Complexity, Culture, and Human Resources of the Family Business

Have you ever worked for a small- to medium-sized organization? Perhaps one that is family owned? The first thoughts you had are probably a reflection of your experience with how well (or how inadequately) the organization was managed.

Family businesses have the potential to be complex. Consequently, they are often stereotyped as being plagued with organizational culture issues (i.e. family drama and/or nepotism). However, family businesses are also known for achieving transgenerational goals and fulfilling long-term family aspirations. Creating an open and supportive culture and effectively managing human resources may be the keys that determine whether the business succeeds and survives.

Complexity

Family businesses are complicated systems. Employees may or may not be members of the biological and proprietary family. Hiring non-family employees (outsiders) is often a necessity as the family business grows and its capacity to meet business goals cannot be met by the inner circle of the direct family members. Across many family businesses, outside workers are welcomed into the inner circle. This conversion, while informal, is often well intended but has the potential to yield negative outcomes when the lines are blurred between familial behaviors and those that are legally governed in the employment relationship. Family norms and emotionally charged decision-making may not be appropriate for the workplace. If not appropriately managed, family norms and related dynamics have the potential to impact the workplace and increase the complexity of human resource issues. What may be acceptable among family members may not be among non-family members and this increases the probability of grievances and litigation.

Culture Is Key

“Culture eats strategy for breakfast,” a phrase famously coined by Peter Drucker, is a powerful and foreshadowing statement of the importance of culture in achieving organizational goals. Family businesses, whether new or a product of generational labor, must strive to cultivate a culture that is supportive to both family and non-family. Family businesses often exhibit cultures that are value driven, stable, and yield long-term focus. Yet to ensure success, they must be transparent and inclusive of others. Securing commitment and cooperation of non-family employees can present challenges when those outside employees perceive decision-making practices to be unfair or biased (Mitchell et al., 2003). Lack of transparency and distrust in those outside the inner circle can lead to increased turnover, dissatisfaction, and a disruption of organizational achievement. Conversely, acceptance of outside members into executive managerial positions fosters diverse, creative, and innovative strategic thinking.

Human Resources

At the end of the day, family businesses are still businesses, so they are governed by the same laws and regulatory environment as other organizations. Clinton (2016) noted the relationship of “family” and “business” as a system that naturally yields complex and interrelated issues which underscore the need for effective human resource management. The human resource function is often performed by, or designated by, a family member, such as the proprietor, during the early entrepreneurial stages of an organization’s tenure. As the organization grows, demand for time and resources often requires smaller organizations to hire dedicated human resources personnel. If the latter becomes a reality it is important to keep front line managers involved in key human resources processes to ensure continuity within the system and confirm that all participating members are clear on the expected boundaries, acceptable practices, and legal requirements of operating a business. Given the complexity and culture of the family dynamic, optimizing human resource practices in these organizations often realizes greater outcomes; these practices are crucial for success.

References

Clinton, E. (2016). Human resources in the family business-maximising the power of your people. Irish Journal Of Management, 35(2), 176-178. doi:10.1515/ijm-2016-0014

Mitchell, R, K, Morse, E, A,, & Sharma, P, 2003, The transacting cognitions of non-family employees in the family business setting. Journal of Business Venturing, 18: 5 3 3- 51.

Rahma, G. (2014). Family-run business: Understanding before influencing. Human Capital, 62-63.

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