Lessons from family-run companies

Family-controlled businesses (FCBs) are commonly seen as being subject to stagnation, clannishness, cronyism and rash leadership. Yet many such businesses are highly successful.

by Long Range Planning 38, 2005
Last Updated: 23 Jul 2013

A study of 46 successful and 24 struggling FCBs identifies four main priorities: the 4Cs of continuity, community, connections and command. Each has its advantages and disadvantages, and successful FCBs have effectively exploited the 4Cs, while less successful rivals have fallen victim to their negative aspects.

The problem is that each of the Cs, when taken alone or to extremes, can have a negative effect. Continuity, for instance, becomes stagnation, while community becomes insularity, connection becomes dependence and command becomes carelessness.

As a result, companies emphasising only community and continuity can become too narrowly focused and ignore their environment; for example, producing quality goods that no-one will pay for. They need connection with outside parties such as clients, suppliers or partners to offset this insularity and get in touch with the market. By contrast, companies emphasising only command might take too many risks and stray from their areas of expertise.

The successful FCBs therefore tended not to rely on one or two elements, but scored highly in all, unlike the unsuccessful companies. All thriving FCBs employed a blend of the 4Cs to sustain competitive advantage, using them to build capabilities and resources and to drive the leadership and organisational practices that shape them.

However, the company's emphasis varies according to strategy. FCBs that thrived as innovators, such as Michelin, W.L. Gore, Tetra Pak and Fidelity, were especially strong on the command dimension because leaders were free to make quick and innovative decisions and to seize opportunities.

Quality leaders or craftsmen, such as the New York Times, the brewer Coors and the retailer Nordstrom, favoured the continuity dimension as they invested deeply in core competences and employed community to recruit and motivate the best human resources, thus improving quality.

Operators such as Wal-Mart and Ikea created a new business model in which they were able to exploit a particular part of the value chain via a superior infrastructure and to partner others for the rest. They emphasised continuity - long-run investment in creating the perfect infrastructure - and connection to make the most of family contacts in partnering.

Although the 4Cs are especially accessible to FCBs, they are attainable to disciplined non-family enterprises as well, so long as the board and top management let them bloom. The neglect of the 4Cs by so many businesses makes them an especially attractive source of competitive advantage. Companies such as Berkshire Hathaway, Johnson & Johnson, Merck and the old HP have thrived by exploiting them.

Moreover, absence of the 4Cs at organisations such as Enron and WorldCom contributed to these companies' decline. They emphasised the individual executive rather than the corporate community, the transaction over enduring connections with stakeholders, the short term over continuity, and opportunistic leadership over courageous command. The lessons for all companies are clear.

Source: Management insights from great and struggling family businesses
Danny Miller and Isabelle Le Breton-Miller
Long Range Planning 38, 2005

Review by Roger Trapp 

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