Family Firm(s) Outcomes Model: Structuring Financial and Nonfinancial Outcomes Across the Family and Firm

(Authors: Daniel T. Holt, Allison W. Pearson, Jon C. Carr, and Tim Barnett)

Research Applied précis prepared by Frank Hoy, Worcester Polytechnic Institute

We all know that many family business owners have different types of goals than do the executives of non-family enterprises, especially publicly-traded corporations. In spite of this awareness, researchers have predominantly attempted to measure family firm performance by financial measures. This limits the conclusions that advisors and practitioners can draw from what the researchers report. If a critical goal for your client is to employ family members or to have a positive impact on the community where the company is headquartered, can you (as the advisor/consultant) help if you only focus on achieving superior financial performance?

The authors of this article begin by acknowledging that family businesses are not all the same, so why, for example, try to make businesses in which the family comes first the same as those in which the company comes first, or for those that try to maintain a balanced approach? That observation results in their proposal for what they label a “holistic approach” to viewing the outcomes firms desire and accomplish.

First, they build on prior research that argues for looking at financial outcomes (profits, sales, shareholder return, etc.), at operational outcomes (product quality, managerial efficiency, etc.), and at external outcomes (importance to shareholder, managers, customers). They extend their model to address family outcomes and the interaction between the business system and the family system. They do not ignore financial performance. The authors include a block labeled firm-specific financial outcomes. They add firm-specific nonfinancial internal outcomes. Quality and efficiency are among such outcomes, but also job satisfaction and organizational commitment. The third block in the model is firm-specific nonfinancial external outcomes. Examples provided for this block are customer loyalty, customer satisfaction, firm reputation and image, and social responsibility.

Next, the authors apply their model to family outcome measures. Under financial outcomes are the family’s net worth, control, return, and more. There is a long list of nonfinancial internal outcomes, beginning with family happiness, emotional well-being, and harmony. The nonfinancial list is shorter: community embeddedness, family firm prestige, and legacy. For a given family enterprise, owners or advisors could easily adjust the model to add, delete, or revise the outcomes, depending on what is important to those involved. See Figure 1 in the paper for more details about the model.

Although the article emphasizes the application of theories for future research, suggestions can be found that are relevant now for practitioners and advisors:

• What looks like a financial goal may in fact be a means to a different outcome, such as corporate philanthropy, or building wealth to secure independence for a family member not active in the business. The latter is one form of what the authors label “fulfillment of familial obligations.”
• A stated goal of family health may be measured by multiple outcomes that can vary from family to family. These outcomes are often subjectively measured: emotional well-being, family happiness, love, intimacy, cohesion.
• Outcomes do not always lead to accomplishment, but can also be the avoidance of something negative: conflict, resentment, isolation.
• The authors encourage giving attention to image and legacy, and they add the notion of prestige. These issues are too often left unspoken as attention is given to financial outcomes, yet they may be key drivers for owners of the business.
• Finally, advisors can respond to the recommendations of the authors by calling on researchers to take on more serious study of nonfinancial outcomes of family businesses in order to provide better insights for practice.

Go here to read the complete article.

About the contributor

Frank Hoy is the Paul R. Beswick Professor of Innovation & Entrepreneurship at Worcester Polytechnic Institute. He is an FFI Fellow, a former board member and recipient of the 2009 Barbara Hollander Award. Frank can be reached at [email protected].