Thanks to Maria José Parada, lecturer in the department of Strategy and General at ESADE, for her thoughtful article on the evolution of the three-circle model and the creation of new models as they apply to our understanding of the overlapping roles created by family enterprises.
Where it started
There are a number of ways in which family businesses differ from their non-family counterparts. One differentiating way lies in the overlapping roles family members often play in the family business. These overlapping roles have been modeled in the three-circle model first developed by Renato Tagiuri and John Davis in 1982 and further expanded upon in 1996, Bivalent Attributes of the Family Firm, Family Business Review, June 1996.
As almost all practitioners know, the three-circle model shows the overlapping roles of family, business and ownership where family members play overlapping roles in the intersection of these circles when they become owner-managers, family-employees, or family-owner-employees. These overlapping roles may lead to role conflicts as each system has different logics.
Since the beginning, this model has become a widely used framework for its ease and graphic understanding and has been used as a comprehensive model for understanding the overlapping roles in a family business.
Where it went
Taking the three-circle model as it applies to business further, practitioners and academics have also used it as a way to understand family business systems, trying to capture the complexity of such systems. However, while the model is useful for understanding the overlapping roles of family members, using it for understanding family systems gives only a partial view of their complexity. This is because a system implies not just roles, but also rules, logics, and functions that are not all being captured in the three-circle model.
So while the three-circle model is useful, its use as a model for understanding the complexity of the family system behind the family business might fall short. In short, the three-circle model works in a descriptive way to identify the roles in the management, ownership and business sphere, but it may be an oversimplification of reality if used as a comprehensive model, and even more if it is used as a prescriptive model.
To partially address this problem, in 1997, Gersick et al. expanded the idea of the three-circle model by adding a temporal dimension with three circles, approaching them as axes. This developmental model has also been extensively used to understand the impact of the passage of time. The model, however, still only captures part of the complexity. For instance, in the family axis the sequence is related mainly to the first generation, as the axis moves from young family business to passing the baton. Similarly, the ownership axis, while trying to explain how ownership gets dispersed over time, may result in confusion as it focuses mainly on the family instead of the ownership.
Where it’s going
- Communication patterns
Recently other models have followed systems theory and have placed the individuals as the center of the action (e.g. the Bulls Eye Model of Pieper and Klein, 2007; and the Unified Systems Theory of Habbershon et al., 2003). The use of these seminal models has been instrumental for practitioners and academics in the field. Nonetheless, research needs to search for models that are more holistic and that show the complexity of the family, business and ownership systems, which may not be sufficiently reflected if only centered on the individuals, which does not allow us to see the whole system or the relationship among the different systems.
In connecting the different models with governance structures, practitioners have relied on these previous models to prescribe governance structures that can allow the family business to manage overlapping roles. The question arises, however, as to what extent a specific model is able to capture the dynamics of these overlapping systems. These simple models that have helped in clarifying the complex reality of family businesses have probably led to an over simplification in the understanding of governance structures with this regard to family businesses. For example, Corbetta and Salvato (2004) mention the propensity to prescribe a “one size fits all” approach to the implementation of governance structures, particularly the board of directors, in the family business.
Recent research in Systems Theory shifts the focus from individuals (and their overlapping roles) to systems constituted by communication patterns. Von Schlippe and Hermann (2013) explain how the Theory of Social Systems may help in coping with the complexities that accompany family businesses. Their work plants the seed for a model that can explain from another perspective how these overlapping systems work and how we can better understand the family business and cope with its complexity. This shift means to focus on communication patterns rather than to focus on understanding the individual roles.
New approaches try to cope with these complexities that might be useful for practitioners when suggesting governance structures to family businesses. Von Schlippe and Hermann (2013) show an interesting path to understanding the systems as contexts where communication patterns happen and meaning changes according to its logic. Therefore, if we consider governance bodies as specific contexts, we can directly relate the different governance bodies (such as family council, board of directors, executive committees, or shareholders’ assembly) to the type of communication pattern in each system (ownership demands a legally secured communication, family demands a relationship communication, and business demands a decision-making communication), and find ways to deal with such complexity by understanding that these different communication logics may be present at the same time and lead to conflicts.
- Structural Risk model
Another interesting approach for practitioners is the Structural Risk Model of Gimeno, Baulenas and Coma-Cross (2010) based on complexity and systems theory. These researchers suggest that family businesses need to cope with their family and business complexity with an adequate structure to reduce the structural risk. The authors suggest five dimensions that conform the structure: institutionalization, role differentiation, management practices, communication, and succession. Focusing on the development of governance structures, Gimeno et al. suggest that family businesses need to adapt the functionality of their governance structures to their complexity. Differentiating roles has to do with working in the development of the structure where different contexts are built to clearly separate family, business and ownership systems.
In summary, seminal models have been instrumental in developing the field and helping practitioners understand and explain what a family business is, the overlapping roles family members may play, and the challenges they have to face. These models have been used or individually adapted in creative ways to cover some gaps that were not initially covered, e.g., temporality, complexity, and prescription mode. It is encouraging that new models are being developed to broaden our capacity as practitioners to incorporate and create adequate family business governance structures based on complexity, as Gimeno et al (2010) mention, or on temporality, i.e., a specific moment in time as Nordqvist, Sharma and Chirico (2014) suggest.
Corbetta, G., and Salvato, C. (2004). Family Business Review. The Board of Directors in Family Firms: One size fits all?, 17, 2; 119-134.
Habbershon, T. G., Williams, M., and MacMillan, I. C. (2003). A unified systems perspective of family firm performance. Journal of business venturing, 18, 4: 451-465.
Gersick, K. E., Davis, J. A., Hampton, M. M., and Lansberg, I. (1997). Generation to Generation: Lifecycles of the Family Business. Boston: Harvard Business School Press.
Gimeno, A., Baulenas, G., and Coma-Cros, J. (2010). Family Business Models: Practical Solutions for the Family Business. New York: Palgrave Macmillan.
Nordqvist, M., Sharma, P., and Chirico, F. (2014). Family firm heterogeneity and governance: A configuration approach. Journal of Small Business Management, 52, 2: 192–209.
Pieper, T. M. and Klein, S. B. (2007). The Bulleye: A Systems Approach to Modeling Family Firms. Family Business Review, 20, 4: 301–319.
Tagiuri, R. and Davis, J. (1982) Bivalent Attributes of the Family Firm. Family Business Review: vol. 9, 2: 199-208.
Von Schlippe, A.; Hermann, F. (2013). The theory of social systems as a framework for understanding family businesses. Family relations, 62, 384-398.
About the contributor
Maria José Parada is a lecturer in the department of Strategy and General Management at ESADE Business School. She will be co-presenting Developing the Offspring in a Business Family: A frameworkfor understanding the main dilemmas at the R&E Symposium in London. Maria can be reached at [email protected].