There is no doubt that family businesses contribute significantly to the economic growth of any society today. In the United States, around 80% of all businesses are family-owned, generating 50% of the country’s annual GDP (Lank, 2000). Similarly, family businesses constitute as much as 70% of all UK businesses employing 50% of the country’s workforce (Institute for Small Business Affairs, 1999). However, not all family businesses are large; the majority of them are small and medium sized. This paper looks at small family businesses and tries to understand how they plan their activities for the purpose of their development. The author also attempts to find out to what extent the businesses utilise formal strategic planning techniques.
There are many definitions of a small business. Most of them use the size of the business, as indicated by either asset value or turnover, or, more commonly, by employment. However, different authors give different figures, even in terms of the number of employees. The number ranges from 50 to 500 (Bridge et al, 1998; Hodgetts, 1982; Tomkins, 2001). Hodgetts (1982) outlines small businesses as follows: - manufacturing firms tend to have 250 or fewer employees; - wholesaling: $5 to $15 million in annual sales, depending on the industry; - retailing and service: $1 to $5 million in annual sales, depending on the industry.
At the same time, ‘small’ is a relative term, and what is relatively small in one industry may be quite large in another (Bridge et al, 1998).
Similarly, different scholars give varying definitions of a family business. Thus Bridge et al (1998) suggests that a family business refers to any business owned primarily by members of the family, who ‘operate it for the present and future benefit of at least some members of that family’. Vinton (2004), however, does not mention any economic paradigm but instead focuses on the issue of succession as the primary determinant of a family business. She stresses that a family business is a business which the owner intends to pass to a family heir. This assumption, though, can be challenged under certain circumstances. What if a business is run exclusively or primarily by family members for their present benefit, however, a decision is made at some point to sell it? In this case, there is no succession at all as the business is being taken over by someone else. But does it make it a non-family business, at least today? (Burns, 2001). Family businesses are more likely to be over-represented in agriculture, forestry as well as in distribution, hotels and catering. They are, however, underrepresented in the banking, finance, insurance and business services (Westhead and Cowling, 1998). The reason is that the latter industries require massive amounts of investment and highly technical specialist knowledge. They must also be certified to provide their services and are heavily regulated by the government (Vinton, 2004).
Family businesses, especially small ones have a number of advantages before their bigger institutionalised rivals. First of all, family businesses can often build a reputation for excellent service, as they tend to develop closeness and long-lasting relationships with their customers. Family members are often ready to go an extra mile and put more effort in what they do because they have the sense of ownership and belonging. They realise that the harder they work, the more rewards they will reap. As an organizational behaviour academic would put it, their expectancy is high (Robbins, 2003). Small family businesses are often free from stock market pressure and can make a longer-term view and think strategically: they are not required or expected to deliver immediate huge profits. In other words, they are not forced to vacillate and can pursue a consistent long-term strategy (Bridge, 1998).
However, there are disadvantages, too. The pre-eminence of the controlling family, centralised decision-making and...
Please join StudyMode to read the full document