate or control decisions and actions.

The key is to understand these influences and how to harness the potential strengths they convey, and to deal with. The weaknesses with which they encumber the firm. In this sense, our view is closer to "systems theorists" such as Barnes and Hershon (1976), Hollander and Elman (1988), and McCollom (1988), who recognize the importance of both subsystems and seek ways to effectively integrate them. What we most want to accomplish with this approach is to connect studies of family businesses with the achievement of their goals and objectives, whether those goals be family-oriented or business-oriented.

As implied above, to gain a better understanding of how to improve the performance of a family business, two kinds of research are key. First, it is necessary to find out how a family business differs from a non-family business with respect to the strategic management process. Isolating these differences makes it possible to determine the reasons for them. Where differences affect performance positively, research should be targeted toward strengthening or exploiting them fully. Where they have a negative impact, research should be directed toward minimizing or eliminating their negative influences. As an added benefit, comparative research of this type allows researchers, consultants, and practitioners to appreciate the extent to which knowledge concerning business in general applies to family businesses in particular, and the reasons why it will or will not apply.

Second, studies that compare and contrast more and less successful family businesses are also essential. Comparative studies of this type will contribute further to our understanding of the family's influences on the strategic management process, how differences in those influences affect performance, and the coping mechanisms used by high-and low-performing firms.

We also recognize that not all family businesses, or non-family businesses, are alike, nor should they be. Thus, we realize the need to acknowledge the legitimate contingencies that cause one family firm to act differently from another. However, what we propose is nothing more than good science, because the classification and investigation of homogeneous populations of family firms is essential for progress in the field (cf. Chrisman, Hofer, and Boulton, 1988; McKelvey, 1982).

In all, we reviewed 204 family business related articles appearing in 32 journals from 1980 to 1994. Only about 37% (77 out of 204) of these articles are based on empirical research. They are catalogued in Appendix 1. Family firms' penchant for privacy and the early stage of the field's development could explain the relative paucity of empirical studies (Davis, 1983; Ward, 1987). The small number of empirical studies clearly emphasizes the need for more research.

Goals and Objectives

Due to family involvement, the goals and objectives of a family business are likely to be quite different from the firm-value maximization goal assumed for publicly held and professionally managed non-family firms. However, very few attempts have been made to identify these differences. Some authors believe that the family firm's goals could be family or business centered (Singer and Donoho, 1992). Other researchers see the goals as changing through the interaction of the needs of the family and the firm (Danco, 1975; Davis and Tagiuri, 1989; McGivern, 1989).

For example, Ward (1987) proposes a three-stage development model of the family business. In the first stage, the needs of the business and the family are consistent; the owner-manager makes all decisions. Although families are not necessarily monolithic units, at this stage of a family business's development, research on the motivations and characteristics of the founder can be particularly useful in providing some indication of the goals of family enterprises (Hollander and Elman, 1988). The current stream of research in this area (e.g., Dyer, 1986; Malone and Jenster, 1992) runs parallel to studies of the entrepreneur's characteristics, except that the entrepreneurship literature concentrates on the early life of the firm and the family-business literature deals with a firm in its later stages, especially when succession is imminent. Thus, a careful examination of entrepreneurial research may yield additional insights.

In the second stage, the owner-manager remains in control, but the growth and development of the family's children are of primary importance to the family. As a consequence, the goals of the family firm are likely to change, reflecting the greater importance of finding a place and securing a future for sons and daughters.

In the last stage, business and family needs can come into conflict. The business can become stagnant, in need of regeneration; the owner-manager can become bored or retire; and maintenance of family harmony can become the primary family goal. Again, business goals can change as a result of family needs or a desire to achieve a turnaround in the firm's economic performance.

The point of all this is that it is necessary to understand what the business's goals are, who sets them, and why the business selects particular goals. Researchers should also be cognizant of the differences in goals of family firms in these stages and avoid lumping such firms together for study. Otherwise, findings about behaviors, based on averages, represent none of the firms.

An indication of how a family firm's goals can differ and affect decision-making can be gleaned from certain ethnic studies. In studies of immigrant Chinese and African-American family businesses, researchers (Dean, 1992; Wong, McReynolds, and Wong, 1992) found that succession is not a priority, because families view their firms as the means to prepare children for a professional career, not as a family legacy. Even though some family firms might not seek continuation of the business through succeeding generations, around a quarter of the articles we surveyed discuss succession.

It is unclear to us whether succession is a goal or a means to a goal. An empirical study on the goals of family business by Tagiuri and Davis (1992) found the following to be the six most important goals: to have a company where employees can be happy, productive and proud; to provide financial security and benefits for the owner; to develop new quality products; to serve as a vehicle for personal growth, social advancement, and autonomy; to promote good corporate citizenship; and to provide job security. It is interesting that none of these goals, and only one of the 74 goals included in that study, are directly concerned with the next generation. Extrapolating from this study, succession could be, in some …