Academic journal article Journal of Business and Entrepreneurship

An Empirical Examination of the Stages of Development of Family Business

Academic journal article Journal of Business and Entrepreneurship

An Empirical Examination of the Stages of Development of Family Business

Article excerpt

ABSTRACT

Research in family business has produced several stages of development models. Generally, these models have been developed through case research with historical or anecdotal data. This paper reports successful classification of family businesses into stages using current, empirical data. The findings provide preliminary support for a three stage rather than a four stage model of the family firm.

INTRODUCTION

Sociologists (Berle & Means, 1968) and economists (Galbraith, 1971) published twenty to twenty-five years ago held out little hope that family-owned and managed business would remain viable as an economic institution. Contrary to their predictions, the 90s are witnessing increased interest in family business. It is not the demise of an institution which provokes this interest but the recognition of the economic and personal benefits of families associating for business pursuits. Not only are the third or fourth generations of some American families preparing to assume positions of influence in large and medium sized companies, but new family enterprises are being formed which may eventually join the ranks of the so-called dynasties. There are numerous success stories in which entrepreneurship is a family project. While the contemporary family business has changed just as the contemporary family has changed, relationships of blood and marriage remain a fact of life in management of businesses of all kinds and sizes.

In this study, we define a family business as any business in which decisions regarding its ownership or management are influenced by a relationship to a family or families (Dyer, 1986). While the presence of blood and marriage relationships in many businesses is clear, the significance of those relationships for the business has been less obvious. Hollander (1988) traces the progress of thought about family business from what she calls a "rational" approach to a systems approach. The rational approach generally treated family presence in a business as a complicating factor at best and at worst a burden which the business was not likely to survive. The rational approach prescribed removal of family interests and family control from the business as early as possible (Levinson, 1971). By contrast the systems view of the family business treats the presence of family relationships as one of several system components without making value judgments about the components (McWhinney, 1984; Hollander, 1988).

FAMILY BUSINESS THEORIES

Some have sorted out the complexities and varieties of family businesses by posing evolutionary models to describe what they have observed. Application of organic concepts of growth and development to individuals, families, and organizations have been common and useful. The family business has for many researchers taken on a life of its own, related to but still distinct from the individuals which make it up. Stages of development models serve at least two needs. They capture the dynamics of a family business as it grows and develops over time, and they serve to explain the enormous differences among family businesses by suggesting that they are at different stages in their life cycles. These stages allow us to consider three or four "typical" family businesses instead of one. They allow anticipation and possibly prevention of problems and aid in diagnosis and prescription of solutions.

Family business research has produced a number of models of family business development. These models have been used as independent tools for intervention and research in family businesses (Churchill & Hatten, 1987; Barnes & Hershon, 1976). They have also been used as components of systems models of family business (Hollander, 1988; McWhinney, 1984; Ward, 1987). Developmental models are key conceptual tools for understanding and working with the family business. The research reported here is an attempt to empirically test the theory of stages of development of family businesses. …

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