FAMILY businesses are the economic engine of many nations.
They are often credited for nurturing entrepreneurial talent across generations and creating employment.
However they seldom last.
A famous Mexican adage says, “Father, founder of the company, son rich and grandson poor”.
This can be construed as the life cycle of most family businesses all over the world.
The founder establishes a competitive business, the founder’s children reap the fruits of his labour and they leave the founder’s grandchildren with a shadow of the original entity.
In fact, most family businesses worldwide do not survive beyond the third generation.
Statistically, only 15 percent of family-owned enterprises continue to the third generation.
This is a cause for concern because approximately two-thirds of all businesses in the world are family businesses.
In fact, some large international corporations such as Wal Mart, Richemont, Nike, Volkswagen, Samsung and Armani are family-owned businesses.
Now, given that the Zimbabwean economy today comprises of a significant number of family-run Small to Medium Enterprises (SMEs), it is worthwhile to discuss how a family-run operation can become more effective. There are two attributes that a successful family business should have.
These are strong social capital and a strong bureaucratic structure.
Social capital refers to “goodwill, fellowship, sympathy, and social intercourse among the individuals and families who make up a social unit”.
Social capital can also be defined as the shared values and understandings that enable people to trust each other and work together.
Basically, social capital refers to the shared principles, values and ideas that inspire strong relationships between people. There is need to emphasise that social capital is pivotal for the success of any organisation. The more social capital an organisation has, the more competitive it is because its leaders have shared values and strong relationships that allow for unity of purpose, principled decision making and a clear business structure.
Large corporations tend to have a board of directors with substantial social capital.
However, family businesses often lack social capital, particularly in Zimbabwe.
In fact, family businesses in Zimbabwe are often competitive when the founder is still alive.
When the founder dies, they tend to contract. This is because relationships among the second generation family members are often weak and consequently the leaders of the business do not have unity of purpose.
Such businesses are characterised by qualities such as hatred, suspicion, jealousy, mistrust, fear, greed, superstition and paranoia, resulting in poor decision making, misuse of resources, rivalries among the business leaders and stagnation.
Ultimately, the business becomes inefficient and uncompetitive owing to weak leadership.
Two ostensible indicators of social capital within a business are employee satisfaction levels, and employee turnover rates. If the workers in a family business are generally unhappy with their work conditions, and if the management constantly hires and fires workers, then that business arguably lacks social capital.
An efficient bureaucracy has six fundamental characteristics which should be applied if a family business is to be successful.
These characteristics are:
Hierarchical order of authority
The business must have a clear structure in terms of title ranks and roles so that there is no confusion in terms of who is responsible for what.
Appointments must be made formally based upon merit, and not nepotism or favouritism.
Roles must be assigned based on their technical competency, and not based upon blood relation, age, or gender.
Fixed monetary salaries
Employees must be paid a pre-agreed salary that is tied to a pay grade system.
It must be noted that when employee salaries are late, it is a sign of organisational inefficiency.
Tau Tawengwa is a social researcher. He is also skilled in Labour Relations and Organizational Management. He has a Master’s Degree in Industrial Sociology and Labour Studies from the University of Pretoria. Contact him on [email protected]
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