An article in the June 2015 issue of the Journal of Family Business Strategy, “Value
creation in family firms: A model of fit,” investigates the convergence of
goals, resources and governance in the family firm and how they can either create
or destroy value over time. Value-creation in family firms is a
commonly-debated issue amongst researchers and has led to several empirical
studies and many publications arguing that family firms either have unique
competitive advantages, superior financial performance, or alternately, unique
disadvantages as a result of their “familiness” and idiosyncrasies which are not
present in non-family firms.
While this particular article is neither
easily digestible nor a particularly essential read for the average family
business member nor professional advisor, and while it was also intended to
frame several other articles elsewhere in the journal’s special issue on value
creation in family firms, the authors do make several attempts to outline
relevant questions and areas of exploration for advisors when working with
families, which we will briefly summarize here, followed by some useful and
practical questions for use in work with families.
The authors argue that advisors and
professionals working with family firms must take into account the family
firms’ goals, resources and governance mechanisms in order to accurately draw
conclusions about value creation within the firm, and furthermore, that in
order to create a fit and maximize effectiveness, the three main factors in
value creation (goals, resources and governance structure), should be
prioritized when assessing the “fitting process.”
The authors describe the meaning of “fit”
as the effects between goals, resources and governance as well as the fit of
the specific firm and its surroundings, ultimately calling for integration of
and accounting for the environment, the owners and the organization. An
effective illustration of their concept is depicted in Figure 1, “Model of
value creation in family firms,” which readers of this blog should be able to
find by conducting a simple Google search of images, using the following
specific search phrase: “Fig 1 Model of
value creation in family firms 64 N. Kammerlander Journal of Family Business
Strategy 6 2015.”
The authors write:
… even when a family firm has managed to build up
unique resources, if these resources do not match the requirements of the
firm’s context, value creation is unlikely … The deployment of even the most
useful and valuable resources is inefficient if governance structures are set
up in a way that impedes purposeful resource orchestration. When there is a
misfit between the family-specific goals in the family firm and the output
created by the firm’s specific resources within the given governance
structures, the created ‘value’ will likely not be perceived as being
‘valuable’ by the family owners. Creating fit among several ‘ingredients of
value creation’ – in our framework, goals, resources, and governance – raises
the question of which of the three elements – goals, resources, or structure –
should be prioritized when initializing the ‘fitting process.’
Cautioning professional advisors to assess a
family firm’s governance structures carefully in order to distinguish between
actual and ceremonial governance elements, the authors provide the following
questions to provoke thought and use in discussions with family members:
What
are the main goals of the family owners?
What
resources are available?
Do
the available resources support or hinder the family owners’ goals?
How
can we adapt the resource base through leveraging, acquiring, and shedding
resources to attain those goals?
What
governance structures are in place in the family firm and why do they exist?
Are
things this way for historical reasons or because of ‘‘fit’’?
Have
structures been adapted over the years?
Are
there constructive discussions about whether and how the extant governance
structures support the efficacious deployment of resources?
Do
governance principles exist for all levels — firm, owners, family, and wealth?
How
are they coordinated and aligned?
Are
they adapted to the existing goals?
How
effective are they at mitigating potential conflicts?