In Adendorff (2004) it is noted that the definition of a family business must indicate the uniqueness of the business type. Family involvement and influence are noted as distinguishing features (Chrisman et al, 2003; Cullen, 2007; Pieper & Klein, 2007). This family influence and involvement is evident in the pattern of ownership, management,
succession and governance and is said to have a material impact on goals, strategies, structure, and the way these are designed, planned and implemented (Adendorff, 2004; Dyer, 2006; Nicholson, 2008; Nordqvist & Melin, 2010).
Family involvement results in the overlap of the family and business systems, and the reciprocal impact of the family’s influence is a distinguishing feature of the field of study with the interaction between family and business being mutually influential (Smyrnios, Romano, Tanewski, Karofsky, Millen & Yilmaz, 2003; Sharma, 2004; Pieper & Klein, 2007; Pieper, 2010).
The degree and nature of influence exerted by the family through the interconnectedness of the interrelated systems presents family businesses with a set of potential advantages and or disadvantages (Adendorff, 2004; Nicholson, 2008; Pieper & Klein, 2007) and that success depends on how the unique characteristics of the family business are managed (Chrisman et al, 2003; Sharma, 2004; Klein et al, 2005; Cullen, 2007).
Nicholson (2008) introduces four themes within which unique family business features present advantages or pose risks; these themes are: ownership identity, intergenerational transmission, the kin/non-kin dynamic and wildcard inheritance.
Ownership identity provides a business with a sense of purpose and identity (Pieper, 2010) and is greatly influenced by the cultural dimensions and characteristics of the family (Sorenson, 2000; Chrisman et al, 2002). The shared vision, attachment and involvement of family members to the business can lead to a high level of commitment, resulting in high levels of attention paid to service, quality, value chain member relations, durable networks and ethical conduct (Nicholson, 2008). Commitment and cohesion have been identified as important drivers of longevity and sustainability (Astrachan, 2010). The shared cultural aspects of history and common language aids in the creation of a shared vision and shared values, fostering synergy between individuals and the family and business systems (Adendorff, 2004; Klein et al, 2005).
Risks identified are being overly attached to the business, failing to seek external advice (Stavrou, 1999; Nicholson, 2008; Astrachan & Jaskiewicz, 2008; Zellweger & Astrachan, 2008; Pieper, 2010).
Intergenerational transmission forces family members and especially family business founders to adopt a long term view to ensure continuity of the business, family wealth and identity. This results in long term financial and strategic perspectives being adopted with risk-averse strategies being adopted. The risks identified are the possibility of discontinuity due to a lack of successor availability and overly conservative decision-making, resulting in poor performance (Nicholson, 2008; Carter & Justis, 2009).
Congruent and synergistic kin and non-kin relations can result in loyalty, teamwork, flexibility and trust, resulting in social capital embedded in the organisation’s culture that can produce an inimitable competitive advantage. Generating the synergy is by no means necessarily easy to accomplish and conflicting goals between family members as well as between kin and non-kin can result in conflicts (Smyrnios et al, 2003; Nicholson, 2008; Pieper, 2010).
The theme called wildcard inheritance (Nicholson, 2008) pertains to the generational differences between current owners or executives and successors. The successor may bring renewal, diversity and pragmatism to the business, generating advantages. There is a risk, however, that the fit between the successor and the demands of the business may not be congruent, resulting in poor decision making (Nicholson, 2008; Carter & Justis, 2009).
Nicholson (2008) further states that the family business is uniquely close to human evolutionary origins through the overlap of work and the family, the intergenerational transfer of responsibility for the family as an economic unit and its ability to form cohesive and cooperative bonds with kin and non-kin.
Litz (2008) emphasises the interconnectedness of the family and business systems in his analogy of the family business and the Mobius strip. The family business dynamic is described in terms of two independent systems; the family and business systems which both require inputs and produce outputs. The outputs of the family are centred on inter- member relations while the inputs include relational affection and interpersonal attention with the aim of creating a supportive and developmental environment for family members. The inputs for the business are the resources (physical, human and organisational) that enable customer demand satisfaction. The businesses outputs are customer centred.
Litz (2008) then states that when cross-system transfers of inputs and outputs occur a business becomes a family business and the family becomes a business family. Tangible and intangible transfers take place (Nicholson, 2008). Tangible transfers include finances and labour, while intangible transfers include values, succession expectations and ideologies, with the operative challenge being in determining the degree of influence exerted on the business by the family and vice versa (Cullen, 2007; Litz, 2008).
Klein et al (2005) developed the F-PEC scale for assessing if a business is a family business, the degree of family influence or force exerted and the complexity of the influence dynamic, on the family business (Lumpkin et al, 2008).
The F-PEC scale was designed to measure the three dimensions of family influence; power, experience and culture, and is cited as being a reliable tool in assessing the domains of family influence to aid in discerning whether a business is a family business or not (Klein et al, 2005; Cullen, 2007). The power dimension refers to the role the family plays in financing, leading, managing and governing the business and measures it in terms of ownership, governance and management (Sharma, 2004). The experience dimension refers to the combined experience of contributing family members in terms of the numbers and generations of family members involved in their
different roles within the business (Sharma, 2004). The culture dimension refers to the values and commitment of family members (Klein et al, 2005).
From the above discussion, it is evident that the uniqueness of family businesses lies in the interconnectedness of the family and business systems which then by tangible and intangible transfers, reciprocally influence each other. The extent and nature of influence exerted on the business and in turn, on itself, presents a unique blend of risks and advantages in terms of individual and family identity, decision making in management and governance, strategic and succession planning, conflict management and team synergy and balancing generational differences; that with cultural differences serve to differentiate family businesses from non-family businesses.