Research Applied: FBR Summaries for the Practitioner
This issue concludes the June 2014 summaries from FBR. Prepared by FBR assistant editor Karen Vinton, these summaries discuss applicable topics from:
- An Empirical Analysis of the Effect of Internationalization on the Performance of Unlisted Family and Nonfamily Firms in Australia; and
- Toward the Cluster Model: The Family Firm’s Entrepreneurial Behavior Over Generations.
One of the challenges of doing research on small and medium-sized enterprises (SME) is the lack of financial and other data – data that is more readily accessible for large, publicly traded firms. Because of the vital role SMEs play in the Australian economy, The Australian Bureau of Statistics realized the need for better data and developed the Business Longitudinal Survey (BLS) to collect data on firms that employed fewer than 200 employees.
The authors of this paper used a sample of 4,217 firms with 11,821 observations over a three-year period (1996-1998) from a part of the BLS dataset. Their study seeks to answer two questions:
- Do family and non-family unlisted SMEs show significantly different performance levels? and
- What is the differential effect of export intensity on the performance of family and non-family unlisted SMEs?
The major findings of the research are as follows:
- Family-owned and managed SMEs were able to achieve a superior return on assets (ROA) when compared to their non-family counterparts. Further analysis revealed that family SMEs were able to achieve this positive differential through generating superior profit margins (ROS).
- Although the results indicate that export intensity had a significant negative effect on the ROA of SMEs overall, this was not the case for family SMEs and suggest that they perform better in the international marketplace.
- Although family firms are often described as less likely to venture into foreign markets, the results from this study show there are no reasons, on performance grounds, why they should not be encouraged to do so.
Even though this study has some limitations, e.g., data is from one country, data on international activities was limited, and firms in the study do not have the same financial reporting standards as publically traded companies, the findings should give practitioners and family firms much more confidence when deciding whether or not to venture into foreign markets.
Hopefully other countries will follow Australia’s lead and develop more robust data sets for SMEs.
Summary 4: Toward the Cluster Model: The Family Firm’s Entrepreneurial Behavior Over Generations
Nava Michael-Tsabari, Rania Labaki and Ramona Kay Zachary
What do we know about entrepreneurial behavior in family businesses? What impacts that entrepreneurial behavior — the family system? the business system? or both?
A large publicly listed and multigenerational family business operating in the food industry was selected for an in-depth case analysis to explore these issues and others. This firm had operated for more than 75 years, from 1936-2011, across three generations, during which time approximately 25 entrepreneurial events occurred. Data for the analysis came from the company website, press articles, media coverage, external and internal family documents, the family’s private history book, and interviews.
The tables in this article provide many of the details of this family firm.
- Table 1 shows the various events from 1909 (between 1909 and 1934 the only events to occur were births of the principals.) The events table begins in 1936 when the firm was founded and concludes with events in 2011.
- Table 2 shows the evolution of ownership from 1936 to 2001.
- Table 3 is the detailed history of the firm’s entrepreneurial behavior.
Analysis revealed that of the 25 entrepreneurial events, 60% stemmed from the family, while the remaining 40% were for business reasons. Other interesting findings are as follows:
- The business changed over time from a family with a firm, to a family with “clusters” of businesses.
- Family business can be either organic (a single firm), or portfolio (more than one firm). Organic family firms can evolve into portfolio firms over time.
- Family firms can also consist of core businesses, (the primary activity upon which the firm was created) or peripheral businesses (including firms and activities added over time beyond the core).
- In core businesses, the family may be more concerned with protecting the socioemotional wealth dimension of family identification than in peripheral businesses;
- In organic family businesses, the family may be more concerned with protecting the socioemotional wealth dimension of family identification than in a portfolio business.
- Entrepreneurial behavior is less likely in core and organic businesses than in peripheral and portfolio businesses.
Based on their analysis of this case, the authors propose the Cluster Model of entrepreneurial family firms (see Figure 1) as an extension for the two and three circle models. This Cluster Model helps capture family level activity and the growing complexity of the business over generations. (Table 3 shows how the Cluster Model evolved in this family business.)
Practitioners should read this article and encourage their clients to read it as well. It’s an in depth look at one business, but it clearly demonstrates the critical role played by the family system in the evolution of this business over time.
A second finding that practitioners might find interesting is how, over the generations, the attachment to the family identification differed among members of different generations.
Finally, practitioners should find the Cluster Model very useful as a graphic depiction of how a business changes over the years when working with their clients.
About the Contributor
Karen L. Vinton, Ph.D. is a 1999 Barbara Hollander Award winner and Professor Emeritus of Business at the College of Business at Montana State University, where she founded the University’s Family Business Program. An FFI Fellow, she has served on the FFI board of directors and chaired the Body of Knowledge committee. From 1997 through 2011, Vinton served on the editorial board of Family Business Review and is the current assistant editor. Karen can be reached at [email protected].
Stay tuned next week for another issue of The Practitioner.
Yours in Practice,