December 2020 < Back
Strategic Resources of High Performing Family Enterprises
There are multiple studies and findings which demonstrate that family firms enjoy better competitive advantage and demonstrate higher performance than non-family firms. It is likely that there are certain unique strategic resources that non-family businessess do not have access to - Family commitment, experience, cohesion and trust.
Family Commitment to the Company: The greater the level of family commitment to the company, the greater the Financial Performance and Non-Economic Goals (value creation in the larger community). The presence of a strong culture of commitment enables the individual interests of family members through behaviors such as loyalty, pride, and a feeling of belongingness to the company, which guide their decisions towards higher performance. In unlisted companies, a culture of commitment is considered as the "common factor" for boosting economic and financial performance alongside such objectives as perpetuity and the conservation of the family's heritage and assets.
Experience increases as new generations integrate into the ownership and management of the company. The intergenerational transition brings benefits to the level of knowledge incorporation (also known as the succession experience curve). On the flip side, higher levels of generational dispersion alter the ownership structure, and the relationships between family members are potentially more vulnerable to differences. Addressing and arresting the root causes of these differences should be a priority to prevent negative effects on performance.
The identity in family business is reflected through the sharing sharing and alignment of values among the family members participating in the company. This cohesion of family-company values occurs when family members, through their participation, accept the mission and values of the company as their own. The greater the level of this cohesion, the greater the willingness of family members to strive for objectives such as the continuity and independence of the company
When family members share a healthy and enriching relationship characterized by trust and respect, such family firms tend to outperform their counterparts. A core element is trust, especially a trustor's belief that a trustee will act beneficially because the trustee cares about the trustor's welfare. High trust within a business environment can enhance firm confidence, stimulate firm performance during times of market uncertainty, and trust facilitates the formation of alliances and resource exchange.
Therefore, many Family Businesses survive over generations because they fulfill the socioemotional needs of their owners in pursuit of non-economic objectives. These, in turn, significantly influence the financial performance of the firm. In the absence of family commitment, cohesion, new generation experiences, trust and increasing unresolved differences in the family, the same strategic resources can lead to premature death of the family enterprise.
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